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

According to Mr. Trump, we're in the golden age. If interest rates go in the direction they're supposed to, we don't have massive tariffs, earnings continue to go the way they should, and AI themes continue to develop, then markets probably have further to go.

On the S&P, a lot of people are coming out with targets of 7000 by the end of this year, and that can happen. There are pockets that are pretty cheap such as Canada, the rest of the world, and dividend payers. But we have to have smart policy for that to work. He believes there will be a return to common sense, with more rhetoric and less delivery, but we don't know for sure.

Not just in Canada and the US, but the world abroad too. Intersection of politics and investing seems to be at the forefront of everything right now.

If we walk through the markets he invests in domestically, we don't have a leader. We have the folks who are vying for leader, as well as the provincial premiers working together to try to put something together to counteract what might be tariffs coming as soon as February 1. Lots of moving parts there.

If you look at the data, and see some of the claims being made by the Americans, there's a $45B trade deficit (more goods coming from Canada and going to the US). But if you back out the cheap energy that we sell them, there's actually a $45B surplus. That will have to get negotiated.

Looking at the US we're 2 days into Trump 2.0, and we have interest rates, GDP growth, inflation, US dollar strength. A number of different issues, and it will take some time (6-12 months) before we know how this all shakes out. Investors needs to be cognizant of all the executive orders and what the impact can be over time.

Europe is another area he's actively investing in. France is going through political turmoil, and its stock market was quite challenging last year. But this year, 3 weeks in, it's the best-performing market in the developed world.

High-quality companies. In spite of all the things that could potentially change from a tariff perspective, look for companies whose business models are fundamentally strong. For those types of companies, there's probably room for them to outperform.

One example is CNQ, and what the impact of "drill, baby, drill" in the US will have on oil here. We'll get a lot of noise now. Executive orders are flying, but it will take time before we see the outcome of it all.

It may not matter what the Fed does; the matter may no longer hand on every move the Fed makes or guess and guess what that will be under Trump. We may revert to a case where the Fed plays a role only in extreme moves.

Market Update:

The TSX Index was down 3.59% in the month of December, up 18.47% YTD and 18.47% over the past year. Canadian GDP was up 0.4% in the fourth quarter of 2024 and 0.50% for the full year; in the USA the GDP was up 1.4% for the fourth quarter and 2.90% for the full year. Canadian inflation rate was 2.70% annually in December 2024 and the US annual rate was 3.30% in December 2024. 
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The rate-hiking cycle ended in Q3-2023, and it takes 18 months to work itself through the economy, about now. We may see a soft landing. Declining rates has coincided with the stocks rally since the December CPI report. Large stock market corrections come during recessions. He doesn't expect a recession this year, which should be good, though perhaps in 2026. But more volatility this year than usual. Trump is pro-business and pro-hydro-carbons which is good for Canada (amid the backdrop of looming US tariffs). 

The rate-hiking cycle ended in Q3-2023, and it takes 18 months to work itself through the economy, about now. We may see a soft landing. Declining rates has coincided with the stocks rally since the December CPI report. Large stock market corrections come during recessions. He doesn't expect a recession this year, which should be good, though perhaps in 2026. But more volatility this year than usual. Trump is pro-business and pro-hydro-carbons which is good for Canada (amid the backdrop of looming US tariffs). 

You can't go wrong with the banking sector including Canada. But the US looks more opportune now, given its economic strength. Europe is more fragmented and faces a strong USD.

Trump will be empowered this time. He's more experienced and wants to make things more efficient for U.S. business. Everyone is wondering what his impact will be internationally, including Russian and Ukraine. U.S. earnings season so far sees the big banks doing very well, but there remain issues with the long-bond rates. Blackrock's deputy CEO expects inflation to be far stickier than what the street expects. So long-bond yields have to stay higher for longer. 

Trump 2.0 will see him using tariffs as a negotiating tool to add jobs to the U.S., but there will be inflation. The debt problem is real. Trump wants tax cuts, too. His decisions will add a lot of volatility. For every 10% tariff, the US dollar gains 4%, so we're pricing in a 20% tariff across the board now. But at 8:30 am, the Wall Street Journal said that Trump won't impose tariffs, so the Canadian dollar rallied as the US futures and US bond market rallied. Risk assets rallied. Get used to volatile markets in the first 100 days. Private equity and bonds are very attractive now.

He's the wrong person to ask for a crypto recommendation. He doesn't touch them for being highly speculative. He's an investor. Pick any crypto ETF.

He expects the gold trend to continue as central banks keep adding gold among many reasons. He buys on dips, though, not on rallies.

Advantages of ETF's for Investors:

They are a great tool for investors transitioning from passive to DIY

In investing, there is no need to choose between being an exclusively passive ETF investor or a DIY stock investor. There’s certainly room for investors to do both and create their own hybrid strategy. Investors who want to make the gradual switch to DIY stock investing can also take a hybrid approach by starting with broader market exposure through ETFs as core holdings, then selecting individual stocks as “satellite” holdings. As one gets more comfortable with the risks and concentration of owning individual names and develops a more refined strategy, an investor can slowly sell off units of core ETF holdings (or take new cash that come into the portfolio) and move more towards individual names.

 There are many ETFs with niche exposures that allow you to differentiate from the market

There are enough ETFs and variety out there for an investor to create a portfolio of ETFs that he or she views as more optimal than the broad market. An example we often use is owning a TSX ETF which would be overweight in financials, materials and energy. A more optimal allocation may include increased exposure to technology, industrials and other cyclicals for investors looking for growth or utilities and REITs if one is looking for a higher yield than TSX. These adjustments can be achieved via specific sector ETFs. One can also tilt their portfolio towards smaller market cap ETFs that may have higher growth potential and are not well represented in market-cap weighted indices.

Why buy one or two stocks when you can buy the sector?

While this sounds like a rhetorical question, there is an actual reason for this: superior returns by being concentrated in a winning stock of course! But the trick is getting to a level of conviction where one can believe the particular stock is a winner in a specific indsutry. Of course, this can require a lot of time and energy researching a company and its competitors. Meanwhile, one may want exposure to this sector until deciding which name(s) to be more concentrated in. The solution: ETFs. For example, you want exposure to the cybersecurity space and are bullish on the sector in general. To not rush the decision of which cybersecurity stock(s) to pick while getting exposure one can purchase an ETF like the First Trust NASDAQ Cybersecurity ETF (ticker: CIBR) or ETFMG Prime Cyber Security ETF (ticker: HACK) to benefit from industry tailwinds and ultimately let the market decide which individual companies get a higher weighting in the ETF (assuming a market-cap weighting).

Low knowledge areas

Related to the point above, another benefit to ETFs is that they give investors access to instant diversification in areas that are far out of an investor’s realm of knowledge. For example, an investor may want emerging market exposure in their portfolio for geographic diversification. If one knows barely anything about emerging markets, it can be a daunting task to learn the ins and outs of companies in foreign countries that have very different economic cycles, regulatory and competitive. Many investors may not even want to own individual securities outside of North America and this is understandable. Again, ETFs offer a solution to gain this exposure of broader regions or specific countries. Of course, low knowledge areas for an investor can also be specific sectors in local or North American markets.

 Final Thoughts

ETFs have many other uses that we can on and on about such as hedging a portfolio’s broad market exposure through inverse ETFs, getting exposure to commodities, currencies and precious metals or even using as a proxy for exposure for the 30-day period one needs to wait before buying back a stock sold as part of a tax-loss selling strategy. The point is, given how easy ETF make it for an investor to customize a portfolio and quickly gain diversified exposure, ETFs can find a place even the most active investor’s portfolio.
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He is focused on U.S. foreign policy, both economic and geopolitical, and the trajectory of interest rates. He is looking at being overweight in the U.S. market. Some of the risk premium is coming but it is hard to understand what Trump is going to do and how tariffs will play out. There are a mix of sectors doing well. In Canada he is seeing sectors like financials,energy and materials starting to look very promising so maybe tariffs may not be as bad as expected. There is a positive sign right out if the gate.