John Wilson A Comment -- General Comments From an Expert A Commentary N/A Jan 18, 2016

Historically, September tends to have some weaker seasonality. That said, we've seen some strong momentum going into September with 4 straight months of gains in the market. Earnings have been good. S&P 500 Q2 earnings were up 13% YOY, with 81% of companies beating estimates. Analysts see about 12% growth for 2026. 

Add to that approximately $1T in stock buybacks in the US. Liquidity of $7.2T sitting in cash in the US. That's a lot of dry powder and could potentially be a powerful tailwind for equities, especially if we see an interest rate drop (90% chance of Fed cut later this month, 60% chance of BOC cut).

All that lays the groundwork for continued gains for equities. Still might see a bit of volatility in September, given that we've had a very strong 4 months.

He's always optimistic, so the answer is yes. The economy looks OK. He did look at the jobs report. The forecast for Q3 in the US was 3%, and it'll probably still be close to that. Interesting thing is that with today's jobs report weaker than last time, who's Trump going to fire this time?

Good chance of a rate cut in the US, with or without jobs being weak. Trump's pushing hard for that. That should be positive for the market. Doesn't seem to be a recession in the wind, so we should have a reasonable stock market.

Canada's job reports have been pretty weak for a couple of sessions now. The economy is weaker than we hoped, and it's all tariff-related.

Widespread talk about that market being overpriced at 25x PE. If you pull out the Magnificent 7, the less-magnificent 493 are trading at 16.6x PE and that's not a lot. It's below the average of the last 20 years. 

His team buys 25 stocks in the US, so he doesn't really care about the market per se except for the beta part of it. He looks for companies that are quite cheap, and he's found some.

He looks only at companies that are fundamentally sound, with businesses that will substantially increase in value over the next number of years. Looks for catalysts that aren't yet recognized in the stock price, so they're cheap on certain metrics. His team's view would be different than the consensus view.

That strategy works well over time, and it works well in slowdowns.

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Given the string of numbers we've seen both north and south of the border, he'd be inclined to want to cut rates. However, the Bank of Canada's already been very aggressive on that front. They don't need to, but it's clear with the job losses we're seeing that the level of nervousness at the BOC is high. 

It could go either way at the next meeting. Right now, the market's giving it an 80% chance they'll cut by 25 bps.

We had a big revision a month ago to the employment situation, which President Trump was very upset about. Then we got Friday's report in the US that confirmed a fourth month of weakening payroll growth in the US. At an average of 75k jobs a month, which comes out to a bit less on a 3-month average, the trend is clear.

The demand for labour in the US is weakening, but we're not yet seeing unemployment and layoffs tick up in the weekly claims. That's the next part of the cycle. If this gets worse, we're going to start to see layoffs at some point. Right now, it's only a pause in the demand for labour.

Now there's the Treasury influence on the Fed. Scott Bessent put out a piece in some of the journals on the weekend about Fed independence. There's a political game going on here. They talk about independence, but the influence is very clear. The Fed will certainly do 25 bps; could they or should they do 50 bps, probably not. 

The slower they go, the better it will be in the long run. Don't want long bonds rallying higher on fears of inflation being reignited. If the labour situation is that weak, then they will have to be more aggressive. We won't know until we see more data. Predictions in this area are notoriously imprecise.

Equity markets are extremely overvalued, especially in the US. Better value in other places. You can switch from a growth-oriented ETF to something that gives you a bit more protection. This allows you to keep playing. ETFs are coming out with more innovative products, such as one that gives you 10% upside over the next year, or 10% on the downside if markets go down 10%. A good choice for those who might think there's not much upside left, but don't see a big correction coming. See today's Educational Segment.

It's not about raising cash. It's about trying to stay fully invested. As we know from history, markets that are overvalued can remain overvalued for years. The late 90s was a great example with the tech bubble. This AI-led market expansion has decades to go. Take data centres, for example. We currently have 11k, but we'll need 30k in the next 5 years. That growth is driving a lot of capex and ancillary benefits for the economy.

Growth of ETFs

Lots of new products. No one issuing ETFs can try to compete with the MERs of Vanguard. The game is over in terms of cost-cutting for ETFs.

Today there are more ETFs listed on the ARCA of the NYSE than there are single stocks. So the ETF world is growing rapidly. But almost all the new products are innovative and thematic. They're charging management fees that are 70-150 bps. But they're doing things that are different. There's also more work and thought involved than just replicating the biggest index in the world.

Here's an example of an ETF he likes to use, RSP, at 20 bps. It's an equal-weight S&P 500. ProShares recently launched an ETF called URSP -- ultra, which means it's 2x the upside and 2x the downside risk when you're wrong. URSP carries an MER of 95 bps.

Fixed income's been dead forever with falling interest rates. But it's one of the fastest-growing areas in the ETF world. Active strategies are growing rapidly versus passive strategies. Why? Because the average management fee on  passive is very low, and no one wants to compete with the Vanguards. But you can compete if you have an active strategy, while earning more in MERs. Many are worth it, but some are not.

At his conference in California this morning, he pick up a fact sheet for DDTS. For 79 bps, it gives you 10% upside on the S&P over the next year and 10% downside. If it goes down more than 10%, you're at risk, but you can't get more than 10% on the upside. Lets you make money on both sides of a market, but you are paying that higher MER.