John O'Connell, CFA A Comment -- General Comments From an Expert A Commentary COMMENT Jan 13, 2025

We've had a fantastic run since the tariff tantrum back in March/April. Conditions still support further upside.

One of those is that we're expecting further rate cuts in the US, and likely one in Canada this month. As well, AI is still leading the group, but you have to be selective because things are getting a bit pricey. 

And then we have very strong seasonality tailwinds are behind us at this point. Q4 for the last 10 years has averaged about a 5.3% return, and it's been positive 9 of those 10 years. Finally, look at all the cash on the sidelines in the US -- about $7.3T. With interest rates coming down, some of that cash might move into equities and other risk assets including bonds.

Right now, markets are forecasting at least 2 rate cuts in the US being highly likely. Then we'll have to see what comes through in the data.

A record amount. Not all of that will shift into equities and corporate bonds, but he's suggesting that at least some of it will as interest rates start to fall. Of course, some of that cash is meant to be there as proper allocation in a portfolio.

Financials and technology. Likes healthcare for its combination of defense and growth. Some areas of healthcare have not performed well, such as big pharma. Whereas names in logistics and distribution have done well. So you have to be selective.

Pharma at this point is a bit of a value play. But with rates coming down, growth continues to be more of a favourite area. In a falling interest rate environment, growth tends to outperform.

He's not sure you'll find bargains per se. You can find some relative bargains among the larger-cap names if you look at not just the PE, but also the growth in front of them. Some of those names look good, while others have a very expensive PEG ratio. Again, you have to be very selective. 

For growth, he looks for at least double-digit teens to maybe 20% earnings growth going forward. PEG ratios that are below 2 or 1.5.

We probably don't have as much dry powder waiting to be deployed. But gold has been performing very well, as has silver. He prefers silver, as it's outperformed gold this year. Banks have recovered very nicely so far this year.

When you look at the grand scheme of things, the US has more depth, different companies, and certainly more companies that are in the growth area. There are also opportunities beyond the NA borders.

He has most portfolio assets in the US, with some in Canada. Just a small smidgen in international markets. He doesn't intentionally focus on a region, it's more company-specific. For example, he owns MELI, a Latin American company that's like a blend of PYPL and AMZN.

In general, they have the opportunity to perform because the USD has been underperforming relative to the rest of the world (not including Canada). So you get the upside in the currencies of the international markets. 

Certain international markets are cheaper than the US on a valuation perspective, no doubt about that. US is at high valuations. However, earnings growth continues to look good in the US. The aggregate earnings growth estimate for the S&P for 2026 is 12-13%, very conducive to more market upside.

Really likes the space - a long-term mega-theme. A lot of companies in the space are a bit expensive right now, and spending can be quite cyclical. The whole area is high beta. He's not in any names right now, too expensive, but will probably be back in some day. As an active manager, he checks names and trends on his radar at least weekly.