A Comment -- General Comments From an Expert (A Commentary)
COMMENT
Educational Segment. Some times seasonality works, and other times it doesn't work, but it provides a baseline. You always need a catalyst which is stimulus this year. We are seeing upgrades to economic growth from it. Q1 earnings will have upward guidance. Markets will like it. You don't have to worry about negative seasonality until the third quarter. On average, the next few months are good and markets should go higher. Average revenue is $175 for the S&P right now, and this should go up. We are seeing that the average stock is up 10% this year, whereas the S&P500 is only up 5%, and Nasdaq at 2%. If earnings are good, we have to pay for the stimulus, which will be a pressure on interest rates. We will start seeing this in July onwards. Feds are buying about a trillion dollars of debt. Large cap tech will see pressure because they are seen as over leveraged to low interest rates. Okay for the next few weeks.
COMMENT
Last year was Shopify and gold, but now energy infrastructure is a real bargain with high yields and safe dividends. Also, telecoms are cheap, defensive and offer growth. Renewable energy has plunged, so it's a great time to buy Boralex, Innergex and Algonquin which were getting ahead of themselves in January but have since corrected and good to hold long term. Agrowth is another solid, sustainable business that's overlooked now. Asset manages are now cheap like Fiera, and consumer staples like Loblaw are also worth buying now. There's a lot of good value in the market, but momentum chases only certain stocks to an even high point. In contrast, he's a long-term investor and sees many great opportunities.
COMMENT
Billy Kawasaki’s Insights - Billy’s most-liked answers from 5i Research. Higher rates would be beneficial for banks and insurance companies. It would mean higher returns on surplus money and higher margins. Growth companies would be hit due to the impact on cash flow and valuation can be impacted even though fundamentals may not change. Unlock Premium - Try 5i Free
COMMENT
Rising interest rates. Half of it is a good thing since it points to the economy going strong, and that's what we want. The bond market gets stressed since rising rates are a signal that inflation is coming to the markets and the Feds will put on the breaks. That is not the case here though. Not fussed by the 10-year moving higher. Continues to find great opportunities. Banks, base metals and value plays are still attractive.
COMMENT
Either tech or the banks/industrials are winning, not together. Like today, when the yield flattens, tech gains, and the cyclicals slide. When the yield rises, the opposite happens. It's been 7 weeks of rising yields and falling tech. Today's pause won't last, because stimulus will propel spending. Powell, though, says that persistently high unemployment among African-Americans and Hispanics are more dangerous than rising inflation--and he (Cramer) agrees. Powell feels that inflation won't last. The yield could rise for another week; he wouldn't be surprised. But one day, the rise will overshoot, and THAT is the time to buy tech.
COMMENT
Billy Kawasaki’s Insights - Billy’s most-liked answers from 5i Research. Higher rates has a negative impact on bond prices, so shorter duration bonds will help reduce the impact of higher rates. Adding bonds right now is a good way to diversify away from equities and for downside protection. Unlock Premium - Try 5i Free
COMMENT
Share multiples won't do well if bonds become much more attractive? That's right. Not sure what the breaking point is. The Fed was at pains to say that it wouldn't raise rates for the longest time, letting inflation run higher. Not sure the market's completely buying in to that. In 2018, the Fed raised rates more aggressively which resulted in a downturn in the fourth quarter. They don't want a repeat. Reality is, US growth could be 6-7%. The long duration equities that have ruled the game have been predicated on 0% interest rates, and that's probably not going to be the case. Cyclical and short duration assets, such as financials, industrials, and energy, should do better in a higher growth environment.
COMMENT
Bank stocks have caught up. They were huge laggards. They benefit on a number of fronts, including the steepening yield curve, over-providing on loan losses, and stimulus. Sitting on excess capital. When the doors open up again, look for share buybacks and dividend increases. They're in a sweet spot right now. He's overweight financials in Canada and the US.
COMMENT
Semiconductor sector. A fast-moving sector with high valuations. Go with the 5G players. QCOM, which he owns, goes to the top of the list on valuation and potential growth. AMD has done exceptionally well, though valuation is a bit extreme. Not a bad way to play is through the SMH ETF. Nvidia has had the highest growth, but valuation also extreme. He wouldn't chase INTC, even though it's cheap.
COMMENT
Holding bonds. The 40 year bull market in bonds is over. The only way yields can go from here is up. Have some weighting in bonds, and it provides some protection and income when equities come under pressure. He'd rather go with preferred shares, and they have better tax treatment. Corporate bonds will do a bit better than government. He'd have a hard time promoting jumping into a bond investment right now.
COMMENT
Gold. He's underweight gold. Problem for gold is the USD. Rising US dollar is a real headwind for gold. Gold has also suffered from interest in crypto currencies. You do want to be in the sector. KL is a candidate, also Torex, Alamos, and B2Gold. Exceptional valuations. The USD will come under pressure at some point, with all the monetizing of debt.
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