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

The volatility index is telling us right now that the market is definitely not pricing in fear. Spikes highlight previous cycle lows. Pandemic was a black swan event. The last spike was in 2022.

Very positive that the VIX is heading lower. It's telling us that there are fewer surprises on the horizon. Market hates uncertainty. It's in line with his longer-term work. There's upside out into 2025. He expects the VIX to trend lower over the course of next year, which is really positive for equity markets.

For commodity stocks, you always want to look at the underlying commodity, as that will be a big driver. Energy is a late-cycle play and will be in the penalty box, similar to 2019-20. Crude will be locked in a trading range of $60-85 until late 2024 or early 2025.

Energy stocks will be relative under-performers for the next 1.5-2 years. So if the TSX is up 10%, energy stocks might be up 8%. You really want to be long energy when the cycle is long in the tooth and everything is running on all cylinders. 

Has been under pressure, as the Fed is nearing the end of rate hiking. His view is that the US dollar will be in a sideways trading range, same as rates and same as crude, for the next 1.5-2 years. With that headwind lifting, it will be positive for commodities.

Investing Lessons: Make mistakes when you are young with less money to lose.

If you are going to make a mistake, in almost all cases it is probably better to make them young. With investing, you have more time to bounce back from a mistake but perhaps more importantly, the dollar value with which a mistake is being made is going to be far lower. A mistake at a young age is going to be far less impactful than at a later age and be assured, mistakes will be made whether you are active or passively investing.

As a 20-something that retires 40 years later (hopefully), you are probably not going to look back at that initial $10,000 you (maybe) lost in the market and view that as the big difference maker in your retirement. However, if that experience turned out well and led to added financial security, you will probably view it as one of the most important financial decisions you ever made.

The bottom line is that when you are younger, you are able to take "riskier" investments. As you approach middle-age, caution should warranted when picking stocks.
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It's been a bull market since last fall when inflation peaked. The indices hit new highs today, so what could derail this rally? Inflation, if it flares up again. Stocks, like tech megacaps, keep rising based on valuation expansion--investor perception--rather the preferred higher earnings. Hot housing numbers, for example, could slay this rally. Also, the Fed raising interest rates too high and a frothy market could end the rally. Other threats: If China invades Taiwan, though it probably won't happen because it could trigger WWIII; a Ukraine war stalemate (he hopes the next coup attempt against Putin succeeds); a flood of IPPs; a recession though he doesn't see signs of that yet with these strong earnings; the end of short covering; another bank run like last March; disappointing earnings. Bottom line: there's still enough cash sitting on the sideline to extend this bull market.

Fears of a recession are subsiding. The economy has been stronger than he and many expected, but he remains concerned about the effects of higher interest rates on consumers and businesses. US bank earnings now show that defaults have not creeped up, but he's watching this. Caution remains warranted. We are in an indebted economy that will eventually cause problems. Inflation is down (new numbers today), but everyday there are labour negotiations and higher wages will fuel inflation. Without lower rates, the economy will struggle. That's TDB for stock markets. Canadian stocks, such as energy, are yielding 6%. That's what he cares about.

Believes effects of interest rate hikes yet to be felt in the financial markets.
Expecting tough times ahead for investors.
Implications of multi-decade low interest rates will take years to be felt.
Consumers & governments will face larger expenditures once fixed term loans renew. 
Bracing for less than stellar results in the stock market the next 3-4 years.

Waiting for market response in the next earning season.
If massive selloff, will be a bad sign for markets going forward.
Expecting tech sector to contain some surprises. 
China will be very interesting to watch.
Upcoming re-balancing of NASDAQ will hit Microsoft & NVIDIA harder than other companies.

Treasury bill/money market funds will not have as much price volatility.
If interest rates go down, value of bonds will rise.
Yield also directly correlated to interest rates.

Technical indicators pointing towards a cautious strategy in the markets.
Expecting a correction in the markets.
An ~11% fall in the markets not out of the question.
Given recent interest rate hikes - economic hard landing almost guaranteed.
Wait to invest once the markets have corrected.
Sentiment amongst investors pointing towards negative outlook.

The Market is Not the Economy.

One of the common refrains we are hearing is that the economy is/will be in such poor condition, how can markets be doing so well? Corollary to this is that, ‘markets have clearly run too high and are set to crash when reality sets in’. A lot of this also hinges on the idea that the market is ‘dumb’ and the critic is ‘smart’. Time and again though, we have learned that it is dangerous ground to attack markets with the presumption that the entire market is wrong and you are right. The moral of the story is to do your own research when deciding which stocks to invest in. Don't just rely on sound bite news that is often wrong. 

Expecting 1-2 more interest rate hikes in the USA.
Strong US economy will force US Federal Reserve to raise interest rates.
Room in US economy for higher cost of borrowing.
Relative weakness in China causing commodity prices to soften.
Recession fears also weighing negatively on metals and resources.
Equity investors in resource sector being negatively affected by inflation (higher operating & capital costs).

What is Direct Indexing?

With news of numerous brokerages going to $0 trading commissions, the trend toward direct indexing just got a lot more compelling for investors. Direct indexing essentially lets an investor buy the underlying securities within an index (say the TSX 60 or the S&P 500) automatically at their broker without owning them through some sort of fund or ETF. When you had to pay $5 to $20 per trade, this was not a particularly feasible approach. But now, with free trading commissions in the US, this strategy just got a lot more interesting and could actually give ETFs a run for their money. 

Likes Canadian banks as a group, well capitalized. Likes them better than Canadian lifecos, so she'd stay with the banks. Banks give attractive yields, and she doesn't think we're going into a deep recession in Canada or the US.