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

Finally showing some life. Yesterday, it might have been up double digits for the year, seeing a bit of pullback today. Oil prices have remained strong, gold has ticked up with uncertainties. RY is at an all-time high. NA has recovered from worries about the CWB acquisition. Not too much to worry about in Canada.

Everyone's hoping that, as interest rates get cut, some of the dividend stalwarts will be back in favour. Of course, the Canadian market is filled with a lot of Canadian dividend stocks.

Is it playing catchup? He doesn't know. It's not as good an index as the S&P 500, because companies in the TSX are not as good businesses. But there are always going to be sectors and factors that can push the TSX index up. It's underperformed for many years, so maybe it'll have its day.

In his opinion, financials are rallying because inflation has come down, interest rates will be cut, and that's going to be a big relief for the Canadian economy. There will be fewer worries about bankruptcies, or mortgages coming due that have to be renewed at higher interest rates. Optically, that's bad for some of the banks' net income, but it's terrific for confidence, more lending, and business activity in Canada.

People were pricing in a pretty nasty recession, and that's reversing, so the banks are recovering.

It depends whether the shares are purchased by the company at a reasonable valuation, or whether they're overpaying to boost EPS in the short term. A company like CNQ, for example, has a very good track record of buying back its stock at fair prices.

Doesn't love share buybacks in very cyclical businesses. MG, for example, bought back a huge number of shares at a much higher price, and it's probably regretting that now.

Very positive on the sector in general. Set up to do quite well for second half of the year. Names like BTE and CNQ should do well going forward.

An area that could start to do well in the second half of the year and beyond. When you think of how to trade the sector, it really comes back to timing the homebuilders. The homebuilder sector had been under pressure for the last year and a bit, because of higher interest rates.

If we start to see more of a break in interest rates, really good for homebuilders. Starting to see those stocks start to move up in the US. In general, once the homebuilders start to go, the price of lumber and lumber stocks start to follow after that. BOC has signalled cutting; the Fed's getting ready to embark on a rate-cutting cycle.

TSX has outperformed the US market so far in July, mainly driven by metals such as gold, silver and copper. Canada will continue to cut interest rates faster at this point, and this creates tailwinds for Canadian stocks in the second half. So she's a bit more bullish and optimistic on the Canadian equity market for the second half, if pace of rate cuts continues.

Kicked off already, with positive news last week from the financials. Earnings growth rate for the S&P 500 is projected to be 9.3%, up from last year. Lots of positive momentum in the markets, as well as across the markets because we're seeing more broadening out.

The momentum from the Magnificent 7 and the Fabulous 5 from 2023 has continued into 2024. Now we're seeing a broadening out. Seeing a runup in the small caps, Russell 2000 was up 3.5% yesterday. Mid-caps, the S&P and the Dow are responding as well.

Interest rates affect the various sectors differently, and now we're seeing a pickup in real estate, utilities, and materials. Seeing 95% probability of a Fed rate cut in September. Though the Fed has its eye on 2% target inflation, she expects continued cuts, which will be bullish for both Canadian and US markets.

After the monster gains in the S&P 500 with narrow participation, likelihood of soft landing and prospect of rate cuts in just a couple of months suggests a bull market entering a new phase.

Diversify away from some of the overly crowded trades and the AI, big-tech-dominated trades. She's looking to include many more stocks in many more industries.

TFI International Inc. (TFII) Vs. Mullen Group Ltd. (MTL)

In terms of valuation, we can see that TFII has been a more expensive stock than MTL quite consistently since 2021. TFII’s business scale with a significant proportion of operations out of the US is the simple reason why it has been more expensive. Revenue numbers back this up as over the last-twelve-months, TFII has generated $7.54 billion vs MTL at $1.96 billion. This is on a five-year revenue growth CAGR of 14.6% vs. MTL at 8.75%. TFII saw rapid growth over the pandemic and has historically been able to create more value for shareholders. This is despite MTL paying a much higher yield at 5.56% vs. TFII at just 1.11%. TFII has been prudent in buying back shares, with a buyback yield at 2.46% over the last-twelve-months. MTL has also been actively repurchasing shares with a buyback yield of 3.58%. The comparison effectively displays a growth vs. a value stock. TFII has the growth edge, and we can see that displayed in its multiple. MTL has the value edge, being cheaper and paying out a high yield to attract investors.
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In Canada, inflation is expected to continue to decline, which is important. If it does continue on that trend, we should see another rate cut at the end of July. The unemployment number in Canada was 6.4% in June, up from a low of 4.9%. So a bit higher than in the US, where the employment situation is much healthier, unemployment is at 4.1% up from 3.4%.

Important for Canadians to see inflation continue to trend down, and the market expects a few more rate cuts this year. Important for the Canadian economy, as the employment number is softer. Lower interest rates will be beneficial for general households, and for debt-servicing costs.

Political events always impact markets near-term. What she's heard and what we've all read is that it increases the likelihood of a Trump victory in November. He favours tariffs. Also tax cuts, which would have implications for the deficit.

The Wall Street Journal did a survey on the weekend, which stated that most economists think that Trump in office would result in perhaps higher inflation or less decline over time. We're seeing some of that being reflected in the market right now.

Banks started reporting last week. For now, consensus is saying that earnings will be up about 10% YOY, and that's very important for profit growth to continue. We've seen the price gains in the S&P 500, so we need those earnings to come through. In fact, we need companies to surprise on the upside and have a relatively positive outlook going forward.

For 2025, most analysts covering the S&P 500 think profits will be up 15%. So we're on the right trajectory. But it has to stay in place for this market to keep going up.

US economy's in better shape than Canada's, so she still prefers it. But in Canada, there's an essential oligopoly, so not as competitive as in the US.

In the US, she owns JPM and it's done well. Bigger has been better, given difficulties in regional banking.

Believes A.I. will benefit corporate earnings, but is already being priced into the markets. Friendly CPI/inflation data last week pointing towards dovish US Fed policy (lowering interest rates). Market strength is rotating into under valued areas of the markets, in anticipation of falling rates.