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

Many US companies have reported and in 2 weeks even more will, so we will get a good sense of the US economy and what the companies forecast. Meanwhile, there's economic data and the US election. He expected markets to be a lot more volatile. The market seems to be banking on Trump winning, though polling says it's tied in several states. It's close. Same goes with the House, also close. Trump is seen more inflationary than Harris given tax cuts and tariffs Trump wants. Earning season once again will see tech dominate, reporting most of the gains.

Last spring, he's moved his asset mix into private credit and private equity like Blackstone. The latter are less volatile and less tied to the market. Pension funds have 50-70% of assets in private securities. It depends on your need for liquidity, which isn't readily available each day under this strategy.

The Canadian dollar will get weaker, before it gets stronger, because our central bank has been more aggressive in cutting interesting rates than the US, and he expects this to continue, 25-50 points by year's end vs. 25 in the US. Also, weaker oil prices will make the CAD weaker down to 70 cents in the next 6 months. But after that, you will like the Canadian economy more.

What happened in the last decade in bonds won't happen going forward. The world be slightly more inflationary going forward, but nowhere as bad as post-Covid, like 2.5-3%. There will be government deficits (a major problem), so there will be a need to finance that debt. The 60/40 portfolio no longer works. Look at XBB. Today, the best you'll earn in a bond portfolio is 3-3.5%; you have credit risk and capital risk of inflation. Not bonds, but private credit will give a much better fixed income return for the next decade.

In an election year October can be more volatile than usual and there is potential volatility in the next few weeks. Retail investors are bullish and that historically is a bearish signal. The VIX is trending up and the market is trending up at the same time and that's unusual. Institutional investors are reducing their exposure to stocks so the the retail and institutional groups are diverging. We are just tipping into bullish sentiment but if it goes really deep then that is a reliable signal.

The caller was wondering if we are at a market top and should we use daily or weekly charts to determine if there will be a market top reversal. This involves macro analysis which he a does a lot of. He uses weekly charts and the 200 day moving average. Look for higher highs and higher lows in the weekly charts. As soon as the last low is taken out and there is a break of the 200 day moving average it is a strong indicator that the former trend will turn into a base or a downturn.

Rotation from "Mag 7" into small cap stocks happening in USA & Canada. Institutions are moving into Canadian small cap stocks, which have started to out-perform. Expecting this trend to continue. Finding small cap stocks that are setup for 30%-40% gains (trading at single digit valuations). Traditional valuation metrics apply, but larger pools of capital usually don't invest in smaller companies. Lower interest rates should be helpful to small cap stocks (less expensive to service leverage). 

September Market Update:
The TSE Index was up 2.8% in the month of September, up 14.51% YTD and 22.82% 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 3.00% in the third quarter and 3.00% for the full year. The Canadian inflation rate was up 2.00% annually and the US inflation rate was 2.50% annually in September 2024.
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He believes so. We're now into the second year of a bull market, from when the market bottomed in October 2022. Looking back even further to 2019, we've have a global pandemic that shut down the world, Russia-Ukraine war, Middle East conflict, highest inflation since 1980, and the highest interest rates in many years. If he told you that the S&P 500 would double over those 5 years, you'd have thought him crazy. But that's exactly what happened.

What does that tell you? Focus on fundamentals, try to ignore the noise. And the fundamentals are pretty good. We're at record highs because the earnings of the S&P 500 companies have been tremendous, primarily from some of those big techs. Now we're in the part of the cycle where interest rates are coming down, with more to come from both Canada and the US. Inflation has come to a normalized level.

What will get us over the hump for more record-level performance is earnings, earnings, earnings.

Yes. Look at the gigantic move today by TSLA, which had a very low bar going in. A lot of big numbers will start coming out next week when we get some of the big techs. So far, so good.

He sees it as a continuation of more of the same from the beginning of the year. Companies tied to housing, the low-income consumer, or transportation are not doing as great, but most expect things to pick up. It's not that things are so bad, it's just that things were so good for a lot of those companies in 2020-2021, it's hard to find what the normalized level is. Companies like TFII, CP and CNR had good results, but not good enough given how strong the economies are.

Loves it when grandparents can do this for their kids and grandkids. They don't need any more toys, just give $$ so they can buy stocks. An amazing savings vehicle in Canada, especially when it's withdrawn at the low tax rate of the student.

Hard to buy stocks with the annual contribution amount allowed. Better to focus on mutual funds or ETFs. Hard in Canada, as we don't have a great, diversified index. He'd suggest buying the S&P 500 through an ETF on the TSX, there are a few of these to choose from. You can buy the full S&P, or limit it by using an "equal-weighted" S&P index; or use a bit of each. 

Looking at a graphic that's constructed like a dartboard, the bullseye is comprised of all the manufacturers. The likes of Japanese automakers such as Toyota and Hyundai, and TSLA is in there. They build and use the automation robotics.

The circle just outside the bullseye contains the hardware companies. All the way from HON to NVDA. It's the hardware that assists and supports the manufacturers in what they put into the robotics and automation. Then the outer circle contains the software guys. 

He mentions all this on the back of the TSLA Robotaxi event. It was a historical moment, as it was the first time they had robots. Some were dancing, some serving drinks, others conversing with the audience. First time we've had a venue like that, it's a big deal.

It's early days, but if you listen to the likes of Gartner Research, the compound annual growth rate (CAGR) of those robotics and automation companies is running about 25% per year. And it will continue that way. You can see it with the manufacturers, such as with all the robots that TSLA and GM use.

He'd pick 1 or 2 of the manufacturers, 2 out of the hardware players, and 1 or 2 out of the software area. The application of AI is key in this, as it's really accelerating all the automation and robotics. It's a young area, but it's applicable.

Everyone's wondering when they're going to be able to actually monetize the AI side. Well, here it is, this is real.

Bar is set very low on TSLA, should do pretty well. AAPL should also do pretty well because it has some momentum behind it, even though it's behind on the AI side. AMZN is firing on all cylinders. Have to wait until the end of November for NVDA.

The one with uncertainty will be GOOG, because of DOJ litigation as well as competition on Search (especially from the new one, Perplexity). He still really likes it though, because it has so many horses in the race.