Opinions Jon VialouxA Comment -- General Comments From an ExpertA CommentaryN/ANov 25, 2016
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He hopes the new Sarnia-to-Alberta pipeline gets done; we needed it 10 years and need it now. The Trudeau government was anti-oil as it moved to a green agenda (not saying that was necessarily a bad idea), but it neglected one of Canada's major assets and was a mistake. Can that be changed? We'll see. US unemployment last week came in lower than expected. Wants to read the latest minutes from the US Fed under its new chief and how it communicates to the public and press. Tariffs: The US Surpreme Court ruling against Trump is forcing him to try other measures. Tariffs will remain on the table, though, but will be less potent, which is a good thing.
It's one of the most speculative assets of our time and putting a value on it is a mug's game. It's a massive ponzi scheme. More people are investing in it, though, and it's in some ETFs. Frankly, is one better than another. Look for the most liquid one with the lowest MER. The money Trump has made on Bitcoin should be reviewed by the SEC. He's frontrunning his own tweets and making billions at the expense of the average investor. It's deplorable.
Crude oil levels returned to pre-war levels below $70, but other assets have not fallen back. However, oil futures past 2032, prices going forward are more negative than they were pre-war. This means that the long-run supply/demand story is getting more and more bearish for the price of crude oil. Maybe because we have more friendly supply of oil coming on market. Looking at the futures contract: Last February, there were 2-2.5 rate cuts priced into the December futures contract. When war broke out and oil prices spike, the expectation changed from rate cuts to hikes. Last week, 1.25 rate hikes were priced in by the end of the year. He predicts the US Fed to pause, but wants to read the Fed minutes and the impact of oil prices on interest rates. Also, the bond market is saying it's worried about inflation, in contrast to the message from the stock market. Finally, as we start Q2 earnings season, earnings growth has accelerated a lot this year, which is supporting the stock market; geopolitics and inflation have almost nothing to do with the strong market this year.
We are looking at a lot of volatility in the summer and the market is range bound because of this volatility. It should break out to the upside rather than downside at some point but we just have to get through the summer first. The next phase of AI, now that the infrastructure is in place, is all about the end users bringing AI to the edge. A good example is EV's computing to devices outside of the cloud. This can facilitate bringing in new products. There is a desire to have the decisions made on the factory floors, not the cloud, and the enablers do this. AI was a technology story but now it's more of an earnings story. It's for the consumers but is also spreading to the enterprise side.
Alleviating nicely. The market's actually moving more to a discussion about labour. Investors were pricing in additional Fed rate hikes for 2026, with labour markets staying strong and with the state of inflation.
But expectations have shifted meaningfully with the labour numbers that came out yesterday showing some cooling. It was half of what the consensus was expecting, plus April and May job gains were revised down. Labour market's not as robust as we thought up till yesterday.
For the Fed, the focus will always be a combination of both employment and inflation. Inflation is coming off on the oil side, and it seems as though the labour market is more of a driver now.
We've gone through one cycle of investments, which were largely in large language models and data centres. Now we're entering another investment phase, which revolves around agentic AI. The types of hardware needed for model training are very different from the types needed for agentic AI. That means change, and that's where we're seeing a lot of opportunities.
For the model training era, the main focus was on GPUs. You were able to use one CPU to connect 16 GPUs together. Now, in the agentic AI era, we're using one GPU per CPU -- creating massive demand for CPUs. That's why stocks like AMD, INTC, and ARM are performing really well. We're at an inflection point, and we're in year 1 of that cycle.
Another area she likes is networking. The number of people on earth is finite, but the number of agents is infinite. Connecting these agents leads to tremendous opportunity -- copper, connecting components, and optical components.
A third area is memory, but this one is trickier because that sector is a lot more cyclical than the other two.
Yes, she'd absolutely invest in traditional players. Concerns around software were valid, but the concerns around cybersecurity were mispriced. Cybersecurity stocks sold off together with software stocks, but it wasn't justified.
Seeing lots of opportunities. First time in history where robot traffic on the web exceeds human traffic. Interfaces will have to change to accommodate this new reality.
Her team is very excited about this. Use cases haven't scaled or been proven over the last 2-3 years. They've been looking at commercial applications, which are in a very experimental phase. Makes it hard to justify on risk/reward right now. Time to invest is once we see commercial acceleration.
Big players are IONQ and RGTI. Unclear which technology will be the winner.
She blames US monetary policy for distorting the current market. The Fed Reserve has been too eager to print money for the last 20 years while the treasury has been too willing to spend big on stimulus. It's no longer true that the dollar moves in the opposite direction of risk assets and most commodities. Patterns: when Trump was first and sworn in, the dollar fell 15%; it also fell the next time he was sworn in, but later bounced when US companies repatriate their cash. Oil: In March when the dollar bottomed, oil soared. Any oil rally will cap at $80-85 for WTI, or $105 if the US-Iran war resumes. If prices keep falling, it will reach a floor of $57. Gold: When gold bottomed in mid-2022, the USD was peaking. In early 2026, it was the reverse. When gold sells off, it sells off hard, now down $1,500 from highs. Any relief rally won't last and gold will continue to fall.
Is bullish. US margins were 11% of sales and expected to hit 13-14%. The AI flow is driving the economy as the hyperscalers spend and the chipmakers raise prices. This will pick up the rest of the economy. Industrial companies have put behind Covid, and profits are picking up. He sees strong opportunities in Canada, particularly minerals.
The oil price has returned to pre-war prices. So, the market will shift attention to the U.S. 10-year bond yield. That yield has risen to 4.5% in recent weeks; typically at this level, forward market returns are muted. AI stocks are insulated, but all other areas, namely growth stocks, have seen downward pressure. He expects the U.S. 10-year to come down and broaden out the rally. Falling oil and gas will lead to lower inflation expectations. Meanwhile, rent prices are starting to roll over, which will lead to tailwinds for core CPI.
Market. The best 6 months of the year started off with a shock with a presidential election. The technical cue to get into the market for the best 6 months’ trade was actually realized on November 7, a couple of days before the election itself. There was a gap higher from the 200-day moving average, and then the market just took off from there. Everyone was pessimistic going into the election results, and everybody was hedged, so essentially you didn’t get that shock selloff event. The market just kept on grinding higher. From about mid-2015 to early 2016, we have been bumping up against the 200-day moving average as resistance. Now that we have confirmed that as a level of support, cash is coming off the sidelines and the markets are grinding higher, and everyone is becoming more cyclically focused. They are shedding their defensive positioning, especially in bonds, utilities and staples.
US $. The pace of the rise is presenting concern. Up 6% in this quarter alone. When we get 4th quarter earnings come January, we could see that bite some of the companies, and that is a risk. The US$ rising itself is not bearish, but represents a strengthening economy, it is just the pace of the rise. If you have a rapid rise like we have seen this quarter, they can weigh on some economic data.
Retail. Seasonally, retail tends to peak today, so you want to shed your retail positioning and rotate back into the broader sector, the consumer discretionary sector.
Canadian Banks. Next week starts the Canadian bank earnings, which typically creates a “sell on news” event. We have had a phenomenal run since the period of seasonal strength began for some of these Canadian bank stocks back in August. You want to take those allocations in your Canadian banks, avoid the “sell on news” events, and look for US alternatives, hopefully on a bit of a pullback.
S&P 500. Everyone is waiting for a retracement because, after all, this market just shot up unexpectedly. The best period to assume that a pullback will occur is during the tax loss selling period. Seasonality remains positive through the beginning of December, and then we get the tax loss selling period, which occurs between December 7 and December 15 on average. The S&P 500 has only been positive 20 out of the past 50 periods. 60% of the time it is negative. Average loss is about .05%, so it’s not a big deal.
Santa Claus Rally. This runs from December 15 to the new year with an average gain of 1.91% on the S&P 500, and it has been positive 80% of the time for the past 50 years. If you want to have the retracement to get into some of these positions, the best period to look for that is during tax loss selling.