A Comment -- General Comments From an Expert (A Commentary)

For the past couple of years it's been all about generative AI. He thinks that come next year (so starting in the second half of this year) it's going to be all about robotics. 

The bullseye in the chart is all about the hardware -- physical foundation that ensures the robots have all the mechanical capabilities and sensory input. The second ring is all about the operating system and software side -- intelligence that allows decision-making and perception. Finally, the outer ring is all about applications and integration of solutions toward specific industries (such as healthcare, hospitality, transportation).

He'll talk in the Top Picks about a handful of these.

Everyone brings up this word, but it's such a low probability. You can have slower growth, absolutely, with all the tariff rhetoric. But he doesn't think it's going to actually result in a recession. The situation is self-inflicted by Trump, and we've seen over the last couple of days how he can dial it back. He and his people are watching the market and they know how to rig it.

For the time being, Trump controls the stock market and only he can make it a good thing or not--and it's time to go all in on good.

Considerations during tariff uncertainty: Does your company pay a dividend?

If so, what is the payout ratio? A dividend won’t always stop a stock from falling. Just look at BCE Inc. for confirmation of this. Its current yield is 13.4 per cent, but its stock is down 28 per cent in the past year. This, of course, is because investors fear it will cut its dividend. But for a stock paying a dividend that is not likely to be cut, the dividend can provide both a floor for a stock price, and ongoing income for investors who hold that stock throughout a recession. Secure dividends might lessen the pain of any continued market decline. When looking at stocks you own, take a look at their dividend history and, importantly, their payout ratio. A company that has paid dividends for 45 years and with a payout ratio of only 15 per cent is probably going to be secure. Note we said “secure” and not “safe,” as no dividend is guaranteed, ever.
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He has no idea what's spurring the action today. Having these bounces all the time probably just goes to the fact that we're going to have volatility, up or down, for the next little while. A great deal is due to the uncertainty from the US administration on tariffs and on all kinds of other things. 

As an investment manager or someone running a company, you always make investment decisions within a degree of uncertainty. But it's the level of uncertainty we're seeing presently that's so difficult. This is going to lead to a very difficult environment down the road, as people won't be able to make the right decisions for the long term on capital expenditures and such.

It'll be interesting to see what happens with earnings from the big tech companies. At the end of last year, they said they'd be spending billions of dollars on capex. Are they going to pull back because of all the uncertainty?

All the uncertainty is causing consumer sentiment to be negative, and the small business outlook is negative as well. This will definitely cause a slowdown, and probably a recession. That leads to an argument from an investment point of view that you're going to see lower earnings growth on the S&P 500. Earnings growth numbers are pretty high still, and will probably come down, and therefore the PE multiple in the US will probably contract.

A lot of companies are down, and so there are opportunities. There's a great chance to pick up great businesses, at more reasonable valuations for the long term, if you've really done your work. 

The risk in the marketplace is that this uncertainty continues. We're seeing that in the way the USD is reacting and the way the bond market's reacting. Usually when we have difficult situations around the world, the USD and bond markets rally (prices go up, yields go down). That's really not happening. There's a notion that the world's looking at the US and saying it's just too unstable. Investors are just deploying capital in their own currencies or into other, non-US currencies. This becomes tricky, as the US depends on people buying their debt. 

Trump's issue with Powell is very awkward. Yesterday we saw Trump piling on unnecessary insults. You want the Fed on your side to get you through the difficult time of tariffs. If you get rid of somebody like that, and put in a political person, this leads to the failure of the Fed being independent. 

Very tough question, and he's not sure where that will be. Earnings numbers on the S&P 500 are high, and they haven't come down enough in the midst of all these tariff issues and the way the world is slowing down. Currently, the S&P earnings number is $260-262, but we may lose a lot of earnings growth this year.

A lot of analysts and market bears talk about coming back to the mean. That's the risk, where the S&P 500 goes back to an average of 16-17x PE. That's the level where you'd want to buy stocks. This quarter's earnings should be good for most companies, as they weren't dealing with tariff issues yet. The quarter after that may be a different story.

The other thing about the S&P 500 is that it's had massive multiple expansion over the years. It's not that earnings went up so much, but that the multiple expanded. So you may get a shrinking of that multiple. Hopefully, it doesn't get to 16x, but that's the downside risk to look for. It would certainly be a great buying opportunity.

Definitely overhanging the market and causing a lot of uncertainty. Indicates that he may be flexible to negotiating with other countries. We need to see some progress and definitive news on his trade deals.

Business confidence and consumer confidence have plummeted because no one knows what's going to happen. When confidence is low, businesses wait to do anything. They're sitting on their hands, which usually leads to less growth and less hiring, becoming headwinds to the economy.

Concerns there are also causing the pullback today. The Fed is supposed to be an independent organization. We don't know if legally Trump can fire the Fed Reserve chair; there's debate about what is "cause". 

Fed Chair Powell knows that these tariffs are creating uncertainty. They also typically increase costs. Imports become more expensive, companies try to pass those increases along to the consumer, higher prices are the result, and demand may actually slow. Monetary policy is not actually that effective in a stagflation-type of environment of a slowing economy but with higher prices. Powell wants to wait and see.

Eventually if prices do go up because of tariffs, then the economic data will show slowing and the central banks will have to cut. In Canada, we saw a pause last week as well, after cutting 7 consecutive times, as the BOC also wants to wait and see. Canada's economy is on a weaker footing than that of the US; here, unemployment is much higher.

Consensus is that all central banks will continue to cut rates later on in the year.

Our unemployment rate has gone up quite a bit, now at 6.7%, and that's why the BOC has cut aggressively since June 2024. That's why our rates are much lower than in the US. In the US the economy has been quite resilient, with unemployment at 4.2%.

A diversified portfolio should have exposure to US banks, as the US is such an important economy. She tends to focus on large-cap banks. She expects consolidation in regional banks. Sector would benefit from potential deregulation and increased M&A. We'll have to wait and see how tariffs affect all the Trump pro-business hopes for the sector.

Most large caps reported last week, and results were quite good. But that was before all the tariff turmoil. Strong trading activity in Q1. Banks have pulled back on tariff uncertainty, slowing economy, greater loan loss provisions. See her Top Picks.

Markets are falling declining in part because Trump is bashing Fed Chair Jay Powell, but also because of tariffs, tariffs, tariffs creating uncertainty. Trump's policies are inflationary, worsening things for the bond market and overall economy. You need 100% an independent bank, but Trump wants a Fed chair who will do his bidding. The reality is we're likely heading to a recession, likely catalysed by Trump's tariffs. He better start talking fast about deregulation and better tax rates. Now, he's after more revenue to pay for those. Trump's style of leading could be with us for a while; historically, trade negotiations take 18 months. Until there is clarity, CEOs will be cautious and defer decisions, which would be good for the economy, but are on hold. What will change Trump is the Republican Congress are worried about losing the midterms and pressure Trump. No doubt, we have a hard economic landing coming.

An analyst produced a chart showing all headwinds to the US economy are related to tariffs; he predicts a 90% change of recession, caused by tariffs. During Trump I, his tariffs were up 2-3% and the economic impact was -0.25% to -0.33%, but the current tariffs are way larger, so he predicts a -4% GDP impact. Also, earnings will be downgraded constantly for 6 months, leading to 4,200-4,800 fair value on the S&P. More downside will come. Further, it takes 18 months to sign a trade deal and 45 months to implement on an historical average. This will matter in the US midterms elections when Congress has had enough of this and the Republicans fear losing control. Small businesses make up 85% of capex and 75% of the labour force; sentiment skyrocketed after the election, but plunged last month when tariffs hit. Small business is the heart of the American economy. Trump has to start talking about lower taxes and regulation.