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

We've had a lot of uncertainty, and a big drawdown (US in particular). He doesn't see a Canadian election having much bearing on the US, which is where his main focus lies.

The new US administration is very unpredictable. There's a lot of uncertainty. Latest consumer and business data show that confidence is waning, people are a bit anxious. Capital spending may be slowing a bit. 

Having said that, these are all short-term reactions. The question really is how long will this uncertainty last? If it lasts a long time, it could feed back into the economy. If it doesn't, then this is a really big buying opportunity.

He doesn't try to predict the future, so advice to individual clients is really based on their circumstances. He tries to prepare their portfolios for different eventualities.

He is seeing some opportunities out there for portfolios. For example, the Mag 7 are down between 15-20%. Some of the smaller, growthier names are down almost 40%. That creates opportunity.

Many of his clients have seen all this before. You don't get deals in the market unless there is uncertainty. Other clients may feel some anxiousness, so it varies by client.

He's very focused on US growth names and his timeframe is multi-year, so 3-5 years. He's not going to go to all cash or pull out of the market simply because there's some uncertainty. That said, he did raise a little bit of cash in anticipation of this uncertainty. He's looking to deploy that as names pull back. Because his timeframe is longer, he's not changing what he does on a fundamental basis.

Copper is certainly a derivative of technology growth. For example, when EVs are growing, that should help copper demand. Electrification of everything is helping copper demand. If the USD weakens (which it's more than likely to in the long term), that will help commodities as well. 

He's bullish on copper, though he can't provide a junior name. But, generally, the drivers are in place for copper outperformance.

Cyclical component and secular component. 

On the cyclical side, thinks we're bottoming on analog, automotive, and so on.

Secular has been dominated the last 3 years by generative AI. Think NVDA, AVGO, and others. He foresees growth here for several years, but the nature of that growth may change. By the law of large numbers, growth will slow down. We're shifting from a purely GPU-led demand environment to a big ramp up in A6 from various hyperscalers as well, as hyperscalers move A6 functionality from low-demand areas to their core workload.

The thesis around space is very simple, far-reaching, and very durable. It's all about launch costs. In the 1980s, the cost to put 1 kg of material in space was $50k. The next generation is forecast to bring the cost down to just 100s of dollars. 

The implication of that is profound, and we should see an explosion of commercial activity in space. For example, there's a company that wants to manufacture pharmaceuticals in space because of the zero-gravity environment. Down the road we may even see asteroid mining, as they're very rich in precious metals.

You could look at AVGO, the clear leader in networking and provider of GPU chips for GOOG. There should also be a huge growth driver in memory, DRAM.

Seeing a significant selloff, fueled by trade war and economic uncertainty across the board. Trade uncertainty leads to profit uncertainty, which explains why the market's been all over the place. Seeing some positives today. High valuations and stalled tax cuts are really compounding investor concerns. Some negative sentiment among consumers is also adding to market volatility.

The one big thing that markets hate more than negative news is the unknown. The S&P 500 has fallen into correction territory of 10%, and the NASDAQ is down 14%. TSX has held up slightly better, but still down.

Pullbacks are part of the market cycle. Historically, they happen 1-3 times a year. Though pullbacks don't feel great in the moment, she believes the market still has upside in 2025. Seeing a rotation from big tech into other sectors and geographic areas.

This is a big reminder to investors to take profits along the way, don't just ride the wave. This lets you raise cash and be able to pick up stocks when they're on sale.

Investors with diversified portfolios have seen some bright spots. Bonds have outperformed stocks, and investors have shifted toward some of these safer asset classes liked fixed income. In Canada, materials (especially gold) have been strong. Even international markets like Europe and China are up 8-10% this year. 

There's still no sign of a deep bear market.

Yes, we have seen some upside in Europe and China. She's a bit hesitant right now, but is definitely doing due diligence more in international markets. Still some geopolitical risks that investors need to take into consideration. So be careful before just jumping into a bounce rally.

She watches this sector closely, as that's what consumers will cut if there's weakening economic data. She's underweight the sector. Be cautious, especially as the data is showing more weaknesses than positives.

She's overweight US equities. That shift was due mainly to economic data out of Canada -- slowing inflation and GDP, likely a recession. Also the CAD.

With Trump in office, the US is pro-business with less corporate tax. Those measures should boost S&P profitability. EPS growth is better in the States too -- expected 14% this year.

Sectors like materials, industrials, and energy were all negative last year. Expected to have positive EPS growth this year. She likes those sectors, plus healthcare. Healthcare is expecting 20% EPS growth this year.

Going from a Mag 7-concentrated portfolio, she sees a more diversified portfolio being the winner for 2025.

Market Update

The TSX Index was down -0.55% in the month of February, up 2.69% YTD and 17.82% over the past year. Canadian GDP was up 0.3% in the fourth quarter of 2024 and 1.50% for the full year; in the USA the GDP was up 2.5% for the fourth quarter and 2.50% for the full year. Canadian inflation rate was 1.80% annually in February 2025 and the US annual rate was 3.00% in February 2025.
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The market is unwinding the premium valuation of recent years as confidence grew and FOMO. Now, we have uncertainty around Trump 2.0 with valuations falling from the low-20s to the high-teens, more of the historic norm. So, he's not worried, but don't expect is to bounce back to that premium. It takes a while to build confidence, and it's healthy to see the air come out of slightly inflated valuations. A year ago, he started to sell his Mag 7; by year's end he held 24% exposure vs. 35% in the S&P. Though great businesses, nothing grows to the sky. US profit margins a year and a half ago peaked at 13.1% and now aren't far off; historically, they've been far less. Corporations have learned to adapt and perform well. Tariffs: will they be that punishing and will be Washington be so tone deaf to the US economy and push it into recession? He thinks not. We know Trump's playbook by now: bully, scare tactics and threats. The market sees this and is pulling back. Still, it's a tail risk.

There's no expectation at all for any rate cuts. We've seen a marketplace that went from completely pricing out rate cuts, to the equity market weakness we've seen in the past few weeks and now pricing in 3 rate cuts over the next year. Treasury Secretary Scott Bessent said over the weekend that market volatility was not bothering the US administration at all in terms of policy.

We're facing a bumpy couple of months. Lots of policy uncertainty. Market's primed for a bit of an oversold rally, which started late last week and is continuing today. He expects it to continue through options expiry this week. But he doesn't see us going a whole lot higher, maybe another 1-2%.