Opinions
Patrick Horan A Comment -- General Comments From an Expert A Commentary N/A Jul 20, 2015
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Premium contentHis team thinks so. An object in motion tends to stay in motion until it doesn't.
There's a lot of flow coming into the market. Part of that may be because a lot of market participants don't want to be in the bond market -- returns are low, perhaps not better than inflation, and could be facing a loss if interest rates do go up. Part of it could be FOMO, because the last 2 years have been great, and now European and Canadian markets are really shining. Third thing is margin debt; in the US, it's almost back to the record levels seen in 2021 before the huge S&P correction from 4800 to below 4000.
He's cautiously optimistic. Short term, markets may need a bit of a pullback. We have PCE numbers coming out tomorrow in the US. Next Friday, September 5, we have the labour report for August and we'll see how the market reacts. Then we're back into earnings season in October.
We need to make a distinction, because there are some great bargains in that sector. NVDA is the poster child; it's gone up a lot, and its valuation is probably 40x forward PE. That's quite expensive, unless you believe that they can maintain the treadmill of that kind of growth. He's not saying the growth is over, just that maybe the growth slows down from here. Perhaps the valuation on this type of name has to stay here while earnings catch up, or it has to come down a little bit.
Doesn't mean that capital can't rotate into other parts of the AI growth market, or even into NVDA's competitors which have lower multiples. See his Top Picks.
Quite in line with what was expected. We shouldn't be distracted by that. It will lead to more accommodation and more robust business growth down the road.
When you're in a situation where you've had higher interest rates, it does slow the economy. There's a great deal of growth and opportunity coming from our neighbour to the south. Because we're a resource-rich nation, and if we can get less carbon-embarrassed and more pro-resource, it puts us in a very good spot as we go through the tidal wave of innovation that's going to manifest in some sort of physical infrastructure (data centres, power sources, AI and digital asset booms). Things that were more software-oriented are going to become more hardware-oriented. We'll go "from software to steel".
Crisis necessitates change.
US administration is undertaking a coordinated program to achieve its goals. US used to control the currency. With rising debt and rising China power, that's going to fade. Nations are going to want to price things in other than US dollars. This takes away from the USD. But the US has a plan for that -- if you can't control the currency, control the protocol (that is, control the commerce through digital assets and AI). Data centres and power for AI will need to be created, and US will see deregulation to bring down barriers for resource development.
All this will benefit Canada in a big way, if we can just get out of our own way. We'll be forced to do that. It has to be done and it's economic. Sets up NA as a global head of commerce. It's a pretty bullish scenario.
Market Update
Canada’s tech job market has gone from boom to bust in a matter of years, as August job openings in the sector were down 19 percent from the early 2020 levels. While the CIBC economics published a report showing that unemployment among 15- to 24-year-olds has climbed to the levels typically seen only during recessionary periods. The Canadian dollar was 72.72 cents USD. The U.S. S&P 500 ended the week flat, while the TSX was up 0.6%.
It was a mixed week of greens and reds. Financials and Materials rose 1.4%, each, while energy gained 1.1%. Consumer discretionary dropped by 1.3%, while consumer staples and real estate slid by 1.2%, each. Technology and industrials ended the week lower by 0.9% and 0.8%, respectively. The most heavily traded shares by volume were Toronto-Dominion Bank (TD), Canadian Imperial Bank of Commerce (CM), and Royal Bank of Canada (RY).
Last month, the market rallied due to corporate earnings, especially from big tech, while interest rates declined. For now, tariffs have not had a big impact. Though, last Friday, Trump's tariffs were ruled illegally by US courts, so that may be creating angst among investors. Ignore the stuff about September being the worst month; buy great stocks at lower prices. The Mag 7 are growing at insanely fast rates, even before we see the benefits of AI. The US market is overlooked.
Markets. After the decline of today, the mandate of not investing in resources is feeling pretty good. When his portfolio was started about 8 years ago, resources had really had their best time and he felt okay on missing out on a couple of good years. Gold is a pretty good barometer of inflation, and given how much it fell today, he’ll be looking for the hard value guys to come in and support the price. It had felt like capitulation. People are selling because the price is down, as opposed to having a view that there is something fundamentally that has changed. Gold companies right now are trading somewhere pre-2001 levels. It is phenomenal that they have not made a return for 20 years. He would be surprised if gold did not have better days in front of it. Believes in the strong US$ and that the US have their act together. They are building sort of a new economic platform, based mostly off the consumer at this point. Feels Canada is not very far behind. Expects the dollar to continue getting strength, but where it is going to get this from is not going to be the same as where it got it from over the past couple of years, primarily the euro and other developed markets. Thinks its strength will come from pockets of emerging markets. The stronger US$ means you have to be a little bit more selective. You want to be in stocks that have high barriers to entry, so they can offset some of the dollar pressure with price increases. You want to be in domestic consumer oriented stocks. Technology and banking stocks fit into this category.