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

The S&P oscillator this morning indicated that the market was oversold--don't sell. Interest rates rose today to pressure stocks. Credit card delinquencies are higher too. As long as people have jobs, inflation will remain high. We need to see layoffs for interest rates to come down. We don't like that, but we need it.

Last Friday, there was a sell signal in his system, on the S&P. Volatility is rising. He is more cautious heading into October. He's buying GICs for clients, feeling bearish in stock. He's making money on fixed income for the first time in 13 years. He's bullish the USD, because there's a big shortage of USD globally. The US will probably go into deflation as the rest of the world inflates. They'll have to print more money since commodities are priced in USD; those world economies need USD to run and pay debt.  The USD has risen over 5% in the past 1.5 months vs. CAD. And the Chinese Yuan continues to weaken. Are many warning signs. Be cautious.

The direction of the CAD

Maybe the CAD is a trade with oil prices high, but he feels the USD will continue to strengthen. He's very bearish CAD--more inflation is coming and much higher interest rates. Nothing backs the CAD (i.e. gold), and we're tied so much to the USD. If the US deflates, Canada will inflate. CAD could easily fall to 68 cents.

oil companies

The best time to buy these companies was March 2020. We're at the end of the oil rally. These companies don't reveal how much it costs to produce a barrel of oil, but costs are surely rising. He's rather buy oil itself.

Dividend Income:

Dividend income is one of the most attractive rewards of being an investor. Because, unlike capital gains which could be subject to market volatility, the dividend received is “real money” at the end of the day, which could be either spent or reinvested.

Over the long term, companies that pay stable, consistent and growing dividends year after year even during economic downturns are attractive candidates for long-term investment. This consistency demonstrates not only the resiliency in the business model, or what investors usually refer to as competitive advantage, but also signalling that the company is well-run by a shareholder-friendly management team. As a result, these companies are usually rewarded by the market with a premium multiple compared to industry peers and the market averages.

Buying and holding companies that could grow dividends over a long period of time is a brilliant way to build generational wealth, which is the hallmark of investing. Therefore, we think investors should pay more attention to dividend growth rather than the dividend yield.
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$100 oil is possible, because the Saudis have cut supply and China will wake up and demand more oil. Also, US demand in driving season was good. Don't chase crude oil at these levels beacuse there will  be volatility. Marathon is America's bigget oil refiner, and there's a lack of refineries, but still demand. He's bullish.

You can't pick a bottom, but we had a great first-half 2023 that will carry forward into Q4. He's bullish heading into Q4 and expects yields to decline and this could end Q3 positively.

To feel confident about investing Q4, then earnings have to beat estimates. How can RBC quantify that the market has already absorbed a government shutdown, if that happens Friday?

Agreeing with Joe Terranova, how can RBC quantify that the market has already absorbed a government shutdown, if that happens Friday? But the real concern is that last week for the first time in weeks, earnings estimates ticked lower. In July, earnings estimates rose, doing the opposite.

A small group of stocks in the U.S. and Canada have lifted the market so the breadth is very poor. Most companies are flat to down especially in the small to mid-cap sector so there is lots of value and opportunity out there. There's also value in short term corporate bonds along with the best risk/reward at 6 to 8% returns in many years. Corporate bonds have had a big sell-off and this is the best opportunity in many years.

The question was on REIT's. He stays away from the sector which is still potentially over-valued even though prices have come down. Look at vacancy rates, especially with office space REIT's, as well as debt. The only one he owns is Flagship Communities  (MCH.U) which is a micro-cap.

Markets are digesting this. All year, stocks have said no recession, soft landing, rates will be cut next year, while bonds have signalled recession. Stocks are right; we're seeing the un-inversion of the bond market.

What's next is earnings season, and expectations are higher over last year. There's a chance that earnings will fall short of expectations. He's been cautious in recent weeks and has been trimming exposure. He's amazed that some on Wall St. expect a soft landing and the the Fed will cut rates. They won't, and sees a recession coming, because inflation isn't under control: oil costs more, UPS and the UAW are on strike and the IRA hasn't deployed capital yet. Car leasing has soared 20-40%. Consumers will be making hard choices. The market will go lower, not higher.

How do you stay invested in this period of digestion where there's a lot of risk. There remains inflation pressure on consumers that will impact spending. Stick with companies that have healthy free cash float, moats, competitive advantage and most importantly, valuation. We're in the middle of a correction that is testing moving averages. What can earnings and valuations do? The Fed will be higher for longer.

Consumer staples have badly lagged this year, but are clearly a defensive play. Food and energy inflation have shrunk consumer discretionary spending. Not surprised to see household retailers trade. The challenge for staples in recent years is their lean margins, but she expects a shift given disinflation.