Brianne Gardner A Comment -- General Comments From an Expert A Commentary COMMENT Mar 19, 2025

Tariffs are one thing, and a big thing. But there's lots going on in the market, and tech has been going through a shift since June of last year. Tariffs have accelerated moves in some sectors. But reality is that whether you're looking at semiconductors, the Mag 7, or growth stocks in general, the market's been rotating. So there are headwinds.

At the end of the day, this giant buildout for AI is a big deal. However, the infrastructure that's been built is going to weigh on tech companies for some time; a lot of depreciation will have to be written off. It's possible that there's been some overbuild. 

Don't have FOMO (fear of missing out) right now. There's no indication that tech will return to leadership anytime soon. His firm has 0% in tech right now.

He's a big believer in tracking breadth across the market -- which sectors have the highest percentage of stocks performing well? Where is it improving, where is it weakening? When you get into a tough decline almost everything is impacted, and this decline has been similar to that.

The last group to break down was financials. Within that group, P&C insurance companies were strongest, have not broken down, and have done pretty nicely on the bounce over the last couple of weeks. Wherever you look in the world, financials are the best-performing sector aside from precious metals.

We're in an inflationary environment, likely to have a second wave of inflation especially due to tariffs. Financial services companies benefit from an inflationary environment.

The market's trying to get its head around 2 massive uncertainties. One is tariffs, and the impact they may or may not have on global GDP and, therefore, on global oil demand. A few analysts have cut global oil demand for this year. Some parallels are being drawn between March 2020 and today. Back then we had a demand shock, and now we have a potential demand shock. In March 2020, Saudi Arabia surged production capacity to the maximum.

Today we have the voluntary members of an OPEC deal that has curtailed volumes; they've now announced that they're adding barrels and at an accelerated pace. He thinks this is intended to force greater compliance from OPEC "cheaters" of the agreed-upon lower volumes.

In April, seeing production down by a little, but not yet seeing full compliance. Raises concerns as to what OPEC leadership will do in the next several months, which is the second uncertainty. 

Right now, the market's very underexposed to oil. Nobody's bullish, everybody's throwing in the towel. It feels as though we've reached the bottom from a sentiment perspective. He struggles with what's it going to take to see $75-80 oil over the next year. Massive demand uncertainties could change with a single tweet. Overall, feels as though the market could be sloppy for the next year.

There was an opportunity about 2 weeks ago when share prices fell, but the price of oil and FCF did not. Massive disconnect. ATH for example, a big holding of his, bought back 2% of its shares in the month of March; very aggressive. He's also notice insider buying throughout companies.

When the price of oil collapses, a company's priorities to protect are, in order: the business, the balance sheet, dividends, and then share buybacks. The sector average for balance sheets is 0.9x debt to cashflow at $60, which is very strong. Dividend sustainability is $51 with production flat. Any residual free cashflow is going to buying back stock.

He had been leaning more toward there being a cut. But it's not a surprise; bets were about 50/50 whether there'd be a cut or not.

If you look at the comments that came out, there's a wide range of potential outcomes -- from lots of inflation to a recession. In the end, the backward-looking economic data, such as inflation, looks reasonable. But the forward-looking data, like unemployment, doesn't look good at all.

He thought there might be some more weight given to the employment situation, given the uncertainty created by US trade policy. The BOC, consumers, and businesses are all dealing with uncertainty and that forces people to sit on their hands. A bit of relief on the interest rate side might help to provide better economic support.

He thinks so, when you think about what goes on in company boardrooms on capital budgeting. With so much uncertainty, how can you bring up a massive project for approval or invest in more people? Forces everyone to sit on their hands, as there's really nothing you can do. In fact, you're seeing companies go the other way with some layoffs.

Need a lot more certainty before you allocate capital. In the meantime, it's wait and see, which doesn't help the economy. 

The #1 question in this scenario is time horizon. If your time horizon is really short, investing in stocks doesn't make sense. If you look at market data, the odds of losing money in the stock market after 5 years is almost 0. So buy things that are undervalued with a time horizon that allows you to stick in there. 

This came up more in the past when GIC rates were really high. If you own a GIC outside of a registered plan, that's 50% tax. So your 3% on a GIC is instantly halved to 1%, below the rate of inflation, losing purchasing power. If you have 3-5 years, use this volatility to focus on some great compounders. This can set you up for a very long time if you buy right. In 5-15 years, you can really grow your money, and that's where the GIC argument falls apart. See his Top Picks.

Both segments will be affected indirectly by tariffs. They each provide a service and, while you can't tariff a service, tariffs will affect the economy, which impacts financial markets, which impacts life insurance and asset management.

Questions to consider during tariff uncertainty: How much debt does the company have?

It’s easier to understand how a company with no debt has a better ability to survive than a massively leveraged company. Balance sheet strength is important, always. But in a period of recession, when business and cash flow slow down, it becomes even more important. In a period of stagflation, where interest rates might rise even as the economy slows, balance sheet strength becomes even more crucial. The last thing you might want to own is a company laden with debt while rates move up. So take a look at the financial strength of the stocks you own. Obviously, a company with no debt and billions in cash on the books may be a safer bet than others. And, these companies do exist: a recent Bloomberg data screen notes 2,917 companies in North America with no debt at all.
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It's dawning on people that no one is immune from Trump's trade agenda, like the charge against Nvidia for supplying chips to China or the pressure on Apple to move factories out of China.