[londoncalling]

I thought Powell all but confirmed an increase next week. Going back now would definitely come as a surprise. At teh very least they will need to release a plan on ending QE or lose all creditability. I would hope that they at least put an end to QE as we can't keep digging this hole deeper. At a certain point nobody will be able to get out. Alternatively, they could wait until we experience stagflation and a recession and then go to negative rates.

 

[londoncalling]

Anybody putting together a list for when the bear comes out of hibernation? Many interest rate sensitive stocks have already moved in anticipation of higher inflation and higher interest. I think if we do get a bear there will be a lot of options and a lot of time to move. I will likely run out of dry powder before the deals expire. I made some good buys in 2020 but the drop was steep and recovery was rather quick. Everyone sees this correction coming which could mean it doesn't happen as expected.

 

[londoncalling]

US CPI data on Wednesday should be interesting. If results are worse than expectations the selling will continue. If inflation comes down there may be some belief that rate hikes will be less aggressive. One has to be mindful that rates are still way above target and likely will be for awhile. I may nibble a bit tomorrow. I want to pick up APPL, MSFT and AMZN. Of the three only AMZN is trading where it was in in the spring of 2020. Not sure if it will break $2000. The other 2 haven't even found their 52 week low yet.

 

[londoncalling]

What is WBI and what does it mean when it's 210?

I was wondering the same thing. My google search came up with the following:

Women's Basketball Invitational
Workplace Bullying Institute
Well Being Index

 

[londoncalling]

I don't trade but I speculate there is an opportunity to trade this sort of data. These days, reports such as this lag the market so much that they are way too slow for retail investors with no attention span. I'll bet this data is 45 days old, by the time it is published. Further, I think inflation is probably worse than will be indicated in the CPI data.

I don't trade but I do like to try and time my purchases once I have decided to buy. It really makes little difference for a long term hold compared to other factors such as time in the market, allocation etc. If I am content to buy company between $48-$52 on Monday it doesn't matter if I guess wrong buy it at $51 Tuesday and it goes to $48 Wednesday. Sometimes I miss out (ATD) and that's ok. There will be other opportunities. It is more important what it will be 1, 5, and 10 years from now. I don't think anybody would know with any accuracy.

My guess is the market will either go up, down or sideways as a result of Wednesday's CPI report or whatever reason the media attributes to the market movements that day. However, the guessing part keeps me interested. I think if I had gone the passive route I would be more likely to bail during market crashes. Most others would say the opposite. I guess I am weird that way.

 

[londoncalling]

I think we will see a decrease in spending in both volume and dollar amounts. Many people have just begun to notice the increase in the cost of goods but haven't significantly changed their spending habits. They are also beginning to realize their wages will not keep up with inflation which create further hesitation in spending, in particular on expensive or unnecessary items. Most people I know are delaying vehicle purchases already not just due to lack of availability but due to price change. If the employment rate stays elevated and inflation lowers, people will become accustomed to the higher prices. I expect a couple bad quarters for retail but it is too early to tell if the US consumer is in terrible shape or is just realizing cheap money is gone.

 

[londoncalling]

This data does not include the pandemic crash but here are some stats on market performance and recessions. The data is from the US not sure if Canada tracks similar.

The Relationship Between Bear Markets and Recession (dqydj.com)

"In the post-WW2 era, roughly 2/3 of bear markets are associated with a recession."
"Four times since WW2, the S&P 500 was in a bear market without a corresponding recession. The worst of those bears was in 1987, where the S&P 500 declined 35.94% peak to trough. That bear was also quite a long one - we went 700 calendar days between new all time highs in the S&P 500. "

 

[londoncalling]

I think that the US market will underperform Canada over the next couple of years. The US had a good run the past while but with the decline in growth stocks and move to commodities it's Canada's turn. The Canadian banks seem to keep an even footing in good economies and bad. Barring a total collapse in RE they should be just fine even with the interest rate hikes taking some air out of rising house prices. If you look YTD the Canadian market is barely underwater in comparison to the US's 13% and 22% declines. Even if this is the bottom a pullback is healthy once and awhile to keep investors in check.

 

[londoncalling]

I don't disagree @james4beach I think there is a good chance that last week was a bit of a breather before more downside in the US. Most bears take longer than a couple of months. The pandemic V-drop was quick and steep but that is unusual. The circumstances are completely different to 2020. There are similarities to the tech wreck of the 2000s as well as (gasp) the stagflation of the 70s. I am hoping that we don't see such a long bear but I am prepared for it. I'd much prefer that inflation supply chain issues subside and inflation cools. That will be sufficient reason for money to come back into the market. There is still a lot of headwinds. If we think food costs are high now wait till fall if fuel prices stay high, there is crop failures, and the war overseas continues. You are correct that most are still happily spending and excited to go out and have fun. I know of several people that are excitedly waiting for the arrival date of their shiny new vehicles.

 

[londoncalling]

Using the low earning now strong earnings definition provided by @james4beach does not mean all tech companies are high risk nor items Buffett would touch. Last time I checked Apple was considered tech and owned by Buffet.

Here is a recent list of the TSX Composite Index with their market cap which makes up 70% of the Canadian market. As "high risk" is subjective it will vary by investor.

Market Cap TSX Composite Index Companies Canada 2022: FKnol.com

Perhaps 20% is still a reasonable estimate. I am not sure the value in knowing the actual number. For me I don't purchase highly speculative names with zero history. Perhaps, if a definition could be made and a number assigned one could use it to determine how frothy the market is relative to other timeframes.

 

[londoncalling]

I still have most of my fixed income sitting in redeemable GICs. I also am looking for ways to prevent myself from raising current order prices as we wait for the fed announcement in regard for outlook for the fall and inflation data. My guess for now is 50 bps and 50 bps and wait and see for Sept. With this much consensus over raises, market downturn and recession, it's almost a guarantee markets will bounce back up the expected bottom is announced.

 

[londoncalling]

Looks like we are heading into a a typical bear market unlike 2008 or 2020. As markets trend down there will be days and weeks of lower highs and lower lows.

 

[londoncalling]

@james4beach To answer your question on fed intervention my gut says they will swoop in but shouldn't. In a lot of ways the fed behaves like a helicopter parent. I think they will try to intervene at some point but until inflation heads downwards they will keep raising rates. Very few people were well established investors the last time we had such high inflation and a rapid rate rising environment. During the Volcker years many current investors, bankers and policy makers were just getting started in their careers. As such a lot of the moves are based on theory and not experience. I feel they want to take a hawkish tone and it is needed. Unfortunately, it comes with the likelihood of recession. If the Fed default to what is familiar they will halt QT and rate increases. If they raise too fast a soft landing is unavoidable. Unfortunately interest rate adjustments do not have much influence over supply chain disruption demand and therefore have little effect on inflation. They can't control the price of oil, china lockdowns or end the war in Ukraine. IMO presently these are the greatest concerns for the economy.

I expect 50bps with the more hikes on the way. Powell will send the message that 75 is on the table for fall if needed. Should make for an interesting week. Be curious to hear from those that were around in the 80s to share their experience. I hear lots about paying down the mortgage with double digit rates on homes that were under water but what about from an investment standpoint? Were people buying stocks? bonds?

 

[londoncalling]

I think we'll see 3% or higher before year end. If 3% rates cause fear to borrowers they are in big trouble if we see truly high rates.

 

[londoncalling]

At some point the debt needs to be repaid or the loss absorbed. This is reminiscent of 2008 when better faring countries like Germany had to bail out the likes of Greece and Italy. The question that remains is who is going to take the hit? The EU will need to have a united front as a political union. So far they seem to be working together or at least keeping the infighting out of the public eye. It's too early to tell what the plan will entail.

 

[londoncalling]

Edited your post slightly to present an alternative outcome.

Good point. Sure, I am curious: what are other credit indicators can one look at?

One I'm aware of is high yield spreads versus treasuries. Any other good ones?

This may become especially important as QT accelerates through this year, especially after September when if the Fed really drains liquidity out of the system.

I always viewed the VIX as primarily a sentiment indicator however, it does make sense that it would also act as a credit indicator as overall credit strength takes a lot of fear out of the market. An increase to 30 year amortization and yield spreads are ones that I look at now again as I find them easy to obtain and understand. Perhaps it is just more familiar.

@Covariance is correct in that confirmation of these indicator is not a guarantee of recession. A lot of folks are saying it's here or on it's way. Even if we have a recession it may be quick and relatively painless. Things don't usually go up continuously forever. Like Matt said no need to change the plan. As such my cash weighting is still within allocation but growing.

 

[londoncalling]

Early Gen Xers definitely felt the brunt of the tech wreck especially for those that got decimated by job loss, new home purchase and losing money in tech stocks. For later Gen Xers the job and equity markets had mostly recovered. As a result they got to enter the workforce and start their retirement savings in a flat but calmer environment.

 

[londoncalling]

Daily market moves are interesting to watch if one has the time and inclination. Longer term a 1 day price change usually has little impact. Longer term trends and performance are what matter. We also have to be reminded that today's prices reflect the expectation of future results.

I missed an opportunity to put in an order for CNQ this morning. Another opportunity may come along and if it doesn't that's ok too. I find it strange that one talking head said the drop in oil today is a result of Biden's announcement of putting a hold on the gas tax. Not sure how a tax holiday would hurt corporate profits. I could see how an increase in tax would hurt these companies.

Hmmm... lower gas price = more consumption = more revenue. What am I missing?

 

[londoncalling]

Interesting thought. What shifts do you expect to see occur? Would it also mean that some stocks would also be sold off as part of the rebalance?

 

[londoncalling]

Thanks for the reply. with so many etfs out there today it was hard to determine what you meant. Definitely for the large vanilla balanced funds we may see money go into stocks. I don't follow bond markets but I thought they took a hit recently as well. As to all equity etfs I am not sure if there is much for the market to gain from a rebalance. I also thought that the rebalancing had a more varied schedule. Interesting. As you can tell I know almost nothing about etfs. The only one I hold is VEQT in an RESP.