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

Last 10 cycles have seen an 18.1% average return in the first year post-election, with a 90% win ratio. So, 9/10 times in the last 10 cycles, the market was higher in the year right after a US election.

There's also the January barometer: how goes January, so goes the rest of the year. Since 1950, a positive January has led to the S&P being up 12.2% on average, with an 87% win ratio. January 2025 was great, with the Dow being up ~5% and the S&P up ~3% (as of a few minutes ago).

He's always looking for earnings growth from companies, at least double digits or higher. He also likes industries in which there are few competitors.

Usually, he's 70% invested in the US (with some of that being international exposure), and 30% Canada. Right now, he's 73% US (and a smidgen of global) and 27% Canada. A lot of that is due to stock-picking and to US equities performing just a bit better than Canadian.

At this point, he doesn't think he'll be pushing his US exposure higher, as it's already above the normal weight that most Canadians would have in portfolios. Though it could fluctuate by 3-4%. At the end of the day, the US is a much bigger sandbox to play in, with more choice than in Canada in terms of scale and scope.

There will be years when Canada will perform very well, given its weighting in financials and resources, but right now he likes the US quite a bit.

Doesn't own any names in the space at the moment. Yields will have to start coming down pretty dramatically for dividend players, such as the telcos, to start getting a good lift. And he's not seeing that yet. Longer term, he'd argue that a lot of these names don't have the growth he's looking for.

These names will do well under the new administration and with de-regulation and pro-business policies. Environment ripe for increased M&A activity and increased investment-banking fees.

That brings up issues of Canadian patriotism. He has to look at things from the stance of what he needs to do for clients to grow their portfolios in a risk-managed way. The US will always have the biggest sandbox; from WMT to SBUX to AMZN, it has names that we just don't have in Canada.

Lots of people are saying to buy Canadian products. That's fine, but they're in WMT and COST buying Canadian products. In his opinion, not sure how in this global world you can accomplish buy-Canadian in a major way that makes a difference.

He follows everything, always looking for opportunities. Now, the problem he has with resource stocks is they dig a hole in the ground, bring something to the surface years later, and then have to sell it for more than they paid. Cost-effective recovery rates are getting harder. It's a classic, cyclical, commodity-type industry; doesn't lend itself to the type of quality companies he focuses on at his firm. That being said, he likes today's capital discipline, and there are some opportunities in that sector in Canada and elsewhere.

He looks for quality companies with a long-established track record of profitability, free cashflow, and dividends. All of which tends to lend itself to larger caps, though today there are some opportunities in small- and mid-caps.

In the short term, company operations matter. In the long term, capital allocation matters a whole lot more.

He had a bit of fun with ChatGPT doing a 25-year regression analysis of America's GDP growth and the S&P 500. The correlation ended up being less than 0.1, utterly meaningless. The stock market's a leading indicator and more likely to tell you what's going to happen to the economy, than the other way around.

In 2022, the fear that dominated investors' minds was that interest rates were going to stay higher for longer. Well, they have, yet markets have progressed substantially. So don't get too hung up on trying to predict the economy if you want to work out what's going to happen with the stock market.

Corporate profits are inextricably linked to nominal GDP over the long term. In 2000, we had the best US economic growth outside of the pandemic recovery, but the stock market fell 10%. In 2009, coming out of the global financial crisis, the US economy contracted by 2.5%, and the stock market was up almost by a quarter.

Where can investors hide from tariffs:

Not all companies would be affected by tariffs, and there are some niches in the market that are not affected that much because of this political noise. Those players are companies that focus on the domestic market and have less exposure to the U.S. as their key operating segment or suppliers; those companies could still do just fine in this environment including:

Financial names: X, IFC, BN, FFH

Gold exposure: FMV, WPM

Utilities: CPX, FTS, H

Technology: CSU, VHI
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Companies with significant exposure to China, such as Merck (the Chinese government is slow in rolling out one of their vaccines) or Apple (the government is investigating its service stream, despite Apple employing many people in China). GLP-1 drugs impacting fast food companies. Department stores like Macy's.

Obviously distressing. From an investment standpoint we have to step back, watch, and understand what's going on. A lot of it is posturing. We know what Donald Trump's playbook looks like, and he's going to take it to a point where the market believes there may be impending doom for our economy. That's when he has the most leverage. 

History tells us that these things are settled, and they're settled for a reason. And that is that both sides are invested, and both sides can be hurt.

Right now, although the media's talking about Trudeau and Trump having  conversations, there are a lot of conversations going on at the lower levels on both sides of the border. The US representatives are going back to the White House, and lines of communication are opening. It's the first day of pressure on Donald Trump to get something done. If there are tariffs, and they're damaging to US companies, US congresspeople and senators are going to be the ones to hear about it from constituents. In turn, the government representatives will use their leverage against Trump, and that will ultimately get things settled.

These are days that we can expect. Markets in 2025 will likely be different than 2023 and 2024. One of the big differences is that we're going to have volatility. We're going to see days where something out of the ordinary comes along and surprises the market.

He and his team love the promise of new chip development and AI development. But he's not at a full weight, as that would be a dangerous investing posture. A whopping 33% of the S&P 500 is devoted to investments in big, mega-tech companies. He sees lots of value in the remaining 493 or so stocks in the S&P that aren't looking at AI.

For more information, you can read the most recent Gauge article under Insights at goodreid.com.

Currency hedging can serve a purpose, he's just not interested in that purpose.

He usually likes to have the exposure to foreign currency. Today, the CAD is quite weak. Possibly there's a mispriced percentage in there. But do you want to speculate and make that trade? The premise of the question is the high USD, but "high" is a relative term. Could it get higher? Yes, of course. Could the CAD get weaker? Yes, it could. He's been around long enough to have seen it at 60 cents.

If you're invested with a portion of your assets in an economy, but you don't like the currency, you should probably circle back and ask yourself why you're actually invested in those companies. A country's economy is the foundation upon which all its companies operate.

Again, you're using currency to make a trading decision. No one can tell the future. Instead, he'd take the US dollars and invest them in US securities. Gives you geographic diversification, sector and industry diversification (as many aren't fully represented in Canada), and access to the historical outperformance of the US economy compared to Canada.
 
If we go back to pre-Trump 2.0 election times, the CAD has deteriorated by about 5%. Is it really worth 5%, over a long period of time, to forego the opportunities that you might have in investing in US equities? He'd say no, but it's a personal decision.