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Hello everyone. Welcome to the weekly roundup. Today we will cover geopolitics, inflation, and earnings releases. Hello Ben.

Hi Eva. How's it going?

Going pretty good. Sunshining. Just wanted to warm up.

Yeah, after the weekend and the the white that came again, I'm not even optimistic anymore.

I get that. Yeah, the winter played me. So, no. Yeah, that's fair.

So, um lots in the news. We're going to start off with the temporary US Iran ceasefire. Um what are the best and worst case outcomes for macro outlook if the truth holds versus if it breaks down?

I think that's a great question, a great place to start really. I think that uh this presidency has been much more choppy than I anticipated. Um and so I think in order to answer that question, I got to think a little bit about what uh potentially President Trump's thinking about these days. And that's that's a difficult one to game. Um so, you know, I think best case scenario, we'll see what's best case scenario look like. I think it looks like a sustained ceasefire. Um, and some kind of we'll say negotiation potential tax on some of the we'll say boats moving in and out. I don't know. We'll we'll see some kind of we'll say uh results that mean no more bombs and rockets are shot. Um, that's kind of best case scenario. And you know, when you think about it, there's been, I'd say, a lot of damage both geopolitically and economically in this short period of time where initially all there was thinking that all of the attacks and attention was put towards the US and Israel. Um, but if you look at where a lot of those rockets went, a lot hit Qatar and Bakran and Dubai and Saudi. Um so you know I think there's been a lot of I mean global damage done in this short period of time. Um so that all those things would need to be rebuilt. So I'd say best case scenario is sane ceasefire with negotiations that aren't going to take a week, they're going to take years to to be resolved likely.

Worst case scenario is the US thinks that they need to go in and uh do some of the things that Trump said he was going to do on Sunday night or Monday night. Um and uh you know where coming into this year for you to ask me that that was even a legitimate possibility I would have said no. and but seeing what's transpired so far with the you know attention on Venezuela effectively going in and taking a leader out of the country um this talk of Greenland continues in the background the war that uh he has started so I'd say worst case scenario is we go back to where we were um and that will result in higher energy prices lower economic activity uh pressure on the consumer probably defaults rising. We already started to see cracks in um you know the private credit market and you may say it's not a result of the war. Well, it kind of is um because if interest rates go up then lending pressure goes up uh and that the banks and lenders get more tight on their lending constraints and that slows activity and reduces credit availability. That's all bad for the economy. um a short term. Um so, you know, I'd say those are kind of the two ends. My view is we probably continue to chop. Um and oil stocks are off today, but some other stocks are up big like Intel's up 11% today. um some of these some of these semiconductors that have been beat up like Micron is uh was up 10% and so lots of volatility but I think overarching people are showing a bit of a sigh of relief that maybe some negotiations will happen and um as a result of that stocks pro probably migrate higher at least for the next week or so and then we'll see how the progress is going with their talks.

Okay, I I hate to be a Debbie Downey, but um let's look at the other side. If the truth proves fragile, um do higher energy prices, import costs, the risk of stackflation, could this move, you know, the hand of major central banks at their rate decisions?

I think that uh you know the central banks of the glory days like the 80s and 90s those central bankers had had kind of the easiest times relative to what they're dealing with now. Um so you know where they've been trying to stoke inflation for decades now they have the other side since co which they're trying to to to to damp out inflation um and a deteriorating economy. That's kind of worst case scenario for a central banker. Um, so yeah, so I think your your point's valid. Are they going to raise into a slowing economic activity and a rising unemployment rate? I think that's a real real key important question from an economic perspective. What happens here? Are they going to do it? I mean, our economic team last week said that at least from a Canada perspective, we don't think they will. Uh, we think the markets got ahead of itself and thinking that rates are going to rise in Canada. So we think likely in Canada they stay on hold barring something else materially happening. But if we are 6 12 18 months into a sustained war um and also the information that's being shared right now is right that that uh global supply chains have been disrupted and things aren't moving. Um I think it's a risk of inflation and stagflation. Yeah. I mean the the best place to be in stagflation is in commodities but also that ends up being extremely volatile um area to be from a portfolio construction perspective.

I think it's something to be conscious of, something to think about, um, when you're holding your investments. Um, you know, where you may you may have wanted to hold cash before, you may want to own something else or maybe even diversify, buy currencies, own some other currencies that are paying a little bit higher rates. So yeah, I think it's I think it's the risk presently just economically um is stagflation um because that's that's that's kind of worst case scenario.

Okay. Um bringing things into perspective, the markets um Q and earnings are kicking off. Are we about to see fundamentals retake the wheel from geopolitics or will the markets remain, you know, headline driven?

I think headline driven because the risk is so severe. Um, and oil is such a big uh determination for the what's going to happen to the world economy. And so I'd say that um in some cases like we had downward revisions to a number of tech companies last quarter because of AI fears and slowdown and so on and so forth. So I'd expect we probably see some beats there. we probably see some upward revisions, maybe some beats in the tech space that, you know, some of these stocks are down 20 30%. Um, which is likely an overreaction to the downside. Um, but, uh, I would say fundamentals don't really take over. Um, the one chart I think I put up there last week was was the financial um, health index. Um, and so I'd be watching that. If we start to see that tick up, maybe that starts to drive markets. But I think this geopolitical overhang is going to be here um maybe for the rest of his presidency. Um but at least in the next say 1 to 3 months. Okay, let's see the charts.

All right. So, we are recording uh one day early this week. We got meetings tomorrow. So, this is Wednesday, April 8th, 2 p.m. So, anything that happens between now and next Thursday, I will comment on then.

All right. This is a great chart from um Charlie Balo that puts out great research just around, you know, different types of events and so on and so forth. But I thought this was a great visual just to think about how much volatility there is and can be in the markets. So this is S&P 500 corrections of greater than 5% since the March 2009 low. Um so it's just I think it's more important to think about the fact that yes, we do have volatile periods. We went through 24 uh with for the most part really low quiet markets. And then this is a look back just to think about some of the events that we've gone through like in 2010 we had a debt crisis in Europe market dropped 17 again that jumped back up in 2011 risk of a recession 22 22% to the downside even last year you may not remember because it feels like a big distance future but S&P was down 21% peaked to trough with the tariffs um we even go back to 22 we're down 27% time and then the COVID lows, we're down 35% the S&P. So, these events and markets happen. Um, the length of these are interesting to note as well because we're, you know, 50ish days into the into the downside in the S&P up until today. We're seeing obviously a bounce back where S&P is up 160 165 points or so right now. So, a big bounce today, a bit of a relief rally. We can talk about if I think that's sustained or not. Um but this is important to think a lot of things change there's a lot of multiple impacts which causes the markets to fluctuate and occasionally it presents opportunities and maybe this isn't done yet but the current one we're in this will be one that we'll look back at and say what are the risks that we we're are happening right now and neither of you pointed to a number of them Iran or crude oil spike private credit and a AI disruption fears so this will be the one that'll be remembered for that and we're living through it and you know it presents opportunities. So when when markets overreact to the downside in a certain area like that gives you opportunities to add things and when they overreact to the upside that gives you a chance to sell. So lots of these events can happen and do happen and I think it's important just to be conscious that each one's a little bit different but you need to be careful at uh at the opportunities that are presented.

So, I thought this was a great chart just looking at um the S&P line, which is the blue, and the TSX, which is the red. And so, you know, we've seen a pretty material correction at the S&P where yeah, TSX re corrected as well, but because of the tilt to energy, oil, and gas, you've seen a a pretty decent divergence here. We're seeing the opposite today where S&P is up about 3% where the Canadian market's up about one and a quarter. And so we're going to probably see some of that close as we work through this two week ceasefire and then the direction of what happens next I think will be covered in the next you know hopefully 10 to 14 days. Um but lots of ground to cover still early days but the TSX trade is really heavily tilted to to energy where the S&P be much more tilted towards um towards growth in tech. um sentiment.

This is one I put up uh I think maybe multiple weeks in a row. Maybe not feels like it, but certainly it's something that I that I like and pay attention to quite closely. So this is the uh from our CIO office. Extreme pessimism is a buy. This is where we were last week at an 18. Extreme optimism is the sell. If we look at these different levels, momentum was really low last week, starting to pick up a bit. Volatility was very high. Um and now we're starting to move back, migrate a little bit towards the middle. Volatility sold off pretty hard today. Breth that means the number of stocks that are going up or down was bad. Uh risk appetite also bad. Speculation starting to see some of that move over here to the right. And surveys that would be how people feel about the world um is bad. Uh this is the another place to look at it. It's cumulative number. So, as you look at these standard deviation dotted lines along the bottom here, as you start to reach into these oversold areas, these have historically provided opportunities. Um, and you can say, well, what about this? What about that? This is a sentiment check based on how the market's feeling. And so, if we get a bit of a relief, which we're seeing today, this gauge is going to be much different um next week, probably into the 30s, I assume. assuming everything stays the same between now and Friday. Um probably a rally you get some of these sentiment indicators start to pop up a little bit and then h how do we resolve lower or higher will really be contingent based on what happens uh in the Iran war presently.

Um as always the opinions expressed in here do not necessarily reflect those in Ashbank Financial. I prepared these with the best of my judgment. Everyone's risk tolerance is different and independent. If you have any questions on any of these or your risk levels, give Eva or myself a call and we're happy to address those.

Great. Thank you, Ben. You're welcome.

So, what's on the agenda for the rest of the week and next week?

Yeah. So, I think it's I think that this will be important to see what happens tomorrow. Um, there was a lot of negative sentiment going into the 8:00 meeting yesterday. What was Trump going to do? Uh, were we going to was the war going to intensify? Are we going to have relief? And obviously, you know, what happened? We had a relief. He seems to have agreed. And so markets have knee-jerk react rally to the upside here. And so tomorrow and Friday will be great sense to see um is this going to be sustained um or is this just a temporary reprieve because people were were kind of anxious and they're looking to buy because they're afraid of missing out. Um so I'd be looking next two days certainly to see how this plays out.

I think every minute of every day right now is to see are they going to come to resolution and then we can get back to having conversations around what's going on in the economy in the world. Um but right now all the attention and focus is around geopolitics. Um and the economy is second slowing I think is the key point but it's secondary to uh what is happening in the Middle East right now. Perfect. Let's hope for world peace.

Yeah, for that peace. That would be nice. Thank you everyone. Remember to visit, subscribe, and follow us on YouTube and LinkedIn at Heart Investment Group. The link to our daily financial heartbeat will be in the caption of this video and in your email box if you're subscribed.

For our clients, please reach out to me if you have any questions or if you like to book a review meeting with Ben. Thank you once again for listening and enjoy the rest of your day. Bye.

Thanks everybody. Bye.