Stockchase Insights A Comment -- General Comments From an Expert A Commentary COMMENT Oct 21, 2024

We've seen ups and downs on the trade front since April, so it's hard not to look to that prior playbook and say that we're probably going to come up with some kind of solution. Natural to get volatility in periods like this, especially after hitting so many record highs over the last number of months. The S&P is almost positive again today, so things are settling out. Expectations that agreements will be reached on a lot of issues that are at the forefront. 

When you strip all that headline risk away, we're left with quite a healthy market. Earnings growth continues to accelerate. Jobs market is OK. Interest rates seem to be stabilizing and coming down. That sets up really well into the end of the year, and especially into Q1 of next year.

They're encouraging clients to stay invested during this period. Use it as a way to pick away at some of the underperforming sectors, or to add exposure to names you wanted before the selloff when things were going straight up.

He is seeing some of them revive, but there's still a plethora of opportunities out there. His firm spends a big chunk of time on small- and mid-caps. This environment sets up really well for the other 493 of the S&P 500. He's had no trouble finding undervalued names in both Canada and the US with lots of catalysts, including growth tailwinds and a stabilizing interest rate environment.

He likes high-quality equities. In Canada, the high-quality factor has had a pretty weak few quarters. So there are a lot of opportunities there.

We're seeing contract after contract. Maybe there's overbuilding there, but it's too early to say. Earnings growth has been quite robust in that sector. It's not something his team is afraid to be involved in via the NASDAQ, certain Canadian equities, or utilities and natural gas.

It's going to create a large tailwind, and there are many areas of the market you can get involved in. He's not chasing some of the big momentum names. Capex spending is real; it'll impact earnings growth in a positive way and should be good for the market as a whole.

We've started to see it. In the earlier data we saw some pull forward of demand for different products. The Canadian numbers for August were pretty staggering in terms of the trade deficit. So we're starting to really see the impact and the bite of tariffs.

Everybody's sitting on pins and needles, there's just so much geopolitical tension right now. And that's what's captured everybody's attention -- how long will it last, and how will it play out over the long run?

The flipside to what's going on geopolitically is what's going on in the technology sector in terms of chip demand and the buildout for AI. There's a massive land grab going on right now, and it's massively expensive.

Different parts of the market are pushing higher. The way that the indexes are composed means that some of these larger companies are getting more and more fund flows. There are always nuances to the market overall, but this is more of a continuation where just a few names continue to drive the market.

He doesn't do it quite like that. Cash in the portfolio is a by-product of opportunities within the markets. Some parts of the market are definitely overvalued, but there are also undervalued parts.

There are about 50 names that he'd be willing to use in client portfolios, with about 30 names in a standard portfolio. About half of them would be within the buy range, and half aren't. Just be patient, as you may get an opportunity. And that goes back to the volatility.

Important to know what you want to buy, and what price you want to pay. Then just watch and wait. Because the market's so volatile, you'll likely get a really good opportunity.

Typically, he doesn't buy into a release. He'd wait for the release and then assess. It's not that he's never done it, but there would have to be a very specific catalyst for him to do so. 

The amount of money that companies are spending on AI is staggering. How will this all impact our lives? Will likely impact employment and other technology solutions such as software. In the end, the massive spend doesn't make any sense if there isn't a market application for it. So it'll either replace people, or software, or some combination.

Certain software is likely more susceptible. 

Biotech tends to be a very binary business, boom or bust. He's not an expert in biotech, so is not comfortable participating. The pharma side has been subject to a lot of political noise.

That leaves medical devices as the one area he's been willing to be in. He likes ABT and ALC.