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

Absolutely, and that's the thing. Valuations are really high. You have to look at your returns going forward. If you buy high, your returns are going to be low, though you could still get reasonable earnings growth. With Q2 earnings, we saw 80% of companies beat on the bottom line. But only 60% of companies beat on the top. That divergence is quite striking. 

At some point, earnings growth will slow down. You're going to get dividends, earnings growth, and multiple expansion. Given that multiples are where they are, you're not going to get that multiple expansion. On the flipside, when everything slows, you could get multiple contraction, and that could really hit your returns.

You always need to be valuation sensitive, but you also have to look at where we're at in the interest-rate cycle. Over the next 18-24 months, more interest rate cuts are coming. Is that already baked into the market? Will there be more upward pressure on equities? You have to strike a balance.

In this sector, you can't avoid it. It affects every single player. Look at AMZN and all the data centre providers. There are only so many customers. TSM also has massive concentration risk. The whole supply chain is massively vertically integrated, so there's customer concentration risk and supply chain risk the whole way through. If you want to be in the space, you have to accept it.

Bullish. The index has a floor at 7,058 and at 6,888. Don't worry about the RSI rising, because the underlying security is still making higher highs. The S&P is not overbought, but just right, based on her charts. As long the index stays above 7,058, it will continue to trade well above its moving averages (13, 26 and 40 months). Based on the regular S&P cap-weighted index: the S&P has a floor of support at 5,669 and could well reach 5,940. Nasdaq 100 chart: support is at 19,481, then 19,277, with a ceiling of resistance at 20,690 from July. If the index breaks that, then it will shoot higher.

Company Highlight: Agnico Eagle Mines Limited (AEM)

Agnico Eagle Mines (AEM) is a major gold mining company in Canada, known for its extended history of gold exploration, development, and production. It has a diversified portfolio of mines mostly in North America with a few projects across Europe. AEM has been somewhat acquisitive over the years, with the acquisition of Kirkland Lake Gold in 2022. The name offers operational stability since most of its operations are in Canada, the US, and Finland, which are miner-friendly regions. 

AEM has been one of the most solid performers in the Canadian materials space, with a 10-year total return CAGR of 14.8%. In terms of its financials, it pays a 1.9% dividend yield, has a strong track record of sales and earnings estimates, and analyst estimates have been rising over the past year. The company is highly dependent on the price of gold, but with the underlying price of gold rising to new highs over the past several months, we feel AEM has some solid tailwinds. It is a large gold miner ($55 billion market cap) and both EBITDA and sales have grown nicely over the years (37% and 28% five-year CAGRs, respectively). 

Its valuation has compressed over the years, reaching a forward P/E multiple of 18X today. Given the expected growth in sales and earnings over the next year (29% and 78%, respectively), we like the prospects of AEM today, particularly with a rising spot price of gold.
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Market looks great as breadth broadens. It's hard to fight this strength. Looking at past soft landings: we may be getting another one because of strong job growth and stock market, but credit is tightening and if employment weakens, that will be a concern. We'll see. Also, global strife could spark an issue. You want to be in this market, but beware of a sharp reversal as in 2001 and 2008 (crashes) by balancing stocks and bonds, and consider adding managed futures to your portfolio.

Canadian Unemployment Rate Accelerates

The whole intention of raising interest rates is to stifle and slowdown the growth of the economy, in the case of an overheating economy. This is precisely what was accomplished with the Bank of Canada raising interest rates through 2022 to 2023, and as a result we are seeing the collateral damage of rising interest rates through the rise in the unemployment rate. The Canadian unemployment rate has risen from a multi-decade low of 4.9% to 6.6% as of the latest reading. This is still below highly worrying levels, but the trend is certainly worth keeping an eye on for continued deterioration in the economy. Eventually, we believe the offsetting impact from decreasing interest rates will help keep the unemployment rate subdued, but the timing of this is uncertain. 
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In the morning, he looks at the Wall Street futures. Are people in a good or bad mood? The TSX and S&P are at highs now; the U.S. has been cutting rates so close to the election, which is odd. Inflation is probably here to stay, given sharp raises for longshoremen and pilots. He fears if Canada cuts rates faster than the US, the CAD can fall below 70 cents. Oil prices will spike if the Middle East situation continues to deterioriate. Will Iran's supply be cut off?

REIT Investment Outlook

REITs have been a struggling sector in the market over the last few years as high rates have pressured margins and growth capabilities. As we enter a rate cutting environment in Canada, the future outlook for REITs is much more positive than in years past. XRE and ZRE are two viable options for interested investors. ZRE has the performance edge in recent years, while both funds are highly similar outside of that. The decision for investors should come down to if one wants equally weighted exposure or market-cap weighted exposure. Given how weak recent performance has been, we think that XRE may benefit in future years. As rates come down, larger players who have more leverage and will benefit, while raising capital to fund growth initiatives will also be cheaper. This will likely have a greater benefit on the cap weighted portfolio of XRE. We think either option is solid for Canadian investors looking for exposure to REITs, but we would give slight edge to XRE today.
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General direction is down, though it will be a bit sticky and choppy at times. Inflation is last year's problem. It will bounce around 2-3%, but we're in the right spot.

We've talked a lot about markets being resilient this year. The new word might be "defiant". Forget that September's typically in the red, the market's up. October before an election is usually tough, but it's not bad so far.

That said, since 1992 there's an average 2.5% drop in markets in October during US presidential election years; 63% of the time, markets are down.

Agreed. You need to be very selective as to what areas you want to be in. With the mega-caps being such a big part of the S&P, and showing the valuations they are, no doubt that the S&P as a whole is kind of expensive.

Revenue and sales will be more in the single digits. But the bottom line looks pretty attractive. For the S&P 500, seeing ~14% earnings growth for 2025, and ~10% for 2026. Investors will focus on those lines.

Getting very selective. He's trimming as things have gone up, but not exactly lightening up.