All right. Good morning, everyone. Welcome to the June edition of our market update webcast. Joining me is John Christofilos, AGF's Chief Trading Officer, and Mike Archibald, AGF Portfolio Manager. I'm David Pett, your moderator for today. Before we begin, I need to cover off a few administrative items related to our virtual event platform, as always. Today's presentation will last no longer than 60 minutes. Those joining us live can submit questions any time during the presentation by opening the Q&A icon found along the side of the presentation screen today. Questions will be addressed near the end of the webcast. Additional resources for this session can be accessed in your attendee hub at the top of the page under the Resources tab. Finally, please note, CE credits may be available for members of our Canadian audience. Okay, guys, we've got lots to talk about, but let's first start with getting some U.S. Federal Reserve predictions from both of you. The Fed will announce its latest rate decision later today at 2:00 P.M. While markets expect the Fed to pause, the bigger questions, in my mind at least, are how long the central bank will remain on hold, and then what direction do rates head once it decides to make its next move. John, maybe we'll start with you with just your prediction on what they might do today, and then we'll get into a little bit what they might say in their communiqué after the fact. John? Sure. Sure. Thanks, David, good morning, everybody. Look, I think the market has telegraphed quite well, and this Fed typically doesn't like to surprise the market. We're expecting a pause or a skip as many are calling it today, David. If it's anything other than that, the market's gonna go for a bit of a loop one way or the other. We're not expecting that 'cause Powell has never tried to surprise the market. If you listen to Greg Valliere enough, our chief Washington correspondent, you know, he talks a lot about, you know, many people in the press having a look at what's gonna happen. We've already seen that. The market's positioned for a skip. The press is talking about a skip, so my expectation is it will be a skip. More importantly than that, it's really the 2:30 P.M. press conference that matters. It's what he says and how he says it that will matter to the markets more than this anticipated skip at this point in time. Keep a close eye on 2:30 P.M. and later, 'cause that'll be the true test of where the market thinks things will eventually end. My personal opinion is, and this is my own opinion, I think we're done with raises. I think the Fed will pause and continue to pause. If you're looking for the next move, it will be a cut of some sort. It may not be until 2024, but, from what I see and hear and talk to people about from a trading perspective, again, and it's coming from many of the trading desks around the world, I think we're either done or really, really close to being done. That would be my expectation. Skip today or pause, and then the next move would be a cut at some point later this year or early into 2024. That's not consensus, by the way. That's a John view, but that's the way I see things at this point. Let's get the Mike view now. Mike, what's your thought on, again, what they'll probably do today, and then, just a thought about, you know, is this a temporary pause or is it more, longer lasting, and then what ends up happening after the pause? Sure. Thanks, David, for having me, and welcome everybody to the call today. It's good to be here. I tend to agree with most of what John said there. Certainly markets are pricing a pause today. The Fed usually doesn't surprise the largest central bank, despite some of the other large central banks, including the Bank of Canada, having surprised recently. You know, there's been an enormous amount of tightening that's occurred here. You know, the easy, heavy lifting, I think, on getting inflation from kinda 9% down to something, you know, more reasonable where we are now has kinda been done. I think you're gonna see rates stay at a relatively elevated level for the foreseeable future. You know, consumers and businesses are gonna have to continue to adjust to the likelihood of rates being higher. You know, one more hike, I think, or no more hikes. I mean, at the end of the day, I think John and I are, you know, largely singing from the same song sheet here. We're at the very tail end of the hiking cycle. That ought to be good for, you know, for the economy, for the consumer, and hopefully for the stock market moving forward. Okay, great. Maybe we can just dive in a little bit about, you know, what it might communicate beyond the actual details. Obviously focus on inflation, the unemployment rate, we're gonna hear a little bit about that and this idea of recession, potentially. Did the inflation print earlier this week, will that influence kind of what they end up doing? Maybe not for this announcement today, but in July and going forward. Mike, maybe I'll start with you. Sure. Yeah. The communication is always where you get the volatility in the marketplace. I think you've hit the nail on the head, David. They're gonna talk about a few things. The inflation numbers that we got the last couple of days have been very constructive for the pause and to John's thinking, possibly no more hikes. CPI yesterday and PPI this morning were both beats to the downside, which is quite good. You know, I think he's gonna continue to talk about this potential for a soft landing, and we'll talk a little bit about the economy as we go through the call today. You know, consumer still is looking very, very healthy. Businesses have been able to adjust to higher rates and pass through some of those costs onto the consumer, who still seems to be, you know, fairly flush with cash. I think there's, you know, obviously a lot of parsing of every single word that he says in the statement and in the press conference. I would just highlight to those that are watching today, the reaction function of the stock market has tended to be negative over the last five or six press conferences that Powell's been out there. Five of the last six, the stock market rallies after he starts talking, and then tends to follow the path a little bit lower as you get through the final press conference. You know, he's gonna stick to, in my opinion, a bit of a hawkish tone here. He doesn't wanna let the stock market kinda run away here. You know, they've done a good job of getting the first part of inflation under control. I think there's still some work to be done there. I think he pauses today, and he's gonna probably talk, you know, just about how resilient the economy is and the possibility for further hikes. I think that's a smart move. You get another four to five weeks here to look at the data and see if it confirms what we've seen in the last couple of weeks. Hey, Mike, before I get to you, John. Sorry, can I just ask you, Mike, about that market reaction? Why do you think that is that there's this that it has reacted the way it has in past the past few? Sure. I mean, listen, Powell hasn't always been, you know, I guess, super transparent with a lot of his communication. Sometimes you come out, and you read the statement and it appears to be, you know, dovish, and then he comes out and he, you know, maybe starts dovish and then starts talking hawkish. The clarity of the message hasn't always been perfectly in sync with, I think what market participants are thinking. To be perfectly fair, some of this is obviously related to positioning data as well, which John and I talk about quite often. You know, the market has done well, you know, in the last little while here, and so you tend to have people coming in and, you know, putting on aggressive positions into the Fed thinking that they might say they're finally done raising rates. Then he comes out and starts talking a little bit more hawkishly, and obviously some of those people are caught on the wrong side, and so things have to unwind. You know, lots of minutiae in everything that we're analyzing here, but I do think, you know, like I said, the trend for the last little while has been to sell it off after he finishes speaking or starts speaking. Yeah. David, just to touch on Mike hit it right on the head. Just keep this in mind, right? When there's any sort of ambiguity or lack of clarity in Powell, there's enough, what we call machines in the market or, you know, algorithmic trading that goes on that really has no idea what he's saying. It's going to overreact one way or the other. Typically, they overreact to the downside because there's not enough clarity in his commentary. It's probably a little bit to do with that as well. If he was clearer, I think the market would be able to absorb it. he's unclear, and he's flip-flopping a little bit, machines tend to default to the downside, and you get a bit of selling. We'll watch for that again today. Then on the question on inflation, look, we've had 11 consecutive months of lower CPI, okay? We were up at that 9.1%. We're now down to, you know, 4-ish%, call it. Kevin has talked about it, and we all have on this call over the month, several months, that the absolute value means less than the direction that we're moving in. Continue to see, you know, just how, you know, how is the market gonna continue to handle higher rates. You know, there's still 1 more hike priced in here for July. Still not sure if that's what's gonna happen here. You know, I think what's gonna, what's gonna end up happening here is you're gonna see a pause today. We'll see how the market digests that. We've had a nice run here over the last several weeks. I'd also suggest that, you know, on a go-forward basis, there's probably a pretty good likelihood. Which is the right direction to be going in. People all are focused on this 2% number, right? We gotta get to 2% CPI. The Fed will talk about it today. They will stick to their 2%. People I talk to, it's just a number, right? Keep this in mind. Prior to this inflation bump, we were sub 2 forever, and nobody seemed to really worry about sub 2 'cause we were sub 2. Now that if we get to 3.5% or 4% or even 3%, from my perspective, that's not a bad number to be at, and markets perform historically quite well when we have 3%, 3.5% or even 4% inflation as long as it's tame and it's not moving around a lot. Let's focus on 2% and focus on the direction, and the direction today is the right way. It's going the right way. 11 consecutive months of lower CPI. The next sort of Yeah. -element to these communications. Yep. It seems to me that maybe the best thing for investors to do with that is just kind of ignore that. Yeah. That's where it's just. You know, it'll be over in the next day, and you can kinda move on. Right. Does that make sense? Yeah, it does. It's called whipsaw. If you try to fight the tape or fight the machine, the machine's gonna win, right? You'll get whipsawed back and forth. We tend to wanna take that noise and eliminate it, let the market settle back. It's no different, Dave, than people always ask me, "You know, when should I trade, and when shouldn't I trade?" Well, there's three great times where you wanna try to stay away from, right? 9:30 A.M - 9:45 A.M in the morning because there's lots of noise and agita in the market and hasn't settled in, right? 12:00 P.M - 1:00 P.M because it's lunchtime, and traders go have lunch, and spreads widen out. Then 3:55 P.M - 4:00 P.M Where there's lots of cleanup noise. Mm-hmm. No different here. This will be noise in the market. You wanna try to stay away from the noise. What he said and how he said it, we'll make determinations on the portfolio side of things. Trying to fight the tape or fight the machines, it's a losing battle for sure. Mike, you talked a little bit earlier about this idea of a soft landing or no landing or hard landing. Curious to know how you guys both think about this idea of a potential recession at this stage. We've been talking about it seems like for months on months, and it still isn't kinda here. What's your thought on that, Mike? Maybe go to you, John, after that. Yeah. I think John and I have been in the same camp on this for a while, and I'll tell you why I've been in this camp. You know, Recession's clearly on the mind of everyone. You know, media's talking a lot about it. You know, obviously there's been a slowdown in economic data, it seems, you know, a logical thing to talk about. You know, the strength of the consumer I think is really the key here. I put a very low probability on there being a recession in 2023. As you said, pretty much every month people keep saying it's coming next month, it's coming next quarter, and they've been saying that for 9 months, and we're still in a pretty good environment here. I think what you gotta remember is two things. Number one, we had a huge amount of excess savings built up for the consumer throughout COVID. That is continuing to sustain economic growth in both Canada and the U.S., and I think it's gonna continue to do so, you know, going forward. Just as we saw with stimulus in 2020 and 2021, it takes a long time for that to show up in inflation. It took 18 to 20 months for it to come out and start to see a big uptick in the inflationary numbers. Similarly, on the tightening side, we're, you know, call it 12 - 15 months in, depending on which central bank you're talking about in terms of raising interest rates, and that's still gonna take some time to feed itself through to the economy. As far as I can see, there's no real high probability in my opinion of recession in 2023. You know, the stock market I think is a good indicator, right? It looks out, you know, three months, it can do a pretty good job of predicting kinda where the economy is. At the moment, you know, the stock market's still making 52-week highs in the U.S. I take that as a good sign. I'll give you one more thing that I'm paying attention to, and I call it the Two Is and the Two Es, okay? If you look at inflation and interest rates, John talked about inflation, it's gone down 11 months in a row. It's moving in the right direction. We kind of already talked about interest rates. Whether we're at the peak or we're one hike away or whatever the case may be, we're pretty close to the end of that. Those are both very good things for the market over time. The multiple that you're willing to pay for earnings should go up in that environment. The Two Es are a little bit more difficult, but that's earnings and employment. You know, the employment data continues to be extremely strong. We aren't seeing any real letup in the U.S. at the moment. Claims have gone up modestly, but not a lot. The environment still is quite conducive to the consumer being in a healthy position. Lastly is earnings and, you know, this is the big wild card here. The earnings curve has come down quite a bit in both Canada and the U.S. with the expectation that the economy was gonna soften earlier this year. Obviously, that hasn't happened. You haven't seen the collapse in earnings. Earnings look like they're kinda bottoming here. If that's the case and they start to turn up and you get a rebound in 2024, which is what the market's predicting, that is also a very good tailwind for stocks. I'm not suggesting that there can't be a recession at some point in time next year, but from the lens where I sit and all the things that are working in the market right now, I just don't see it happening in 2023. I'd love to- John-. I'd love to disagree with Mike 'cause it makes for better television. I tend to agree with him. I mean, I don't see anything on the horizon that's gonna get us into a recession in 2023, unless there's a... That's, God forbid, there's any sort of, you know, disaster somewhere around the world or a black swan event, which you can never predict. I don't see anything on the horizon that shows us that we're getting into we're gonna have back-to-back negative GDP quarters in the second half of the year. That doesn't mean it it's not gonna happen in 2024, but I will come back to the fact that recessions do occur, right? They have historically. They're, they're not, they're not black swan events. They do happen from time to time. If not happening in 2023, may happen in 2024. If it does, then we'll have to manage our portfolios accordingly. It's not something that we haven't seen before, and we'll be able to react quite well in that environment. Whether it's a hard landing or a soft landing, I'm keeping an eye on one thing and one thing only. Mike, you talked about a bunch of stuff, but the employment numbers, right? As long as people are employed, they will continue to spend money. That's just human nature. That's what we do. We like to buy things. As long as you have a job, you'll be able to earn some money. And right now the numbers are good. They're not great, but they're good, and people are employed, and there's still jobs available for those who wanna go out and try to find a job. If that deteriorates, then we may have an issue, but at this point in time, we don't see that happening anytime soon. Keep an eye on employment. It's very, very much a big key into whether we go into a recession or not. The level of employment will be whether we go into a hard landing or a soft landing. Yeah. I think, just to add on to that, John, a few things that you wanna pay attention to are just what is happening in the stock market, right? What's working and what's not working. As you're approaching a recession, you tend to see very defensive parts of the market start to outperform. Think things like- For sure. ...... Consumer Staples or utilities or telecom stocks. Quite candidly, that's just not happening right now. Those sectors are massively underperforming the broader marketplace. It doesn't jibe in my mind with this, you know, pending problem that the economy's gonna start to roll over. We watch these things obviously on a day-to-day basis and, you know, right now the indicators that we pay attention to just aren't suggesting that recession's on the near-term horizon. Great stuff, guys. Mike, just so everybody's clear, you're obviously, your focus is Canadian equities. John had alluded to the idea that it's very unlikely that the Fed is going to surprise markets later today. That's exactly what the Bank of Canada did last week when it raised rates by 25 basis points. Mike, I'm just curious, you know, given your background and your, and your expertise, you know, what was behind the BoC's decision in particular for you? You know, what impact is it having on Canada's equity market so far? Yeah, good question, David. You know, the Bank of Canada tends to have this reputation as being a bit of a maverick and will kind of go off script on occasion, you know, with respect to monetary policy. You know, clearly it was a surprise the day before that the Reserve Bank of Australia surprise to the upside as well. I think to be perfectly honest with you, two real main drivers of this. We've seen a fairly significant uptick in housing activity in Canada, and I think that got the bank a little bit concerned. You know, obviously they've done a good job of same thing in the U.S., is getting inflation a little bit better under control here of late. We've seen an uptick in housing, and we've seen a little bit of an uptick in some of the consumer spending data. I think they were a bit concerned that that might be putting a dent in kind of the inflation cooling story that they've sort of been able to achieve here. I think the market had priced in that they were gonna pause and then hike in the summer, and they clearly surprised to the upside. Now they've gotten a little bit more hawkish, I think, and I think there's another hike being priced in here for the summer. The market reaction to that, I think, was a bit of a surprise. The Canadian dollar rallied fairly sharply. It subsequently sort of rolled back over, I guess, afterwards as I think the market was expecting that, you know, maybe they're gonna go one more time. We are, like John said, with respect to U.S. policy, getting pretty close to the end of the hiking cycle. With respect to, you know, sort of the market reaction, you know, certainly the Fed movements drive market movements significantly more than does the Bank of Canada. I would say there's a bit of a continuation in the Canadian market on some of the trends that we've kind of been witnessing all year. You know, tighter policies leading to a bit of pressure on the Canadian banks. Obviously there's some worries about the economic slowdown and what that's gonna mean for the consumer lending books. Are there gonna be write-offs from loans that have been made? The banks, as everyone will know, have been under, you know, a reasonable amount of pressure this year. Also, you've seen a little pressure on some of the Consumer Discretionary names. Obviously, there's some concern about, you know, how strong is the consumer gonna be able to withstand these rates, and for how long are they gonna be able to do that? I don't think it's a huge, I don't think it's a huge issue sort of at the moment, but, you know, continues to be something that we continue to monitor fairly significantly. As I said, you know, policy is very tight right now, and so it's gonna take a bit of time for that to filter through into the economy. Hey, David, just can I touch on one thing Michael said that I think is important. Again, this is more a Toronto, Montreal, Vancouver type comment, but to Mike's point, real estate has picked up quite significantly over the last couple of months here in Canada, especially in those main cities. We're now seeing multiple bids. We're seeing over asking sales and the like. It's probably the reason, to Mike's point, why the Bank of Canada did what they did, and I don't see that going away anytime soon. If we get some stable rates here for the next little while, the demand for homes in those three centers especially is robust. We're gonna see real estate continue to do well in those main cities. I can't talk about the rest of the country 'cause some of the smaller cities and the like may not have the same sort of demand mechanisms. In Toronto, Montreal, Vancouver, Calgary even, we're starting to see a bit of a pickup. It's probably spooked the Bank of Canada a little bit to jumping 25 basis points last month. That's probably what we wanna keep a close eye on, that that doesn't get too hot or Bank of Canada may do something yet again. Okay, great. We've got to go through one more segment here with you guys. You know, obviously central bank policy continues to hold tremendous sway with investors right now. There's another market dynamic that I wanted to talk about that's at play these days. And that's the fact that market leadership has narrowed significantly with just a handful of stocks being responsible for the large majority of returns that have been realized year-to-date, at least on U.S. equity indices like the S&P 500. I just wanted to get your sense as to why this is happening, and then maybe get into a little bit about what investors need to consider when we're in a market like this that's narrowed so much. John, maybe I can just start with you, just a little bit about, you know, the why to this. Investors are me too creatures, David. When you become a me too creature, you do what everybody else is doing. We've seen a lot of that in these 7-10 names that we're seeing in the U.S. and hearing about every single day. That's not healthy for the market. Let's be clear, right? We wanna see a broadening out, of participation. That won't happen until some of these me too creatures start to talk about, "Okay, you know what? I've made enough money in those names, now I'm gonna redistribute that capital somewhere else." We're starting to see a little bit of that, and that's why I'm a little bit more optimistic, and so is Michael, into year-end. We're starting to see some of that distribution now, especially in June, back into the small midcap names that we hadn't seen for many, many months, right? As those creatures start to look elsewhere, that will help the market participate more robustly and give us a better return profile than we've seen in the last little while. The other thing I will tell you is there's a lot of cash, David, still sitting on the sidelines that at some point will have FOMO, fear of missing out, right? Hasn't occurred yet. We're starting to see a little bit of a glimpse of that, but there's a heck of a lot of money sitting on the sideline, and I'm sure many of our viewers and listeners today have clients that are asking that same question: "When do I come back? When do I come back?" We will get a little bit of that into the second half of 2023. Those are the two things you wanna see. The big seven or big ten or elite seven or whatever you wanna call them, start to see some selling pressure. The redistribution of that capital back into the market, and we're starting to slowly see a little bit of that over the next little while. The second thing would be this FOMO effect, fear of missing out. Well, when people say, "Okay, I can't sit on the sideline anymore. I need to get this money back in motion." Those two things I'm watching for very, very carefully. Mike, just kinda beyond that sort of what John's talked about, you know, more of that, almost the psychology of what's going on here, is there something about the current market conditions that's making people want to buy those seven, 10 names? Is there something inherent in what they provide that gives investors some sort of comfort or? Absolutely. A couple things here. When the perception is that growth is slowing in the broader economy, you tend to move up cap and you buy large cap stocks, and you tend to buy companies that are still exhibiting some level of growth. The big seven, you know, just to make sure everyone knows who we're talking about, that's Apple, Microsoft, Amazon, NVIDIA, Google, Tesla, and Meta, which is the old Facebook. You know, those seven stocks all were under quite a bit of pressure last year. They did a great job to cut costs, and they've kinda returned to a better profitability, you know, outlook. When you're uncertain about what's gonna happen in the broader marketplace with respect to growth, you tend to gravitate towards these types of stocks. You know, just to make sure everybody understands what we mean by narrowness, you know, you got 11 sectors in the, in the broader marketplace. Generally, you'll have three or four or five of those sectors outperforming the market. You'll have three or four or five of those sectors underperforming the market, you know, and that's what we would call a relatively healthy tape. This year, you have, as we said, as John mentioned, you have seven stocks that are making up more than 95% of the overall S&P 500 returns, and that is extremely rare. Another way to look at this is kinda what we pay attention to, is what's also called an equally weighted index. You know, as opposed to a cap-weighted index, which is what the S&P 500 is, which is, you know, Apple's the biggest company in the world, so it has the biggest weight. The equally weighted index would look at every stock in the S&P 500 and give them the same weight. Apple would have the same weight as the smallest company in the S&P 500. Well, why would you wanna do that? It gives you an all returns of the marketplace are. When you take a look at the returns year to date using the cap-weighted index, which is up about 13%, to a couple of days ago, then you look at the equally weighted index, which is only up 3%, you have a 10% disparity in overall returns, and that is significant. That is telling you that there's a very narrow participation as John mentioned. The challenge with that is, you know, it's difficult for active managers to be really overweight all of the largest companies, okay? Those tend to be more mature businesses. You know, they have reasonably good growth, but you can generally find other companies that are, you know, starting to have a little bit better growth prospects that might be a little bit smaller. When those things aren't working and it's just confined to a very narrow group of stocks, it's a difficult environment to be operating in. You know, I think there's, like I said, everybody, ourselves included, are looking for a little bit more of a broadening of the market to give us a sense that things are a little bit more healthy. I think, as John alluded to, you know, in the last, let's call it two weeks or so, maybe as we flip the calendar into June, we have started to see that. That's very healthy. Some of the money should start to come out of, you know, the NVIDIAs and Metas and Teslas, which are all up more than 100% on a year-to-date basis. They'll start to move back into other things where I think you can see some better returns going forward. It's a fairly abnormal occurrence for it to happen as significantly as it has this year. You know, we continue to watch it quite carefully and as John said, you probably see some of those names soften up a little bit here and that money will rotate elsewhere. David, just two quick stats for our audience I think are really pertinent. NVIDIA now is a trillion-dollar market cap company. Great company, but a trillion-dollar market cap company, number one. Number two, Tesla, and I talked about this on our morning call this morning. In the last 12 days, they've been up 12 days in a row, they have added $293 billion of market cap in 12 trading days. That's the equivalent market cap of Merck, which is a huge U.S. drug company. That's not normal. At some point, respected portfolio managers and traders and investors will start to take money out of those names. They cannot continue that trajectory. It's just not possible for that to happen. That will be redistributed out. That'll be healthy for the market. We'll get better participation, and we'll get a better feel for what the market will do going forward than we have when only seven or eight or nine names are participating in that upside market. A lot of people think that it's a negative. I actually don't mind that concentration because ultimately that concentration will end. People will redistribute that money into other sectors and other stocks and propel the market higher, I think, over the next three to six, nine months even. I'm guessing that the heightened attention around AI is probably contributing to this a little bit in terms of some of the names. That doesn't necessarily need a comment, just a thought from me. I did wanna. You probably already answered this, but I did wanna just hone in on this idea of when you get this narrow, you know, what should invest out already that really tough to chase maybe at this point in time. Is there a little bit of a waiting game here or, you know, how do you, how do you approach something like this as an investor? Yeah, I think you know, the word patient is critical here, David. Just, I mean, like, two things that come to mind here. You know, if you're in these names, obviously you've done very well, you know, it's probably worthwhile taking a little bit of profit here on some of these names. If you're not, I think you wanna be, you know, depending on what your time horizon is, if you're a trader, that's a different story, but if you're investing for, you know, long-term returns, I think you wanna be patient and not chase here. I think the big message that, you know, a lot of folks are receiving this year is, you know, with a narrow market, you really see the benefits of a diversified portfolio and having exposure to all sectors. It's really Information Technology and Communication Services that are driving all the returns this year. You know, having exposure in a diversified portfolio to some of those stocks, I think, you know, would help. Maybe you're not up as much as the S&P 500, but you certainly have, you know, you do have exposure to them. You know, history generally says that the market will broaden out and that's, I think, what John and I are both expecting going forward. The other thing that history tells us, David, is what led us here is not going to lead us further. These names will be sold off a little bit. They will temper their enthusiasm, and there'll be another sector or a group of names that will lead us higher. From our perspective, as portfolio managers and asset managers, we're trying to find that next leg up, right? It won't be these names. History's told us that many, many times over, when you've got this sort of concentration that you wanna look elsewhere for opportunities, whether that's Europe, emerging markets, Canada, different sectors and the like. That's something that we're looking at almost on a daily basis, I'm sure from our portfolio managers. I would just one other comment I would just make on that. It is exceedingly difficult to time the peaks on these things, okay? Like, to John's point on Tesla, it's up 12 days in a row or whatever it happens to be. You know, it's very overbought. You could have taken some off the table a week ago, and you would have thought you were smart, and then it's gone up for another 5 or 6 days here. Impossible to time these things. A lot of these charts just look like rocket ships. They're straight up. You know, in my experience in the business, you know, there's gonna be some event that is gonna change the sentiment on this group. Who knows? Maybe it's this afternoon, maybe it's tomorrow, maybe it's not for another couple of weeks or months. You don't know. You just have to have an approach and a discipline to what you're doing. You know, again, as I said, when you have these kind of returns in a very short window of time with companies that are so large, to me, it makes sense to harvest a little bit of profit. Okay, great. Maybe just one last question from me, we'll get to the questions. It's about you guys are both obviously on the bullish side of things, hearing what you're talking about today. For those investors that are still sitting on the sidelines or maybe have a little extra cash, you know, given your viewpoint, how might they kinda think about getting some of that cash to work at this stage? Is there a, is there a method to it that you they might consider from your perspectives? Mike? Yeah. John, whoever wants to go first. I'll give you the simple answer and let Mike give you a more complete answer. I've always been a leg into a trade or leg into an investment, which means that if you have $100 to invest, you may wanna start by putting $25 in, watch the market react to your investment, and then make subsequent moves after that. Going all in or go all out is not a great approach from my perspective, but legging in and watching the market react is probably the best approach. I've done it personally in my own investments over the years. I feel more comfortable that way than trying to go all in or come out all out at any point in time. That's my own personal view on things. Yeah. A couple of things that come to mind here, David. You know, with inflation at 4%, it's obviously eating into your purchasing power. You know, to just hold cash and, you know, if it's just sitting in a bank account, you're probably not earning much, if anything, on it, you know. You want to continue to try to earn some level of return on that cash, whether that be, you know, fixed income or GICs or something else. I think, you know, we say this often to clients that we talk to, you know, you have to assess what your asset allocation is, you know, and what your time horizon is in making your investment decisions. Obviously, you should be doing that on a pretty regular basis, you know, every half a year or so. I would just say in terms of getting money back into the market, you know, I just wanna make sure everyone understands, I think, where John and I both sit on this. I'll speak for myself, and then you can chime in, John. You know, the market is very, very overbought here. If you're listening to this call, you know, my recommendation is not for you to go out and buy something today or tomorrow. We're gonna get a period of consolidation here. As I said, I don't know if that's gonna happen today or next week or when it's gonna be, but, you know, we've been raising a little bit of cash in some of our portfolios just to wait and look for better opportunities. Just to John's point, and I think, you know, the message that both of us have had, you know, over this call is that I think any pullback or consolidation that you get in the market is likely gonna be bought, and I would use that as an opportunity to start to put money to work. Obviously, you have to look at the framework of, you know, where your assets are allocated and, you know, do you need a little bit more Canada? Do you need a little bit more U.S.? Do you need more international? You know, all of those are decisions that you should be thinking about on a regular basis. Like I said, John's comment on sort of, I guess what he's really saying is dollar cost averaging. You know, buying into the market in sort of waves, you know, is an, you know, a pretty good thing to do and usually results in, you know, not getting whipsawed in the marketplace if you happen to pick the wrong day. Yeah. David, for those who have heard me speak, we were in a range-bound market for many, many, many months, right? From the October lows of last year through 4,200-ish. I said over and over, if we can break through 4,200 and stay above 4,200, there's little resistance all the way to 4,400, and then we'll have to pause and take a look. Well, we're at 4,387 this morning, so we're pretty dang close to that 44 level. To Michael's point that we may have to take a bit of a respite here, right? Just wait. Let's watch what the market does. There is some resistance at 4,400, like there was at 4,200. We tried, I believe, seven different times to break through 4,200 before we actually broke through. You know, technicals matter a lot in our business, and Mike and I both look at the technicals quite extensively. We are up against a resistance level at 4,400 now that will probably make us pause a little bit to see what the next move will be. If there is a bit of a pullback, that'll be bought. As Michael said, there's lots of money waiting for that pullback, like there was at 4,200. The problem with 4,200 was it broke through and it didn't look back. We're at 4,400 this morning on the S&P 500. Okay, great. Let's get to the questions from those that have, are tuned in today. Okay, here's one for you, John. What are the ultra-wealthy buying now? In other words, what am I not buying? When you were in Calgary in late January, you said they were buying Europe and emerging markets. Yes. That has not changed, David. The velocity of that buying is slowed a little bit, but that has not changed. Europe is still become investable market. It wasn't forever and a day, as we've talked about, and I mentioned in Calgary a few months ago, but it has become more investable now. Things are a little bit calmer there. That's for certain that emerging markets in Europe are still being bought. I will tell you something that they're not buying, and that's Bitcoin, right? People always ask me my opinions on Bitcoin and the like. It's not going away anytime soon. Right now it's in a bit of the doldrums and the like. Sorry. Europe and emerging markets are still being bought. Like I said several months ago, just the velocity may have come down a little bit from where it was earlier in the year. Okay. Here's one that maybe is asked because of Greg Valliere's note earlier today. For those who haven't read Greg's note today, maybe John, you can do a little bit of a summary of what he said and why this is now maybe a question that people might be asking. Yeah. It was the same sort of question that people were asking about the U.S. debt ceiling as well, David. I think there's a lot of politics, obviously. There's a lot of politics in the U.S. and a lot of politics coming out of Washington. I'm of the mind that we will not get a shutdown, and the reason we won't get a shutdown is, remember, we're leading into a 2024 U.S. election cycle. I don't think the Democrats or the Republicans wanna be the ones that shut down the government. Question, short and shallow, if we will have a recession. Your thoughts on that. If we do get a recession, you know, what's it going to look like? Mike? Yeah. I would agree with the comment on, certainly on shallow. It's difficult to forecast recession, David. As you know, in this business. I'm typically a glass half full type guy, so I don't believe we're gonna shut down. I think we'll go to the brink like we did with the U.S. debt ceiling discussion, and we'll have an assessment that says, "Hey, listen, we'll find a solution," in the like. Look, there's always politics. Again, that's noise in the market that we try to eliminate as much as we possibly can, and I don't believe we'll get a shutdown. I'll. Okay. Question about. stability for something that looks a little bit more like a hard landing. Again, I think John talked about this throughout the call today, but it really comes down to what does the unemployment rate do. If, you know, if there's, you know, a small amount of job losses in the economy, you know, then we can probably withstand, you know, a shallow pullback, you know, in broader GDP. If we get a really big uptick in unemployment, you know, either in Canada or the U.S. or both, you know, then kinda all bets are off. You continue to watch that very closely. You know, to my eye, just given all the information that I have at the moment, I would say, you know, whenever it comes, you know, sometime next year maybe or the following year, hard to know, it's probably likely to be fairly shallow. Okay. I'll open this to either/or, but thoughts on energy and energy stocks. I think just given, you know, the strength of the consumer, which we talked a little bit about on the call today, and just the ability for businesses to kind of pass through, you know, costs at the moment, I think those are both pretty constructive for kind of a softer landing. I think the risk to that scenario is if we're wrong and rates do. Yeah, I can take that. Energy stocks did quite well last year, as everyone will know. You know, part of that was obviously on the on the Russia-Ukraine situation. Energy price went up quite a bit. I think a lot of it was actually just on the expectations that inflation was gonna start to pick up and stay high. We know that energy has historically been a pretty good hedge to inflation, same thing with energy stocks. I still remain medium-term constructive on energy. I think, you know, this year on the macro side, if John and I are correct and the recession is, either, you know, into 2024 or late 2024, you know, a bunch of these other cyclical parts of the market, most notably energy and probably financials, should start to pick up a little bit. As we talked about, when you start to see that money flow out of some of the other. They're consolidating a lot of gains. Some of these stocks were up, you know, 300%, 400%, 500%, depending on what you're looking at in the Canadian space. you know, so it's not uncommon for that to kinda consolidate. you know, I think that's what's really happening here. I think if you have some patience here, I don't know if it's gonna be, you know, the back half of this year into early 2024. you know, I think the energy tape can do- With regard to GICs, treasuries, or other fixed income with yields at multi-decade highs. The second part of the question is why take the risk associated with equities when risk-free yields are now more attractive? I don't know who wants to talk about that, but it's. I'll take that, the sector remains extremely cheap. The balance sheets have improved quite a bit, and there's a lot of free cash flow for all those companies. Probably gonna have to be a little bit patient in the sector, but I think as we move towards the end of this year and into next year, I think it'll be a good place to be. Okay. We've got time for a few more here. This is going back to, I think it was John, you were talking about this idea of FOMO and we were relating it to the equity markets. The question is, you know, again, I know, Mike, you're not a fixed income guy, but maybe just a thought on how this might pan out on that side of things. Sure. I mean, look, I think at the end of the day, it depends on, you know, what your tolerance for risk is and what your asset allocation is, right? As I said, I run equities primarily, and, you know, most of my money is in equities. Like, it depends on how long your time horizon is. If you, if you need money in the shorter term or you know, are in retirement, of course, clearly you're gonna wanna have some, you know, a higher level of exposure to those areas of the market that you're talking about, treasuries, other fixed income, and potentially GICs. I think if you look at the long-term return profile of those instruments, particularly, you know, GICs, you know, you generally lose out to stocks over time. You know, stocks tend to give you a better return, obviously with a little bit higher level of volatility. It's difficult to, you know, to know exactly what the future is gonna bring, obviously. I think, you know, if you take a look at the long-term return series of, you know, of equities and, you know, add in the dividend yields that you receive on many of the stocks that, you know, we would own in a variety of portfolios at AGF, you know, tends to be a better, risk/reward trade-off than, you know, than some of the other instruments that you're asking about. Yeah. David, just to follow up on that. If I had to look into my crystal ball six, 12, 18 months out, my base case is that rates are lower, 12 months out than they are today. Think about it this way, if you're sitting in a GIC at 5%, which is a terrific return, by the way, risk-free return. 12 months from now, when that matures, odds are, in my base case, that the rates will be lower, and you won't get 5% for the next 12 months. That 5% is a bit of a drug, right? People like getting a return on their investment and on their money. My gut tells me that a portion of that money that's sitting in a GIC or in a treasury will find its way into the equity markets and look for that return yet again. To Mike's point, history tells us that the equity markets will give you a better return longer term than a GIC or treasury does. We'll keep a close eye on that, but base case from my perspective is we'll have lower rates 12 months from now when a lot of these GICs start to mature and people invested in those will try to reallocate that capital into somewhere that can get them five or six or eight or 10, whatever the number is that they're looking for in their, in their return profile. Okay, good stuff. Okay, here's one for you, John. You advise that it's not timing the market, but time spent in the market. Correct. Yet, today we've talked about not going all in or not pulling all out. The question is this contradictory? Please explain, John. Oh, I love it. A little controversy. That's outstanding. Yeah. No, it's not controversy, controversial at all, because here's what I was talking about. The question was posed to me, if I have extra money sitting on the sidelines, how do I start to allocate that money in? The premise that I come from is you're already invested in the market, and you've got some extra cash. If you have some extra cash, yes, you wanna look at legging in or dollar cost averaging, as Michael said, that additional money into the market, and look for opportunities, but always staying invested in the majority part of your portfolio because it is a terrible idea to be all in or all out, right, all the time. You wanna be strategic about how you invest your money, and that's the way I would continue to answer that question. The base case is you're always invested, and then if you have extra cash, you wanna look for opportunities to redeploy that money. I hope that clarifies a little bit, because I am not a fan of timing my investments all in or all out. It's just too difficult, and you're gonna make two mistakes, as I've always said. You're staying invested for the majority of your portfolio is the right approach. In fact, legging in is complementary to that idea. Absolutely. -right? Yeah. Yep, absolutely. Okay. We've got maybe a couple more here. Oh, here's a question. Again, it's related to this. It's the movement in yields with the movement in the S&P. The question is, does it make sense that the 10-year U.S. T-bill yield has climbed higher in the last month while the S&P 500 also moved higher? Is that a disconnect for you guys, or is that- Sure, I can take that. I mean, there's a varying relationship between what yields are doing and what stocks are doing, and it changes, and it's not always entirely clear what's driving the, you know, the sentiment to change. I think in this particular case, as we said, you know, typically as yields would go up, the market would consolidate, possibly trade lower, certainly in the last couple of years in a higher rate environment. I think what's different about this particular situation is just that you've had such a narrow component of the market as we talked about on the call, that's driving the return. If you look at a lot of the other, set on up and, you know, Tesla and Apple and Microsoft and so on and so forth. I think if you look at the equally weighted index, which I talked a little bit about, that has had this correlation to higher yields and lower stocks in general. It's not always entirely clear. I think, you know, some of this is also related to positioning, you know, whether or not folks are long treasuries or short term. Not always a very clear relationship there, but, you know, certainly I think the narrowness of the market has contributed to, you know, to that, I guess, kind of dichotomous relationship in the last couple of weeks. Okay. We got one more question. We always get this question, we'll ask it again. It's about gold. The actual question is gold done? Question mark. That's the actual question. Thoughts. No. I don't think it's done. From my perspective, it is not done. We're off $50, $100 from the highs, but again, it's got good legs. It's got the chart is still constructive. It's not broken down on the chart. I don't believe that gold is done. I would expect gold to be back up above $2,000 nicely above $2,000 over the next three to six months for sure. Not for sure, but yes, I would think that that's where it would go. You know, as interest rates move up, gold becomes a less valuable part of your portfolio because you don't earn anything on it. As yields are going higher and GICs are paying you more, you can sell gold and buy other assets that will pay you something. There tends to not be a lot of utility and dividends in, you know, in the gold sector. As rates peak and start to potentially go lower, and again, we don't know if there's gonna be cuts or when those cuts will happen, tends to be a much better environment for gold. Obviously we know the U.S. dollar is very critical to the movement in the price of commodities as well. You know, if the Fed is gonna pause and potentially cut rates, that would likely spur the US dollar to go lower. All those things are good for gold. I will also just, you know, agree wholeheartedly with John. If you take a longer term look at the chart, you know, it's gone up quite a bit. It's kinda consolidating around all-time highs here at, you know, call it $2,000 or so. If we're right and rates are gonna go or, excuse me, interest rates are gonna go lower, I think the next leg in gold is gonna be up, not down. You know, nobody owns this sector. It's very, very under-owned. People hate gold stocks by and large in Canada. It's not a huge part of the index. I think if you're patient in this part of the market, you can do quite well. I have, you know, exposure to three or four gold names in the funds I've managed. All right. Great. You guys make it sound like the charts are like the modern day treasure map. It's a tool. David, it's a tool in the toolbox. There you go. Yeah. Right? There's many tools, but it's one of our tools, yes. Okay. I think that's it for today, guys. Maybe I'll just get a quick final thought from each of you. Mike, maybe we'll start with you, and John, you can finish us off. Look, I think it's been a certainly been a tricky year. Depending on sort of where you've been looking. I think the narrowness of the market has caught a lot of people by surprise. I would just say if you step back and forget about those 7 or 8 stocks that have done very, very well, you know, we're up, let's call it 3%, 4%, or 5%, depending on whether you're looking at Canada or the U.S., and we're at the halfway point of the year. You know, that's basically right in line with what you get for average returns for the stock market. You know, it's not a terrible year for equities considering especially what happened last year and sort of where interest rates are and where inflation is. I continue to remain constructive, you know, on the long-term outlook for stocks. I think, you know, absent something that we're not aware of in the marketplace at the moment, I think we're getting close to, you know, to certainly peak rates and that will be beneficial for both earnings and stock multiples. Still very constructive here over the medium term. Over to you, John. Thank you. I'd like to disagree with Michael, but I cannot disagree with Michael. I am on the same page here. Although I will warn that we are getting to a point in the market that we may need a bit of a pause or consolidation, which would mean it goes a little bit sideways. Going into the end of 2023, I'm still constructive. I do like what I see. Positioning was so bad, David, at the beginning of the year, and Mike and I talked about this, where everybody hated the market, everybody was sitting in cash, and the like, that's a impetus for the market to go higher. That positioning is starting to change. Sentiment is starting to change. People are feeling a little bit better that the recession isn't on the horizon and may be into 2024. People are putting more money to work. We need a bit of a pause here around 4,400 on the S&P, and then we'll reevaluate, you know, the next move, but still fairly constructive going into the end of 2023. Relative to where a lot of people were earlier in the year, where they were very, very negative. People are getting a little bit more constructive now. All right. Well done, gentlemen. That brings our discussion to a close. Thanks as always to everyone tuning in today. On behalf of John and Mike, we appreciate your time and support and look forward to sharing our insights with you again next month. Before you go, please make sure to click the Add Session button in your Attendee Hub to register for our upcoming market update events, including our next installment taking place on July 19th, 2023. To complete your CE credits today, please complete the survey available to the right of your screen or at the top of the homepage in your Attendee Hub. Please note you may only submit answers for your survey once. However, you may have the opportunity to go back and edit responses if needed. See you next time, everybody.