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

S&P 500 is up over 8% this year, but it's a weighted average of roughly 500 companies. A better representation is the median return of those companies, which is 0%. 

Different story in Canada. TSX is posting a pretty healthy YTD return of about 5%, but it's more broadly based, as the median stock within that composite index is also up about 5%.

He's about 60% invested in Canada and 40% in the US. Seeing opportunities on both sides of the border, but more so in Canada.

Debt ceiling issue will be resolved. He agrees.

Also, multiple rate cuts by the US Fed later this year, and a soft landing for big US corporations. These two are incongruous with each other. Hard to believe with inflation still above target, that interest rates will be aggressively cut this year, unless there's a significant downgrade in the macro backdrop. And if so, it's difficult to maintain that this goes on while corporations are growing their profits, which is what the consensus is baking in right now. Complacency in the market.

The great debate is whether the US Fed is on pause. Inflation numbers are coming down, but still way above the Fed's range of 2%. In light of what's going on in the banking industry, the Fed indicated it was willing to pause (but not cut) given that financial conditions have tightened. But the market consensus is that the Fed will start cutting in the back half of the year.

Interest rate cuts are accommodative, good for economic growth. But the employment market remains quite strong. Consumer spending is slowing, but remains quite resilient. Usually the Fed starts to cut when it sees economic deterioration, and she doesn't know if we're at that point yet. That's the big question mark.

General feeling that rates are stabilizing right now. Housing market has been in a recession the past year. The market's readjusted to higher rates. Sellers are coming back into the market and things are starting to improve.

Leading indicators have contracted for the last 6 months, and when those turn negative it means the economy is contracting, and usually that means a recession. But it can take many months. All the money that consumers got during Covid changes things this cycle, as they can draw on savings to offset inflation this time around. Before, consumer households would really be hurt with inflation spiking up to 8-9%.

Certain parts of the market have been in a recession, such as real estate and manufacturing. We've been in a rolling recession. Office real estate sector is not doing well, especially in the US.

CDR is hedged, and you can buy fractions of shares. Geared for a smaller investment portfolio. The bid/ask spread might be wider, and the stock might not be as liquid. Her preference is to buy equities directly on the NASDAQ.

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Believes active management of stocks is better strategy than passive investing.
Low P/E ratio a good indicator of stocks that will perform well in the future.
Investors should position themselves in under-valued areas in order to get performance in portfolio.
Expecting investors to return to energy as financial returns are proven.

Believes Walmart best proxy for average consumer & economy.
Large retails (Walmart) will most likely start to pass on inflation to consumers.
Higher prices will impact average consumers and put pressure on economy. 
Is expecting inflation to be sticky (not going away).
Bottom 1/3rd of economy (living paycheck to paycheck) will be impacted by inflation the most.
 

Believes US Treasury will run out of money soon (will have to raise debt ceiling).
Risk of US government defaulting is zero (is reserve currency for global economy). 
Does not think US should have a debt ceiling.
Noise factor very strong - US debt ceiling not relevant to average investor. 

Tips for Navigating Uncertain Markets: Maintain your Strategic Asset Allocation, stay focused on your goals. During times of volatility like this, it is important to stick to your asset allocation rather than making emotional decisions. Your asset allocation should be designed keeping in mind your constraints, liquidity, time horizon, and financial goals, with an aim to achieve the desired level of return with the appropriate risk level and factors, one is comfortable with. There is some room for a tactical tilt, and other than that, it is best to revise asset allocation only when there is a change in constraint, belief, or circumstances. The market tends to over-react both ways. When numbers and times are good, every investor is an enthusiastic bull and seeks growth and innovation. When volatility hits, investors turn to panic-selling with seldom any thought to their allocations. Changing your allocation based on market sentiment and/or current performance can hurt more than benefit. Reacting to a down market is an easy way to derail the progress made towards reaching a financial goal.
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He is focusing on researching individual companies rather than markets since they are fairly unpredictable in the near term. The S&P is lifted by 7 stocks such as Apple , Nividia, etc. which are not in the growth mode. Retail investors have been coming back in force and gravitating to these big names pushing up their prices. The S&P is above its historical average and the U.S. market could under-perform. Mid caps and small caps are trading at more attractive levels.

The forestry sector stocks are going through a cyclical downturn. However West Fraser's price has held up. Canfor is a different picture and has pulp exposure. Interfor is a pure play and although he has sold his holding, he still follows it. Also Interfor has a lot more insider buying than the other two.
Editor's Note: The question was on forestry stocks.

Editors' Note: The Question was on the rail industry. CN and CP have done very well. They are efficient and have delivered strong earnings growth. They are now trading above their historical levels in terms of P/E multiples so it might be best to wait before buying. U.S. rails are 25% cheaper.

Believes investors are correctly pricing in chance of recession into markets.
Positive sentiment increases likelihood of another US Fed rate hike.
Markets will get shock if rates hike.
Regional bank crisis helping cool the economy - unsure whether more banks will fail.
Moving holdings to large banks like JP Morgan to protect risk of further bank failures.