Opinions
Bill Harris, CFA A Comment -- General Comments From an Expert A Commentary COMMENT Jul 10, 2025
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Premium contentWe'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 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.
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 need 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.
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.
There are all sorts of strategies in the stock market, including being a moth that just wants to go to the flame. His firm's strategy is to not be the bullseye. Their idea is to find a great business that everyone's ignoring, and so to find things that are not going to be affected by tariffs. Focusing on the tariffs themselves is just too hard to figure out.
When Trump was elected in November he was already talking about tariffs, so they went through all their companies to see how they'd be affected by tariffs. So far, the one impacted the most is CP Rail. They own it for the long term, can't be replicated, monopoly. It has been hit, but has moved mostly sideways. Looking at the stock action over the last couple of days, it looks as though tariffs are all priced in and the market's looking through that.
A lot of things aren't affected by tariffs. The overall economy might get softer and it looks as though it is, and the consumer might be affected. Will auto manufacturers be affected? Yes, 100%. But they don't affect the earnings from MSFT. In Canada, earnings for a BN would be affected by interest rates and the 10-year bond yield. And the budget is way more important to the 10-year bond yield and how that affects the stock market. Those things are more important than tariffs.
That's why the market has digested tariffs so quickly. They have a specific impact on this little part of the stock market, but not the big picture.