A Comment -- General Comments From an Expert (A Commentary)

Recently, he felt that the S&P had to hold 4,200 or else it would fall below that, then suddenly it rose above that and keeps going. His standards are at least 3-6 days of support up to 3 weeks. So, now it seems to be finding supporting. He holds 27% cash, but won't invest it; first, he'll see how the S&P does for the next few days this week to see if this support holds. If it falls below 4,200, the next level of support is 3,800.

Seasonally, oil is soft between October and January.  Long-term, oil is good to own, but unsure about the short term. He has divested, but would return at $80/barrel.

Recent downtrend on dividend paying stocks has come as a surprise. Believes current valuation of tech stocks is way too high. Would advise against locking into ~5% GIC returns as rates could go higher. Buying small amounts of dividend stocks on downtrend. Soft landing narrative still exists - expecting pain in the markets later this year. ~8% dividend yield on stocks like TCE a very attractive opportunity. Canadian population growth will benefit companies like BCE & Telus.

Dividend Investing Book Recommendations: The Single Best Investment - Lowell Miller. The Fourth Turning - Neil Howe and William Strauss. Broken Money - Lyn Alden.

Market Summary:

US job growth surged in September, while unemployment rate was unchanged of 3.8%, suggesting a strong labor market for the Federal Reserve to raise interest rates this year. While, Canada added 63,800 jobs in September, and employment rate stood at 5.5%, the figures beat consensus estimate for a modest gain of 20,000 positions and jobless rate of 5.6%. The Canadian dollar was 73.21 cents USD. The U.S. S&P 500 ended the week slightly up 0.5%, while the TSX was down 1.5%.

Another week of greens and reds mixed. Energy and healthcare gave up 4.9% and 3.6%, respectively. In addition, financials slid by 1.9%. Materials edged down 1.2%, while consumer discretionary dropped 1.1%. Consumer staples added 1.4%. Information technology gained 1.0%, and industrials ended the week slightly up 0.1%.
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Today's hot jobs numbers pressured the market at first, but then the street realized that wages are not keeping pace with inflation. Add to this the falling price of oil, which will reduce inflation. Altogether, the street felt that we may get a soft landing after all and maybe the Fed won't raise rates again. So, stocks soared.

The market ran up into Q2, was soft in the summer, with some fairly significant give back in September. If you trimmed winners, you're sitting on cash. That was the right thing to do.

We're starting to see a real plethora of opportunities whether it's income, growth, value, or geography. 

Within the sector, he'd favour the insurers because they definitely benefit from rising rates. Be wary of the banks, even though we haven't seen a lot of carnage in terms of loans and bankruptcies. Banks will benefit from rising interest rates. We have world-class banks in Canada, and he owns RY and  TD.

Because of the structural differences in Canadian and US banks, in this environment he'd actually favour banks that have balance sheet risk. Once interest rates go up, you get slowing transactional volume, and that's not good for US banks. Equally so, when you get a recession, and the floor's in, US banks offer significant upside relative to Canadian banks.

There are other parts of the world you can look at as well.

He spoke to a large European multinational this week about the state of the global economy. The response was that Europe's in recession and not coming out anytime soon. US chemicals are in a recession, and possibly energy. Wait to see if the US is going to go through a recession. China is the closest to coming out.

If China comes back online meaningfully, base metals will move. Copper is giving you an indication that the economy's going to be weak.

Thinking about the global economy, you have to figure out where the opportunities lie and where you want to stay away from. If you're thinking about a 3-5 year investment the way he is, you want to buy names when they're weak in anticipation of big cyclical moves. For example, last year BHP moved from $48 to $70 in the space of 5 weeks, and that's the kind of move you can get in commodities.

Buy cheaply, trim them at the top, add at the bottom.

For example, take a company that's historically traded at a 4% dividend yield, and it's trading at 8%. Longer term, unless there's something fundamentally, structurally amiss, dividends have to go back to 4%. And so that's an opportunity. A dividend compression from 8% to 4% would drive 100% capital gain.

Definitely something investors should be paying a lot of attention to right now.

If you're having trouble selling your shares, you should look at the nature of the shares you own. Typically when a company's stock falls significantly, it enters a halt period when you can't sell the shares. When a share price is falling dramatically, it's probably time to sell. If you can't sell shares directly, you might try selling via the options market. 

You might need to investigate further as to why your order won't go through. In the case of LAC earlier this week, trading was temporarily halted while the company restructured and its share structure was adjusted.

From the sub-5% era, everyone's now facing significant interest rate increases in terms of cost of capital. The surety of locking up your capital for longer periods of time is going to diminish the impact of higher interest rate spikes. Any government bonds are guaranteed, so that's fine if that's what you want to do.

But locking up your money for a long time is going to limit your ability to participate in any of the inflation trades. A portion of your portfolio makes sense. Be aware of putting your money into money markets, because if the recession happens and interest rates fall, we're going to see bond returns lower and that will impact you as well.

Need a mix of income and growth. Income from the likes of telecoms, utilities, and pipelines lets him re-invest in high-growth names. It provides balance and stability on the downside.

This has been a very difficult selloff. You could have predicted seasonality with a typical September and October. But why this erosion and why so fast? Earlier this week, the TSX gapped down 250 points and everything was falling everywhere. 

More than anything, he thinks it's the speed that bond yields have moved up. For the good part of last year, people were buying the recession narrative, and the front end of the curve was higher than anything else. But then when people started to give up on the recession and started to see higher growth, yields started to push higher on the 10- and 30-year, which is actually somewhat more positive. This has caused a lot of marginal buyers to say why should I buy a 7-8% dividend stock, when I can get almost 6% on a GIC?