Market Commentary — Page 80

Market Commentary

COMMENT

Recent TSX outperformance. Canada tends to be more value-oriented, when you look at financials, energy, and materials. S&P 500 tends to be more growth-oriented. Looking at returns for the end of last year, the TSX outperformed the US indices by a fair amount, and that's why.

COMMENT

Market volatility. Central bankers don't have the credibility that they once did. That's why the markets bounce around the way they do. On one day, the different Fed officials can talk about different rate hike numbers, singing different tunes. So it's hard for the market to figure out which direction they're going. In the last few days, seems like the focus has turned to "bad news is bad news" and to the economy slowing down at perhaps a quicker pace than people expected.

COMMENT

Rare 2:1 advance/decline ratio last week providing support. Looking at the advance/decline volume over a 10-day period, from late December until last week, there was a 2:1 advance to decline ratio. Probably only 8 instances in the last 50 years. Historically, you can't say it's positive for every single period, but the aggregate numbers are very positive. It shows a lot of buying power that we haven't seen for a while.

COMMENT

Favourite Canadian bank? Doesn't own any banks in his growth portfolios. In his income portfolios, owns BNS and BMO.

COMMENT

Markets. US retail sales number came in down 1.1%. Suggests consumers are starting to feel the pressure of higher inflation, perhaps dipping into savings to fund purchases. US consumer has been resilient the last couple of years, and the consumer accounts for 2/3 of GDP growth.

COMMENT

Outlook for 2023. Hard to say. Last year, all the global indices posted negative returns, with the TSX doing better than most, going down just under 6% because of the energy component. In prior years when there was negative GDP growth, the stock market was actually down in the year prior to the recession, and then up in the year of the negative growth. So the markets are forward looking. The fact that markets were down last year, especially in the US and in tech stocks, reflects concern of higher interest rates. When the economy turns negative for two consecutive quarters, and everyone is anticipating some sort of recession this year, the Fed pauses and starts cutting, so this is actually positive for the markets. It's going to be very bumpy until we get better profit clarity for companies, as that's what's going to drive what happens for the balance of the year. Last year was multiple contraction. October lows will really be tested if companies see demand softening and lower earnings guidance, and so we would have negative earnings growth.

COMMENT

PE multiple, Canada vs. US. From last year to right now, US earnings have been revised down only about 2%, not very much. But the PE multiple went from over 22x to 15-16x, which is what led to the decline in markets, and centred on the really high multiple stocks. In Canada, earnings got revised up because of energy, and so the PE in Canada is much more attractive because of the makeup of the domestic indices.

COMMENT

US bank recommendation. She holds JPM. Largest bank, fortress balance sheet, CEO well respected. Earnings better than expected. Consumer and commercial loan growth. Their base case is a mild recession, so they built reserves. Return on tangible equity is 18%. 11.5x PE, attractive dividend.

COMMENT

Gold. Not a big investor in the sector. Doesn't own any gold stocks right now. Gold price has been strengthening, probably because the USD is weakening, an inverse relationship. Still below all-time high. Should do well with inflation, but it didn't. Inflation has peaked and will probably turn down this year. Hard to forecast the commodity price, which drives the stock. If you were desperate for exposure, she'd go with a larger producer in a safe region with multiple projects, such as AEM.

COMMENT

Trevor Rose’s Insights - Trevor’s most-liked answers from 5i Research. Investing Psychology Mistake: Representativeness Bias. The representativeness bias is a misconception that future patterns will resemble past ones. An investor may identify an investment as being good or bad based on its most recent price performance. This is why increases and decreases in share prices can often become overextended. If the price of a stock continues to climb higher, then investors may feel that this pattern will persist into the future, and this drives the price up further. Vice versa when stock prices decrease, as investors may feel that they will only continue to fall further. This cognitive bias helps us to explain our general belief that the sign of a top in price is when investors feel that the stock can only go up and the price decreasing is not a possibility, and the sign of a bottom is when investors feel that the price can only decrease further, and no mentions of a rebound are in sight. These types of behaviours occurred at the bottom of the stock market in 2008 and 2020, as investors sought lower prices and were using the most recent performance as an indicator for the future. Unlock Premium - Try 5i Free

COMMENT

Technical analysis from Jessica Inskip who called the mid-December 2022 sell-off There's a floor of support that was established last October. The last two earnings seasons sparked rallies, because earnings were not as weak as the street predicted due to a resilient consumer. However, such rallies halted when the street worried about the Fed (rate hikes). However, those last two times, the S&P bottomed right before earnings season started. This time--now--the S&P is up, not at bottom, right before earnings season. So, an upside breakout is possible if there's a catalyst. But to have a rally, tech needs to come back (the worst-performing sector must lead a rally)--and there's room for tech to lead us higher. The S&P has now found equilibrium between a ceiling and the October floor. The S&P is well above its 50-day moving average, an encouraging site.

COMMENT

He just came from the CES tech showcase and was amazed by many innovations, like extending battery life on next-generation EV's.

COMMENT

There's hyper volatility and sticky inflation. A perfect storm. It takes time for interest rates to bite. News today says that demand is starting to slow. We need to wait for a dip before we get a rally. Funds are flowing in for RRSPs and TFSAs, which is why there is a rally in Q1. US stocks are expensive, given its strong dollar. The US has deeper recessions than elsewhere because of its thin social safety net, so he wouldn't add many US stocks now.

COMMENT

Trevor Rose’s Insights - Trevor’s most-liked answers from 5i Research. Mental Hurdle When Investing. Anchoring Bias: The anchoring bias is when an investor uses their information from a previous experience with a stock as a reference point for any future data. An example of this is if an investor had the opportunity to buy Stock A at $100 one year ago but did not act upon it and currently the stock price is $300. That investor, now seeing that the price has tripled, may only wish to buy Stock A close to a price of $100, as that is when they first could have bought it. The investor might feel that a share price of $300 is too expensive and that the stock price should come down to $100, however, the investors’ previous experiences are irrelevant to the share price as the company has likely continued to grow and generate revenue and become a more profitable and valuable company. Unlock Premium - Try 5i Free

COMMENT

Expecting another 50 basis point interest rate hike before US Fed pauses on increases. Believes US Fed interest rate hikes have already been priced into the markets. Falling inflation numbers will provide reason for US Fed to slow rate hikes. Thinks valuations on some tech stocks still too high, and need to fall before buying.

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

Recent TSX outperformance.(A Commentary)

Market volatility.(A Commentary)

Rare 2:1 advance/decline ratio last week providing support.(A Commentary)

Favourite Canadian bank?(A Commentary)

Markets. (A Commentary)

Outlook for 2023.(A Commentary)

PE multiple, Canada vs. US.(A Commentary)

US bank recommendation.(A Commentary)

Gold.(A Commentary)

Trevor Rose’s Insights - Trevor’s most-liked answers from 5i Research.(A Commentary)

Technical analysis from Jessica Inskip who called the mid-December 2022 sell-off(A Commentary)

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

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

Trevor Rose’s Insights - Trevor’s most-liked answers from 5i Research.(A Commentary)

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

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