A Comment -- General Comments From an Expert (A Commentary)
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Upside and downside to investing in Canadian dollar hedged ETFs. Foreign exposure ETFs typically have a cost to hedging. With interest rate so low, you actually get paid to hedge against the Euro versus the Canadian dollar. That is because interest rates are lower in Europe than Canada. With regards to the US, it's virtually the same so there is no variance.
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Educational Segment. There is an asymmetric risk going into the US election. When looking at the prediction and polls, it still favours a blue wave. However, looking at it on the state level, we probably have more market difficulty post election. We will probably see something like Bush versus Al Gore but worse. Today, the price is more priced for perfection. Looking at the electoral colleges, it's too close to call. If we get grid lock, we will see more battles over things like stimulus that is not priced in.
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Billy Kawasaki’s Insights - Billy’s most-liked answers from 5i Research. The election might cause extra volatility and tax selling in January for some tech names. The world is not yet normal so holding more cash than normal could be okay depending on your comfort level. Unlock Premium - Try 5i Free
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Trader Larry Williams' theory True, Biden is leading in the U.S. election polls, but Williams posits that as long as the Dow holds up above the August lows, the market favours Trump. This is based on the 2020 late-summer rally and continued strength (considering some volatility) to the present. This pattern matches historical charts when the incumbent winning. The year after the incumbent wins, markets rally. If a new president wins, then they are rockier.
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Billy Kawasaki’s Insights - Billy’s most-liked answers from 5i Research. Interest in renewable power stems from rapid growth and a belief that traditional carbon energy sources are finished. There is some speculation so one must be careful of valuation. Unlock Premium - Try 5i Free
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Third day of losses for S&P 500? Tough market right now if you're focused on the short term. October is volatile from the get go. Short-term bounce in the US dollar has brought a deflationary tilt to the current market, with its negative correlation to equities and commodities. Overall, sit back and try to look beyond the next few weeks, and you'll be rewarded by maintaining a solid weight in equities.
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How are you positioning in this environment? Traditional retail is definitely an area he doesn't want to focus on. Companies with a broader online channel, like Nike, will hold up very well. Broadly, he's not shying away from tech that's focused on the consumer or collaborative communication. You want a bit of a balance of growth and value.
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CAD vs. US dollar. Caught a lot of people off guard that the CAD has rallied as much as it has. The USD has been on an elevator down until recently. A lot will depend whether there's a continued rally in the USD, which will continue to depress the CAD. Sectors in Canada are struggling, so it's hard to be super bullish on the CAD. He's been buying US positions which will be a tailwind to portfolios in the years ahead.
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What are you paying the most attention to in the markets? The earnings season just starting, especially the US banks. Government stimulus has obviously helped. All eyes are on the upcoming US election. Heightened volatility in the case of a contested outcome, as in 2000 when the market pulled back. Finally, governments have extended stimulus packages, though troubling that the US has not.
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Interest rates might not rise for years. You're right. The US Fed says until at least 2023, and this provides a backstop to the markets. Lots of liquidity out there. Companies have accessed credit and capital. But all this excess has increased investor appetite, high stock valuations, narrowing credit spreads. Investors are seeking yield and are willing to pay up.
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