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

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 An amazing savings vehicle in Canada, especially when it's withdrawn at the low tax rate of the student.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.

Company Highlight: Lightspeed Commerce Inc. (LSPD)

The top performer of September was Lightspeed Commerce (LSPD) whose stock price was up 28% on the month, down 20% year-to-date, and up 17% from the year prior. Things have been improving over the last year but LSPD remains volatile with a 52-week range of $16.04-$28.73.

LSPD provides cloud-based software subscriptions and payment solutions, empowering small and midsize businesses, retailers, restaurants, and golf course operators. The company operates globally, serving diverse industries, and it continually enhances its offerings to remain competitive in the e-commerce space. Roughly 62% are transaction-based, 34% of its sales are subscription-based, and the remaining 4% are hardware and other.

LSPD jumped at the end of the month when news broke that it was working with a financial adviser to explore a potential sale and other options. LSPD has confirmed the report and issued a press release that it had entered a strategic business review to discuss being taken over. Many analysts raised their target prices as a result on anticipation that LSPD could receive a significant premium. Going private seems like a potential option. While the premium is unlikely to be anywhere near LSPD’s all-time highs, a significant premium from current levels is enticing investors.
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As prices rise, value drops. Earning must keep up. Valuations are getting stretch, around the low-20s. Reasons are that the Fed is cutting interest rates while corporate profits have been buoyant. Early earnings this quarter are promising. But we must keep our feet on the ground. Multiples no longer are expanding, so earnings must support strong stock prices. The double-digit returns of recent years were unusual. Now, he is overweight financials--there will be loan and therefore economic growth, and the banks are cheap, trading around 12-14x PE.

No doubt that's better to have a split House with neither party dominating. As for Trump's expected tariffs, remember that in his first term, he saw stiff pushback from members of his own party who had a direct interest in those products facing tariffs.

A welcome sign, especially in the US. The S&P 500 had been narrowly lead by the Mag 7. The past quarter that ended in September actually saw NASDAQ lag the broader market. And the TSX has outperformed the S&P. 

Encouraging, as it means there are more stocks and sectors going up in price. Investors are perceiving that the growth outlook is improving as well.

Overall, longer term, it would be a positive for investors if the Chinese economy improves. The government has targeted a 5% GDP growth rate, looks as though it will fall short this year. Many economists think it will continue to be sub-par next year.

Late September, the central bank cut interest rates, and will provide funds for loans so companies can buy back their own stock. Also making it easier for consumers to buy a second home. Initially, there was a very strong upside response. But we need more fiscal stimulus by the government, and they've hinted they'll provide it but without a lot of detail. That's why there's been a pullback. Some of the companies with exposure in China, such as luxury stocks, see continued softness in China.

It's a step in the right direction to have stimulus, but we need monetary and fiscal stimulus. If the Chinese economy does improve from current levels, a positive for companies that do business there.

US banks reported very strong results, and they hinted that the economy is on pretty solid footing. Sort of a "no landing", with growth continuing. Right now, bottom-up consensus estimates are that Q3 earnings will grow 4% YOY, with growth rates being higher in subsequent quarters.

We'll still get growth, but guidance from companies for next year will be very important. Given strength in the stock market and price appreciation, we need to have growth expectations met. Right now, earnings are supposed to grow 15% next year. We need that growth to materialize.

Q3 GDP is expected to grow 3.4%, so growth is continuing. But market is very sensitive to any negative news that may disrupt that growth profile.

A bit of revenue on the miss side, a bit better on EPS though mixed among sectors. The next 2 weeks are pretty key. The US election is 15 days away, and the bulk of the S&P reports in the next 2 weeks. For more, see today's Educational Segment.

If you look at what's priced into the swaps market, virtual certainty on a 50 bps cut. The way the CAD is trading, you'd argue that there's a bit more weakness to go. Not great for the snowbirds looking to buy USD to go south, as the CAD doesn't go a long way in buying US dollars.

A 75 bps cut is a discussion point. But how fast do they need to cut, and is inflation under control? In the US, that economy has proven to be a lot more resilient and robust than here in Canada. On a relative basis, you could argue for more easing in Canada. But if the Fed is going to slow down, and the BOC is going to accelerate, then the CAD has a date with $1.40-1.45, as the currency is where the interest rate differential really manifests. So he'd be surprised by 75.