Halloween Sale
50% off Premium Yearly
Opinions Larry Berman CFA, CMT, CTAA Comment -- General Comments From an ExpertA CommentaryCOMMENTDec 29, 2025
Larry Berman CFA, CMT, CTAYou might be interested:
All manias die. This is a mania, and a whopper. We haven't cleared the system of the last spate of mania that was the massive government spending through Covid, which people took and bought extremely aggressive stocks. Then the Fed tightened credit in 2022, and those people got slaughtered.
Usually when people get hit like that, if it doesn't last too long (just a year as opposed to 2-3), then people's memories aren't very good. So people have come back.
This particular mania is following on all the excitement of meme trades and growth stocks. Now here we are with a very justifiable investment boom in AI. But when everyone wants something, that's the time to stay away.
When it comes to futuristic-oriented things, there's an early stage of excitement. People see all the money that's "supposedly" being made, but the accounting starts getting really rough.
What's going on now is that the big hyperscaler companies, who were massive free cashflow generators and never borrowed money, are now reversing and are negative FCF. Investors always loved that they had wide moats with high FCF. But now they're giving that up to secure their AI participation. Investors are ignoring that in hopes that there's a reward at the end of the rainbow.
Watch the way the hyperscalers are borrowing. The sketchiness of the whole thing is that they're not using A-rated, 20-year bonds to do this. They're doing it off-balance sheet or through circular financing.
In 1999 Lucent Technologies loaned $$ to their startup customers, and counted repayment as 45% of their revenue that year. And we know how that ended.
We're already in that phase.
Doesn't do any short-term trading. Owns 27 stocks in his US fund, and 27 in the international one. There's a set of circumstances that his team looks for, if not a particular price.
If things are going really badly, and we're in a big recession, nobody wants to touch stocks, and investors are scared, that's when they apply their criteria for stock selection. It takes a terrible market to create bargains out of wonderful companies, you have to be patient.
His team sincerely believes that we're 6 years into 15-30 years of a relatively golden era where oil & gas companies outperform the rest of the stock market and the rest of the economy. On May 1, 2020 (when the Saudis took the price of oil to zero), that was like the bottom of the Great Depression or the Financial Crisis. Now we're reverting to the mean.
From 2017 to 2021, political/religious movement related to fossil fuels. People were shamed from investing in fossil fuels. During that time, no one poked any holes in the ground or put capital to work. The antithesis of "drill, baby, drill".
Likes the sector. For example, he owns ULTA and CROX. Likes good retail. Addicted customers are always a wonderful thing.
He no longer owns SBUX, but it was one of his firm's first big wins. The US was in a deep recession for a long time after 2008, and everyone told him, "Bill, no one's going to buy a $4 cup of coffee." But it was the only luxury people kept. They weren't taking vacations or doing anything fun, but that little luxury kept people going.
His team believes that a lot of $$ is going to be made over the next 10 years building house in the US. The level of building right now, for the population, is not keeping up. The situation won't be cured until the AI mania breaks; that demand for credit is creating upward pressure on mortgage rates.
The next bear market in the S&P 500 is probably going to be a doozy, and more than a year (like 1973-74 or 2007-2009). When that happens, the primary investors (50- to 80-year-olds) will flee to safety, and they'll flee to interest-bearing instruments. They'll take the bird in the hand and give up the two in the bush. (Right now, it's the 8 in the bush :) The bird in the hand doesn't have anything.)
We're not going back to 1-2%, that was just a bit of Covid-induced despair. But rates will, eventually, be lower.
Sentiment among the homebuilders is at very low levels.
His team has 8 criteria to select stocks.
A bargain to its intrinsic value. For different industries (whether growth or traditional value), that "bargain" will look different. Wide moat. Long history of success. High and consistent free cashflow. Strong insider ownership with recent purchases. Strong balance sheet (though he'd give up some of that temporarily, while strong FCF repairs the balance sheet).
It's tough to meet all those requirements. They find about 3 good ideas each year. You can look at his website.
They're constantly looking for companies that meet their criteria, then patiently wait for them to get thrown in the dumpster (many times by circumstances that don't have anything to do with them). One example is UNH.
They tend to leg in to positions. A full position is, typically, 3%.
Out of 2008-2009, his team came out with "broken growth stocks" -- DIS, SBUX, AMGN. Growth stocks that were formerly highly thought of, but trading at low double-digit PE multiples.
It's not helpful for the price of money to go up abruptly the way it has. It slows down lending, might increase cost of deposits if people are tempted to move money into GICs. That all hurts margins.
When the S&P starts doing poorly, people will probably flock to those 6% bonds. That will cause interest rates to go down, which would actually help housing and lumber stocks.
In August he raised the hedge to 65%, then lowered it in mid-September then raised it late last week due to volatility. His stock portfolios has been stable, skewed to AI data centres. In this space, the big companies have done well, but the medium/small ones have not. So, the market breadth is weak, even within AI infrastructure. Also, taking Meta's Muse for example, AI has been focused less on business and more on the consumer.
Actually makes a lot of sense. CVE is one of those companies that has a very good operational history in terms of the oil sands.
He hasn't had a chance this morning to delve into the valuation. But on the heels of the MEG acquisition, the synergies and contiguous lands, and the long-life assets, they're going to make this work. Thinks the market likes it, based on CVE stock being barely off today.
CVE is making so much cash these days, both on the refining side and on the oil side, it won't be a big deal for them to swallow.
This is a very narrow market. We've experienced a stealthy correction since the peak in mid-May. If you look at the US small-cap index, or the S&P 500 equal-weight index, the average stock in the S&P is down a huge amount.
People don't realize this because they're looking at the market-cap-weighted index, and it's just chugging along. It's being held up by AAPL, META, and GOOG. All the big mega-cap tech names. But the average stock this year is not having a good time of it.
No. He does have Canadian exposure. His team are value investors and stock pickers. So they go where their clients' capital is going to be treated best. The US was, and still is, the biggest market in the world. And it's a varied market. It offers a lot of different businesses and industries. Lots of choice.
Canada is a bit more constrained. You have energy, mining, financials, banks. And then a hodgepodge of some other businesses. Not that there aren't some interesting businesses to be held in Canada, but not in the vast number that there are in the US.
Fearless Forecast for 2026
Forecasting is very hard, even for the smartest people out there. For example, a year ago we thought it could be a volatile year. And we were right on that, certainly in the first half of the year.
Last year, 24 strategists predicted that the S&P would be (on average) around 6500. And we're at 6900 right now. The bulls predicted ~7000. So the more optimistic views were closer to the actual market performance. As for earnings, the analysts were pretty much bang-on. They didn't, however, get the multiple right.
His next chart shows 4 ETFs. In the last week, Canada is the leader in the world (just surpassed the emerging markets). Then comes Europe, and then the US. The US market is actually the worst-performing, so he was wrong about that last year. Money is recognizing that there are challenges in the US and is moving to other places in the world.
Now let's look to the year ahead, and his chart computes numbers from 28 strategists. They see roughly 9% growth, and the S&P average price target is 7464 (Larry thinks it's doable, not sure about sustainable). The top 10 strategists (the bulls) are looking at 7700 to just a little over 8000. They all see really good earnings growth because of tax incentives, economic momentum, and midterm elections (where White House will push to keep markets and economy strong going into those). New leadership at the Fed will probably see a bit more easing.
Let's look at earnings and break it down by sector. The tech sector earned approximately $168 this year, but earnings for 2026 and 2027 are expected to grow 20-30+% annually. That one sector represents 35% of the market. If we start to see people worry about AI at some point in 2026, then analysts will have to change their outlook. But for now, we should continue to grind higher.
When you look at it from an individual stock perspective, and you consider what price targets the analysts are projecting and roll it up by market cap, you get 7938 (but that assumes every stock will be at its high, which won't happen). It does tell you, though, that there's a lot of enthusiasm for earnings growth going forward, and there's the economic backdrop to support it. That should continue for the first half of the year.
He's more concerned about the interest rate markets, with long end of the curve having trouble rallying. There's a tremendous amount of treasury supply. Market's getting very concerned about how we're going to fund all this. Thinks the yield curve will steepen, with short rates coming down a bit more.
They're pricing the next move by the BOC to be a rate hike, and he thinks that's insane. If the economy stays strong next year, and we get 2-3 rate cuts in the US but none in Canada, then all this pull-forward next year for capex spending could be a fiscal cliff coming in 2027 and beyond. It would be pretty bad for exuberantly priced markets. Eventually the long end of the curve responds to that, but not in 2026.
Now to gold and precious metals. People are worried about the world's fiscal challenges, and gold keeps going higher. Probably hit $5000 on gold before we correct. But when that liquidity bubble breaks, and we see $$ rushing into bonds, then money will come out of bitcoin, speculative assets, and gold too.