Peter Linder A Comment -- General Comments From an Expert A Commentary TOP PICK Aug 19, 2004

Her firm is cautious on a good day, let alone where we are today. They're conservative investors, wanting to focus on dividends in general. Their thesis is that the more you rely on dividends coming in, the less you're relying on the overall market to do the work for your total return.

She feels that today the market's doing one thing (going up), but the economy is telling a different story. Looking at the sub-sectors, gold is telling a different story and bonds are too. There's a lot of hesitancy out there, looking to gold as a safe haven. Gold prices have gone up over the last 2 years, and really in the last 3 months. Economic data is hit and miss. Full impact of tariffs hasn't been priced in. Long bond prices are selling off.

A bit of a head-scratcher, but there seems to be this risk-on sentiment. So that makes her firm extra cautious. Hard to put $$ to work right now, as so many valuations are unsustainable. She's actually hoping for a pullback.

Yes, September is a volatile month historically. But she's really looking at the disconnect between the market and the economy, which just keeps getting bigger and bigger.

We're in a policy-driven world right now, so everything will fall on what the Fed's going to do in a few weeks. The US jobs report is coming out this Friday, and she thinks people want to see bad job numbers because that will guarantee a Fed rate cut in September.

But she's thinking that if the economy's showing signs of weakness, a bad jobs report would mean there are problems in the economy. She believes that Canada is already in a recession.

Time to be cautious. Doesn't mean be out of the market, just be careful about which areas you focus on.

Take the S&P 500. You think you're getting a basket of 500 stocks. While that's technically accurate, it's actually very skewed to technology stocks. Just the Mag 7 stocks alone are worth over 30% of the S&P. The TSX had a 5% move last month alone, but that's because 11% of the TSX is just gold stocks. By owning the entire benchmark, it's actually a lot more concentration risk.

Her firm focuses on companies that are more boring, more conservative, and more mature in their life cycle. Their largest weightings are utilities, pipelines, and telcos. Likes banks but, given this economy, now is not the right time to be buying them. Likes critical infrastructure that can't easily be replaced, and won't necessarily change depending on where we are in the market cycle. For example, people aren't going to stop using electricity for their fridges just because we're in a recession; on the other hand, though, general electricity demand is increasing as technology expands.

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.

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.

He does like those areas, as well as industrials and communications. Other sectors are a bit too defensive at this juncture.

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.