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

Market Update:

The TSE Index was up 0.65% in the month of October, up 15.26% YTD and 27.99% over the past year. Canadian GDP was up 0.50% in the third quarter of 2024 and 0.90% for the full year; in the USA the GDP was up 2.80% in the third quarter and 2.70% for the full year. The Canadian inflation rate was up 1.60% annually and the US inflation rate was up 2.40% annually in October 2024. With this background, the following Table presents the highest and lowest performers for the month of October 2024.
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The election didn't change much, because interest rates still drive the markets. Either candidate was going to spend and expand the US deficit. Rates and data centre demand steered his investments.

Why did Jay Powell cut rates? Trump's policies will be inflationary, stocks are at all-time highs and so forth. Core inflation and overall inflation remains higher than the Fed's targets. After the September 0.5% cut, the market priced in a 2% cut over the next year, but now it expects 3 x 0.25% cuts. For certain, Trump will initiate massive deficit spending, so a lot more debt will need to be financed. If Elon Musk can pull off a new Dept. of Government Efficiency, then maybe deficits in coming years could be better than expected. We'll see. Meanwhile, the massive treasury debt that needs to be financed will keep pressure on the bond market. Eventually, stocks will care about this. 

The Trump trade: Will history repeat? He examined ETFs across various parts of the market, 2016-2020. Of them, US large-caps performed the best, but he doesn't expect an average annual return of 13.78% to happen again, given how expensive stocks are. Also, he looked at the forward PE on election day 2016 vs. now; its 18.5x PE (a little high) vs. 25x today. So, markets are much more expensive today; history says that when markets are expensive, then forward-based returns come down. Small-caps are trading at the identical PE in 2016 vs. today, so small-caps should perform better than mega-caps, because the smalls have more domestic (US) sales. Bond yields: they rose from Nov.2016 to late 2018, worried about Trump policies, but yields declined after late 2018 because the market worried about a slowing economy and the Fed wanted to cut rates. Today, yields are much higher. because now we've been worrying about inflation, not in 2016. Under Trump's first term, it was 75% debt-to-GDP vs. today's 95%, and the cost of the debt is nearly double. Likely, he will extend tax cuts, but doesn't see additional cuts. He expects small/mid-caps to outperform large caps in the next few years. XHHQ and XMHQ were the ETFs he examined here. 

Regarding the results of the U.S. election there should be less regulation which is pumping up financial service stocks as well as others. The fed rate cuts have engineered what looks like a perfect soft landing and this has been good for equity markets. Some of this has already been priced in with these surging markets. One of the market risks is that the stimulus package of the world's second largest economy, China, is not having a big impact. Earnings reports for big international companies have been affected by the weakness in China. However he thinks China's economy will get rolling again because China will keep on providing more stimulus measures. 
There has been a move away from large cap tech, the magnificent 7 for the most part, and the market spreading out to undervalued companies.

The question was on his favourite property casualty insurer. He likes Allstate which has reduced its share count by 70% in the last 20 years.

The question was on what stocks to buy and hold for an initial investment of $10 000 for a 23 year old. He would invest in a Canadian fund which would be diversified in a number of high quality businesses - don't try to buy three stocks.  You can balance things out over time. Do not hedge with a U.S. index or U.S. stocks. An example given was ZSP which is not hedged and trades in Canada.

The question was on buying fixed income ETF's. It is better to buy laddered, individual bonds where you know the return and the maturity dates. Examples of high quality bonds would be Government of Canada, BCE, etc. You can buy these at any discount broker - don't trade them, just hold.

This was another question on fixed income products. He recommends buying 1,2 or 3 year bonds, not a bond fund where fees might be high. Also you know what your income will be and what the maturity dates will be.

Factors that can influence a stock price: Non-company news

There are lots of non-company events that can move stocks, and even overshadow an earnings release. For example, next week’s U.S. election might see lots of stocks move dramatically, whether their third-quarter earnings are good or bad. Or, a competitor might report good or bad news, overwhelming a company’s own earnings report. Or, an interest rate change, geopolitical events or simply a bad (or good) market day might cause a stock to move sharply in the opposite direction to its earnings report.
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Believes financial markets had not priced in a Trump Presidency. Market jump is reflecting continued de-regulation, pro-growth policy, lower taxes and falling interest rates. investors also jumping into the markets to chase year end performance. Expecting markets to continue heading upwards and is optimistic. Prospects at major US banks have improved - share prices have began to reflect that (but are still cheap). 

Company Highlight: Barrick Gold Corp. (ABX)

ABX is a traditional miner who explores, mines, produces, and sells gold and copper properties. ABX also sells silver and energy materials. For the full year ended 2023, gold was ~91% of total revenue, copper 7%, and other  ~2%. Geographically, gold properties were derived 50% from North America, 37% Africa and Middle East, and 13% Latin America and Asia Pacific. For copper properties, the geographic distribution was 79% Africa and Middle East, and 21% Latin America and Asia Pacific.
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He and his team are fairly constructive on equities going forward. Today is a less exciting day, but he's still positive at least for the NASDAQ. Now that the uncertainties around US election are behind us, as well as the typically volatile month of October, we set up pretty nicely for the near term. If you look back to 1950, the next 3 months (November, December, and January) tend to be the strongest 3-month segment of the year. The average return in that timeframe is 4.4%.

The US economy had 2.7% real GDP growth in Q3, pretty solid. Driven a lot by durable sales, inflation down to 2.4%, unemployment down to 4.1%. No signs of recession in the US, which people were worried about a year ago. Now we have more dovish central banks around the world with a path of lower interest rates.

US corporate earnings are forecast to be about 13% for 2025, 11% for 2026. Equities are going to move based on corporate earnings. 

It could be, especially with the new administration in the US being more business-friendly and in favour of tax cuts. Also in the US, money market assets have hit a new record high of $6.5T, lots of dry powder.