Opinions
John Ewing A Comment -- General Comments From an Expert A Commentary COMMENT Jul 04, 2025
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Premium contentHistorically, 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.
Independence of central banks is important. That's why we've seen weakness in the US dollar relative to other currencies. That policy uncertainty has been something to consider in the US. But when you look at markets and the drive from technology and AI-themed stocks, the market continues to be strong.
Prefers it to gold right now. Especially the bullion, as you get away from problems with mines and management. In addition to its being a safe haven, you get the added benefit of industrial demand with EVs and electronics. Gold to silver price is about 85:1 right now, very extended and silver might have a recovery.
You have to look at what's happening in the US. The uncertainty on US policies weakens the US dollar, which helps gold prices move higher. Be cautious, as it's very "shiny" and popular right now. Looking back to 2011-2016, gold prices fell 42% over 52 months, and there was a similar drawdown in the 1990s. There's a risk with gold, same as with anything else. Don't get too overweight, as it can have volatility as well.
RSI is way off the charts here. To enter, wait for a pullback.
His approach has always been total return, and dividends are part of that. If we get dividends along the way, that's great. But they're just one factor. He doesn't want to exclusively chase dividends. Sometimes you get a company paying 5% in dividends, but the stock's down 15%.
So it's important for him to see earnings growth, as that can lead to future dividends. But, more importantly, it leads to reinvestment and more capital appreciation.
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.
He and his team are contrarian investors. They try to look at areas that are at least a little bit out of favour. Things that are hitting all-time highs are not usually what excites them. Small caps have had a good rally in the last quarter, but not at the 52-week highs the way large caps are.
Canadian REITs are still really out of favour, so that's an interesting area. People have been obsessed with interest rates and how that affects real estate; but rates don't impact every sub-sector the same way. REITs tend to trade right near their NAV, except in occasional dislocations such as the GFC or Covid. But we're going on 2 years that Canadian REITs have traded at a big discount to NAV, which hasn't happened in the last 25 years. The property market is a lot more buoyant than the REIT market, so that's a great opportunity for investors to take advantage of 2 different ways to own the same asset.
When GICs were yielding 5%, you didn't need the volatility of REITs. As rates have come down, the attractiveness of REITs has gone up. Good place to get yield. Often trading at discount to NAV, so you can probably get some capital gains too. Relatively safe way to be invested in stocks.