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

Doesn't think it will get eaten, but a lot of software companies need to adapt. They can either make acquisitions to make themselves more competitive, or hire smart developers to create in-house AI solutions. There will be a lot of angst and a lot of investor uncertainty.

Some will suffer, but others will adapt and prosper.

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BOC and the Fed both cut by 25 bps yesterday. Broadly speaking, that's good for the valuation of all risky assets because risk-free rates are the foundation of the cost of capital for companies. Lower rates tend to lead to a re-rating, and we've seen that today.

His team focuses on two long, North American, high-conviction, best-in-breed portfolios. One mandate looks for companies that have a demonstrated history of growing dividends, underpinned by a strong competitive moat. The other, more aggressive, mandate looks for companies with very strong fundamental momentum.

It's a 2-speed economy. The job market isn't terribly healthy in either US or Canada. The experience of the median household in the street is not all sunshine and roses. Yet we have corporate profits and equity indices at or near all-time highs.

To capitalize on that, their portfolios remain predominantly invested in mid-cap, and especially large-cap, enterprises. These tend to have more resilience, more robust structural profitability, and (crucially) a more global orientation.

Likes them. About 10% of his firm's dividend growers mandate is invested in them. A leveraged play on the economic growth of the regions they operate in. Economic growth has been tepid and lacklustre, Canada's GDP print for G2 was negative.

But market's forward looking, and bank prices reflect that we're likely to see an acceleration in the economy. BOC rate cuts set that in motion and added fuel to the fire yesterday. The Major Projects Office policy thrust is very encouraging. We're going to cut red tape and build things. A game changer. These projects will be debt-financed, which should be growth-positive for the banks' lending books.

Stable, well-governed, well-managed, tight oligopoly. Must-have for businesses and individuals. His portfolios are long and strong this area. Prefers the larger banks, smaller ones just don't have the scale.

Note that EQB has had some tragic turnover in the C-suite, and LB is broken.

Yes. The Fed is always late; that's not a fault, it's the result of the process. Only the history books will tell us whether they've been too late. Too late means that they don't act until there's an event that they could have prevented if they'd acted earlier.

He can't see any indications showing that the US economy is in the path of harm. But these things can happen fairly quickly. There's no question that the labour markets are weakening, but "weakening" is a lot different from "weak". Fed Chair Powell has been very fond of saying that they're "data dependent". They have to wait until they see something before they act, can't just act on an idea.

It's a serious issue, they have to be measured, and they're doing that.

He expects 25 bps. Could easily do 50, but that might send the wrong message. If the market senses that the Fed is lowering rates because they're fearful of a weak economy, it will react very poorly. The Fed doesn't want to upset the markets, they want to be benign as they relate to the market.

It's not a very well hidden fact that this is just the start. He fully expects that before this cycle is finished, we'll see at least 100 bps drop in rates (even if that moves into 2026). 

It'll be interesting to see how the markets do react to this afternoon's press conference. It's not the 25 bps that markets will react to. He's waiting to see if the tone is dovish or hawkish, how many dissents on the board there are, and how many board members would have actually preferred 50 bps. He'll be watching how the market grapples with the message from the written side (decision itself, dissents, dot plots) and from the nuances (how Powell answers questions).

It's all become highly politicized. Well known that President Trump wants to see rates fall, and he's populating the Fed with "his choices". This isn't new. We can go back to the times of Nixon and Ford to see examples of the many presidents who have pressured the Fed to move in a certain way, and who would appoint people to do their bidding for them. It hasn't always worked out so well.

He's in favour of the Fed remaining as independent as possible. But he also understands the reality of the politics surrounding the Federal Reserve.

He particularly likes the infrastructure space, so he'd look at industrials that are involved in that area. He owns URI, EME, RTX, and ETN.

In terms of quality, hard to argue against JPM -- best of breed. GS is tops on the investment banking side. If you're looking at valuation and opportunity, Citi would be a very good choice.

In the middle you have money-centre banks like WFC. BAC is also mid-tier. It's not as inexpensive as Citi, and doesn't have quite the pedigree of JPM, but positioned well to do very good things on earnings with a steepening of the yield curve.

He's overweight the banks, and has been for quite some time in anticipation of what's coming this afternoon from the Fed. The whole idea of investing is to get ahead of the money flow and not chase it.

Most product that retailers carry comes from a foreign jurisdiction. The reason is that we've gone through a couple of decades of globalization, where it was cheaper to produce in those foreign jurisdictions and so the model worked.

We're reversing that, but not doing it over a couple of decades. We're reversing it over a very short period of time. Ultimately, these tariffs have to be paid for by someone. Even though some companies might say they'll absorb them, the pressure will be relentless for them to pass them on to the customer. It's just a matter of how and when so that there's the least amount of damage to their brand, company, and stock.

Jay Powell's rate cut of 25 basis points made a lot of sense, given the weakening job picture. But the market reaction was all over the place. The Fed did not surprise at all. Some investors were deluded into thinking Powell would give in to Washington and cut 50 points. He doesn't buy or sell stocks according to rate announcements.