Larry Berman CFA, CMT, CTA A Comment -- General Comments From an Expert A Commentary COMMENT Aug 25, 2025

A lot of it is some air coming out of the system. If you look at multiple expansions over the last little while, some stocks were trading at crazy valuations. Take PLTR, for example. Trading at over 70x EV to revenue. Though it does have a premium in terms of growth rate and profitability, you have to pause and say that some of these valuations have to come back down to earth.

We still have a lot of fundamental growth ahead, and you're going to get some opportunities over the next little while to pick away at these names.

As recently as a week or two ago, interest-rate derivatives markets have been pricing in close to a 90% chance of a 0.25% rate cut in September. But the market is tightly wound these days after the rally we've seen since April. There's been a step up in risk appetite, FOMO, and the resurgence of zero-day expiry options. 

What the chair said at Jackson Hole does certainly validate a rate cut in September, as was widely expected.

Right to script. Everyone waits on pins and needles for the Jackson Hole speech, which often validates ingoing expectations. 

In the back half of August, you typically see lighter trading volumes. Once you get the bulk of Q2 earnings results behind you, tend to have light news flow in terms of economic data and corporate earnings releases. And, of course, people take vacations in the weeks leading up to Labour Day. More of the fund flows are retail, and not dominated by professional money. Big players are often sidelined this time of year.

His team is intrigued. The Mag 7 have dominated for close to 3 years. So much so, that their collective weight in the S&P reached an all-time high of just above 34% last week or the week before. Since then, there's been a bit of a rotation away from those names. 

Money has flowed to undervalued and underlooked areas of the market. Cyclicals and some interest-rate sensitives have shown leadership in the last 2 weeks relative to the growth stocks.

Weekly Market Update:

In a speech in Jackson Hole, the Federal Reserve Chairman Jerome Powell changed his stance in terms of economic outlook and signalled a rate cut as early as September due to the noticeable slowdown in the job market. Additionally, Inflation in Canada slowed more than expected to an annualized rate of 1.7 percent, driven by lower gasoline prices, supporting a call for another rate cut in September. The Canadian dollar was 72.31 cents USD. The U.S. S&P 500 ended the week up 0.4%, while the TSX was up 1.7%.

Most sectors rose this week. Materials gained 3.6%, while energy and consumer staples edged up by 2.5% and 2.0%, respectively. Technology, industrials, and real estate added 1.6%, each, while financials and consumer discretionary ended the week up 1.2%, each. The most heavily traded shares by volume were Barrick Mining Corporation (ABX), Enbridge (ENB) and Royal Bank of Canada (RY).
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After Jerome Powell's remarks last Friday, stocks ripped, but not bonds. We didn't learn much from his speech, except that September is on the table. Futures indicate 5 rate cuts from now to the end of 2026. He expects Powell to cut 0.25% in September with the market pricing that by 80-85%. It was slightly less than before Powell spoke. Canadian futures indicate 1 more 0.25% cut by mid-2026. Therefore, the US will cut more aggressively and catch up to Canada. Canada is way structurally weaker than the US, and the CAD lacks a catalyst to rally. Normally, the CAD would rally a lot. Maybe the CAD reaches 75 cents, unless there is a rocky Sept-Oct and trade negotiations get rocky. Those with lots of USD exposure in ETFs should consider moving that into a hedged version should the CAD drift to 70 cents in the next few months. 

We are heading into September which is seasonally weak. The recent message from Jerome Powell hinted at inching into rate cuts. Inflation has been cooling but the fight is not over. They want to see the core inflation at 2%. Another question is: will tariffs feed into higher pricing into the fall. The labour market is slowing but steady enough to avoid recession fears. Equities are holding up fairly well and earnings strength is spreading beyond tech. The equal weight S&P is starting to rally. Investors are shifting from tech to other sectors so this will create diversified portfolios. Canada is a softer echo of the U.S. Real estate and energy showed a little pop and consumer discretionary and healthcare are starting to show signs of strength. Expect volatility and she advises to start taking profits and reduce risk.

Investing 101: Understanding Risk

It is important to understand how much you are able to invest. Put differently, how much can you afford to risk and potentially lose in the markets? A general concept in investing is that one takes on higher risks for higher rewards. However, it is important to understand that higher risks will not necessarily always translate into higher rewards and one has be able to identify risk-to-reward scenarios that makes sense for his/her own investment portfolio.

Another element to understanding risk relates to the personal finance side of things. A rudimentary part investing is knowing how much disposable income you have and how much of your savings are not needed in the short term (approx. 1-2 years). Investing one’s entire life savings in the markets while on a tight monthly budget, is likely a bad idea and risky thing to do.

A counterpoint to not taking on too much risk is considering whether one is taking enough risk to realize his/her goals. For example, if one holds too little in risk asskets like equities and too much in safer assets like bonds, the opportunity cost is potentially huge for someone investing over a long period of time. That is a risk in and of itself.
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