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

Expecting a recession on the horizon. 
Recent cooling in markets reflective of over heating after the US debt ceiling deal.
US Federal Reserve "hawkish" comments also cooling markets.
Expecting further interest rate hikes. 
Equally balanced S&P 500 index starting to catch up to cap weighted S&P 500 index (good for economy).

Housing Shortages: In spite of high interest rates, the housing shortage still remains a structural issue. Although new supply continues to make headlines and overall housing shortage still remains, interest rates continue to rise with the gap between rent-to-own rates making it harder for our residents to become homeowners. We continue to experience strong rental rate growth in all of our U.S. sunbelt markets. For Q1, our blended lease trade-out for our portfolio including Jackson Park -- excluding Jackson Park, was 6.4%. Despite the reports of elevated supply, we believe our well-located and high-quality product will buoy our future occupancy and continue to support our rental growth.
Unlock Premium - Try 5i Free

Like everyone, he's a bit fixated on when the Fed will stop raising. Not quite there yet, maybe 1 or 2 more. They're going to talk tough until they're not going to raise anymore. The talking tough is part of diminishing expectations. Volatility is going to continue until we get to a more stable central bank rate. Could be this summer, this fall, or longer. 

Overall, he's noticing that it's very hard to contain spending because people aren't spending just wage money. This is the boomer generation, the first generation that's going to retire with relatively decent pensions. These people have a lot in savings -- some of it in housing, some in the form of a pension, some in the form of managed investments. Their spending isn't going to drop when they retire. Many can keep spending at the same level for 20-30 years. This is a generation that's going to live longer and keep on spending. People at the lower income end, however, are more reliant on CPP and OAS and GIS. 

In previous times, you could jack up interest rates, throw a lot of people out of work, and consumption would immediately come off. Intergenerational wealth makes it much harder this time around.

Won't cut dividends, but some may delay dividend increases until we get through this rough patch. The hard thing to predict in Canada is how bad the housing mortgage situation may get. 

There's a view that higher interest rates will automatically crush homeowners. However, about 33% of Canadian homes don't have a mortgage, and another 1/3 have a fairly low ratio mortgage. So only 1/3 of mortgages are somewhat at risk. Many millennial homeowners also have boomer parents who are able to help out.

Until inflation is down at 2%, the feds are just going to keep saying inflation is too high and they need to continue to raise interest rates. Clearly the data is showing cooling inflation in the US. Canada had a slight uptick, though some recent numbers show industrial production and pricing coming down.

You raise interest rates, you cool the economy, and eventually inflation will come down. The question is do you do too much and cause a recession? In the meantime, there's no evidence whatsoever of a recession in the US or Canada. GDP for Q2 looks as though it's tracking close to 2%. 

If there's a recession, we won't know it until sometime in 2024 or later.

You have to go sector by sector. Look at weakening FDX results last night. There's slowing in shipping and anywhere with inventory of physical goods. One of his favourite companies, CNR, is showing signs of slowing volume growth in 2023; hopefully, things will pick up in 2024.

Prior to 2022, tech was the best place to be for 13 years. The NASDAQ was up every year but one for 13 years, and the down year was only slightly negative. Everyone wants to be in the right place in the stock market each and every day, and to make money each and every day. That's unreasonable. If that's what you want, stick with GICs.

But it is reasonable to diversify your portfolio, own companies that are going to do well in lots of different environments, don't overweight, and don't fixate or bank on flash-in-the-pan success stories.

She remains bullish. The S&P is up 14% roughly this year, but the top 7 market-cap stocks are up 90%, while the rest of the market is up 5.3%. The market can go up, but the rest of the market had to move up too, and that has been happening. Today, the market feels tired, but there is more room to run.

Opportunities During Transition: Some of the most prominent business transitions currently underway include brick-and-mortar retail to e-commerce, software licensing to software subscriptions (SaaS), programmatic TV to streaming and cash to electronic as a payment method, etc. As long-term investors, these are the opportune times to establish or add to positions that not only persist through the downturn but also come out much stronger when the economy recovers. Therefore, we think the current drawdown could offer opportunities for attractive entry points into these names. 
Unlock Premium - Try 5i Free

Data is all over the place, positive and negative, confusing. Nobody really knows if we will have a recession or where interest rates will go. We need market breadth, lowering rates and better earnings to enter a bull market. That breadth has been improving lately, though the rest of the market needs to catch up to only seven mega stocks leading the S&P. No stock is a screaming deal right now. Interest rates will decline in the future, but until then there will be pain for some (i.e. mortgage holders).

The sticking point for the Fed as it fights inflation is the ever-rising price of housing. Homebuilders don't want to build a lot of homes and get stuck with them if buyers can't afford higher mortgage rates. However, today, data showed that the number of new homebuilds actually rose 1.6 million vs. the expected 1.3 million. If this rate keeps going, this could dent inflation. More housing and high unemployment could lead to the Fed to halt rates and avoid a nasty recession.

He's conservative, and the safe approach is to invest it into an S&P index fund. Boring, but it's diversified.

9 of 11 Fed officials are at speaking events this week. The Fed is openly divided about the direction of interest rate hikes. Evenly the Fed doesn't know it's next moves, because opinions are all over the map. He doesn't like this. For example Chicago's Fed is dovish who wants to pause and see how the economy goes vs. Cleveland's who is incredibly hawkish and wants to keep rising, even this month. Powell speak to the Senate Banking Committee on Thursday. Be cautious in your investing. Take profits, because the market has run up so much this year.

Methods to Screen For Growth: Growth without a commensurate (or minimal) amount of additional capital investment is the hallmark of investing. Therefore, these names are usually the safest to own but hardest to find as the list of names is usually short and they are often trading at a premium multiple.

Below are a few screens for growth to help investors:

• Capital expenditures (Capex) as a percentage of revenue that is less than 5%
• Revenue compounded annual growth rate (CAGR) in the last seven years of at least 8%
• Market cap larger than $100 million
• Net debt/ EBITDA of the trailing twelve-month that is less than 2.0x

Unlock Premium - Try 5i Free