Hello, and welcome to the Download. I'm your host, Dave Richardson and it is Stu's days. A very, very special Stu’s days. Because Stu— you know, this is coming—, the Denver Nuggets are NBA champions. Woohoo! Never thought I would see this in my lifetime. And here it is. It's a great feeling. What's your Ted Lasso reference? It's the hope that kills you? Well, this time the hope delivered an exciting evening in the Richardson household. And I know the Kedwells were probably celebrating, too.

Something like that, Dave. Admittedly, it wasn't until this morning that I saw that the Denver Nuggets had won. I wasn't up waiting for it, like you.

It was pretty exciting. I went down to Miami last Friday for game four and wow, what a great experience. It was a lot of fun. And they won that game and the Miami mascot got beaten up. And I did feel the Miami heat. We had that 42-degree heat index the day we were there. I find this pretty interesting. I used to hate that 42-degree heat index, but now that I'm old, I actually felt pretty good thinking maybe there's something to that heat.

And you had successful Canadians on a variety of fronts, because isn't the guard a Canadian?

That's right. Jamal Murray.

And you had a Canadian win the Canadian Open.

A Canadian wins the Canadian Open. It was just a great weekend, Stu. I don't know what else you can say. And the market keeps going up, so that's even better, right? It's never going to stop. We've been pretty cautious about everything, dollar-cost averaging and all that. And then the market keeps going up. Should we be getting really excited that maybe the markets have turned some kind of corner? Or is this one of those ones where we had our excitement this weekend and we had a good inflation number— which we can talk about today—, but do we want to be chasing this rally, Stu?

Well, you like the old broker lines, but one of the old brokers said: I can't stand the prosperity. So long term optimist, but on the short term, always trying to figure out where we're at. We talked about this a little bit last week, about how the market had been narrow, meaning that it was just a handful of stocks driving the indexes return. It has broadened in the last week, which is good. We'll see how that goes. We've talked in the past about some technical data; support, resistance, moving averages, things like this. Often when you get to certain levels on the chart— and we're right near that on the S&P—, where you get to 4300 or 4400, which has been a major spot in the charts in the last 24 months. This is a time to have that discussion if there’s gas in the tank to take us to a new level. Or is this something where maybe people will start to fade it. It's compounded a little bit because we have this big option expiry. We talked about how volatility was quite low last week. You have all these options that exist on the market and that expires this Friday, which can create more interim volatility than sometimes is the case and often marks important highs and lows when people get positioned one way or the other

This would be a triple witching, Stu.

Yes. There you go, Dave. On Friday, yes. And I'm just happy you're not asking me why they call it triple witching because I don't know. Three witches on a broomstick or something.

You have short-term, midterm and long-term futures expiring on the same Friday, which only happens once a quarter. You get your four triple witchings. There we are.

You learn something new every day. That can be a volatile period. Especially when we get into these times when you're into some resistance in those charts. So you mentioned inflation. It was an improving inflation print this morning. There's always lots of things within the actual report that people can nitpick about in one direction or the other. And this one was no different. It had a surprise. It was kind of in line on the headline basis. But used car prices were strong again. Other things were weak. There were buckets that you could look at it one way or the other. Interest rates went down, then they went back up. I don't think that's a big deal because you have the Federal Reserve tomorrow. I think the debate that is coming out of all sorts of things on the economy is not how long interest rates have to go much higher but how long do they have to stay at these levels to slow some of the pressures down. And we've had inflation on a downtrend for the better parts of twelve months. But what will it take to get it right back down towards that 2 or 2.5% level? There was a US financial services conference, and a lot of the banks were commenting on the consumer. Still quite vibrant. Lots of deposits left around. So the ability to withstand a slowdown is still quite high. So lots of cross currents in this picture. The economy is slowing but not bad. Interest rates are peaking. But how fast will they come down? And these are the types of things that the stock market is trying to figure out on an ongoing basis. We did mention last week that the broader stock market had followed a little bit more of the recession path. It had been flat this year except for a few. So when we get into this environment and we get stocks near resistance, it becomes a time where you really want to watch the characteristics of the market. Maybe there'll be a modest pullback, maybe we'll break out. Those are things that are hard to predict, but the question is: what happens when that happens? So a bit of a pullback, with the average stock starts doing better, that would be a positive. A breakout where the average stock is doing better, that would be a positive. A breakout that just seems like the same old leaders that carry on would not be as positive.

And it'll be interesting. As you say, as we go towards the end of the week, you mentioned triple witching, a significant moment every quarter, and people who are in the markets are positioning themselves for the next few months, the remainder of the year, and into 2024. You've seen this broadening out, and you saw some real strength this morning in markets after that inflation report, but you've got the Fed tomorrow, as you say. I encourage listeners to go listen to Stu who did a really fantastic primer on how to think of the market from a technical basis about two years ago. I'll try and get our crack staff to get that into the descriptor for this episode so you can link back and listen to why technical analysis or analyzing charts of stocks and the movements and where they go. Different moving averages are significant when you're thinking about where the market sits, but it all adds up to a lot of uncertainty and at least looks like one you still want to be cautious about. And it's hard when you see the market rally like this. You have that fear of missing out. But you get to these levels, and sometimes it's better to just stay the course on what we've been talking about, just easing your way in, because there's still a lot of things in the economy that need to work themselves out before we know where we're going to be for the next two or three years.

Yeah. It's unlikely that markets won't be volatile in the future. On the long term, you always think about earnings growth. In the short term, when price changes and the earnings outlook hasn't really changed, then you're just shrinking your potential future return. And when stock prices go down, you're adding to it. So we've had a very strong stock market getting us back to where we were last fall. It hasn't been as strong for the average stock. The average stock, you can find interesting ones. There's always a bull market somewhere, so there are lots of things to be done in the portfolio, things that we find interesting, that we think we're going to make good money on. But from a headline basis, it's probably a bit more of a time to reflect rather than jump in with both feet at this juncture.

Yeah. Are any of these numbers around inflation— I think you've kind of covered it—, but more directly, are you more positive when you see the inflation numbers come out today or doesn't it really tell you anything? It says inflation is coming down, but as you suggest, what's more important is how quickly it's going to come down, because that tells you how long rates are going to stay elevated. And we don't get a lot out of today's inflation report in terms of how long it's going to take to get back down to the level that we don't know where they really want to get it, which is the other thing you said. Are they going to be happy at 3%? Are they going to be happy only when we get back down to 2% inflation?

Yeah, I think that's a good question. Some people have what they call the sticky inflation bucket, and when they peel through the numbers today, they say that looks pretty good, so that's a positive. Other people look at some of the services component and maybe what's driven by wages, and that was not quite as good. So there's two sides to the story. I do think wages have built up in the system and you've had contracts signed where you have a little bit of a catch up, but you have some wages still to come in the future. That obstacles things a little bit in the short term. I do think inflation is in the process of coming down. I do think that last 100 basis points might be a little bit harder than some think. I'm not really in the camp that rates need to go a lot higher. It's just the speed with which the short-term ones do. If we don't have a slowdown, then there's the ingredients for the Fed to keep them at higher levels. And if we do have a slowdown that requires rates to come down, then that's probably bad for earnings.

Yeah, as you say, you look at the market technically, and this has just been a really troublesome level to get through because it's hard to balance out all the uncertainties and come to a scenario where the market should be higher; where you've got earnings and multiples that can go higher when you're still uncertain about interest rates and earnings around a potential of a recession. So between that 4000 and 4400 on the S&P's, it just seems to be that range where things balance out. When things get optimistic, we get up to 4400. When things are more pessimistic, we're down in the 4000 range.

That's right. The higher the price you pay, the longer your time horizon needs to be. Buying stocks for the long term is not a bad idea, but you can't change your mind if something wobbles in the near term around that. As an investor, you make your biggest commitment to stocks when you have a lot of negativity on the table and the disappearance of that negativity gives you extra return. We've had a little bit of that in the past. Sentiment has been poor. It's improved. The economy hasn't slowed as of yet quite the way people have thought. But where we sit today, the long term is one thing, but in the very short term, the teeter totter is more balanced.

And we'll get our economist Eric Lascelles on later this week or next. And he's turned a little more negative on the economy, and that'll be an interesting discussion to have with him. So, Stu, thanks again for catching up. And this will be my last Nuggets update, obviously. I know that's been a little bit too much to handle at the start of every podcast, so I'll stop now.

Well, Dave, I learned some nuggets of gold about triple witching today.

There you go. I hope I was right, by the way. That'll be the first thing I've ever taught you, Stu. I only learn off you.

I'm pretty sure it's bang on. So thanks very much, Dave.

All righty, Stu. Thank you. Great Stu's days. See everybody next week.