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

The really great compounders are always the difficult ones to sell. In theory, avoid selling it as long as you can, because the longer you own it, the longer it can compound for you. He uses tax implications as a guide. It's simpler to rebalance if there's no tax impact.

The rally partially depends on the TONE of hawkishness and dovishness today from the Fed. The market is building up to a point where other areas of the broader market catch up to the gains of the megacaps. Tech, discretionary and communications services are up 35% YTD, but not the wider market. Tech's rally can continue, but not as this extreme rate, but slower.

The street expects a hawkish pause by the Fed today, driven by lowering inflation data yesterday and today. The market is already pricing in a hawkish pause, so the Fed won't upset the current rally. Also, it's positive that the rally is broadening away from only 10% of stocks and into areas like small caps.

If you're sitting in a money market fund after today's announcement, you have a problem, because how do you enter the stock market and not fall behind?

Can tech's rally continue? Within 90 days, based on history, the market will be flat or negative probably. Six months from now tech will remain the market leader.a

Evaluating Growth. As investors, we need to evaluate the quality of a company’s growth which ranges from:

1. High-quality (capex as a percentage of revenue usually less than 5%): which needs minimal capital to achieve high growth in industries such as software, med-tech, strong brand name consumer products, etc.

2. Acceptable quality (capex as a percentage of revenue usually from 5% - 15%): which requires capital, but offers an appropriate return usually in industrial, retail, railroad, freight, etc.

3. Or the worst of all growth destroys value as the company requires significant capex without good enough returns, most often found in industries such as energy, airlines, telecom, etc.
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Inflation is the big driver today (US inflation came in as expected at 4%, but lower than before and on the right track). The markets expects the Fed will stay on pause and see what happens. Recently, the Bank of Canada slightly surprised the street by raising rates in reaction to an increase in Canadian inflation. With rates flattening, income investors can buy corporate bonds and even GICs at 4.5% to 5%. Not a lot, but still a decent rate of return and safe.

Although S&P 500 entered "bull market" last week, believes market will expand in terms of performance.
Expecting other sectors of the economy to perform better going forward.
Certain tech stocks still offer value for long term investors. 
China re-opening good for the economy and commodities specifically. 

Markets expecting that inflation will fall.
Believes market is ahead of itself, and inflation will not fall quickly.
US Fed expecting unemployment to be to be around 4%, and inflation around 2.6% (unlikely).
Thinks markets are over-optimistic, & recent market performance not sustainable. 

US Fed leaks today indicating fasted & most aggressive rate hike in history.
Research indicating that a recession is looming. 
Bullish sentiment at highest since 2021.
Markets are overly optimistic given underlying fundamentals.

Not all growth is created equally: Revenue growth consists of two primary engines including price increases, and volume increases. As for volume growth, companies usually require a certain amount of capital investment to support it. For example, in order to sell more units, a retailer may need to open another store to increase shelf space and traffic. This investment consumes capital either in the form of debt or equity (issuing shares or retained earnings). However, for a software company, it requires minimal capital expenditure (almost none) to support one more user. As a result, growth for these companies is highly scalable and valuable, as it costs next to nothing to achieve it.
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The S&P hit its highest level since April 2022, but pundits complain that the rally lacks breadth and is led by tech. He replies: do your homework. Boeing, GE, Otis, Emerson, Lennard, Cintas, Molson Coores, Carnival and Paccar are hitting 52-week highs and they aren't tech.

The S&P is 20% off the October lows. Technically, we're in a bull market, but neither the fundamentals nor the bond market support that. He doesn't believe this is a true bull market. Industrials have true earnings strength, but if tech flags, he's unsure that other sectors will carry the load.

Tech, comm services, and discretionary are in a bull market, but not the rest of the market. The gains have been narrow overall. Eventually, this will broaden and the laggards will catch up. Earnings have held in and we're in the 9th inning with the Fed.

The Russell 2000 broke out last week, so the market is seeing the breadth of this bull market. That said, the S&P needs to close above 3,300, and it hasn't yet.