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

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.  

Upcoming US election with return of Donald Trump should be good for Crypto prices. Policy of cutting taxes and pro business stance will be good for markets. Other sectors like clean energy - will fall, with traditional energy companies in favor. High tariff policy also not good for foreign companies. Paying attention to US Fed policy of likely interest rate cuts this fall. Lower interest rates will be good for overall strength in the markets. 

Company Highlight: Mullen Group Ltd. (MTL)

MTL operates a very similar business and model to TFII, but on a smaller scale more focussed on Canada. MTL owns a network of independently operated businesses. The company offers a broad range of services in the transportation and logistics sector, including trucking, warehousing, logistics, and specialized services such as oilfield transportation and heavy haul operations. MTL has an acquisitive business model targeting well managed, profitable companies and then driving operational efficiencies once acquired.
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The US market is focused on the first cut expected from the the US Fed, probably not this month, but nearly 100% likely in September. Normally, the first leads to a series of cuts, but these are strange times. There's the US election, which nobody can predict. The polls point to Trump winning, but anything can happen, like the October Surprise. Small-caps do better under lower rates are domestically based (American). Trump could impose a dovish Fed Chair to lower rates, but with more tariffs, inflation will rise and so will longer rates and steepen the yield curve, which will benefit banks.

Makes sense for people to extend the term a little bit. He's not keen on owning 15-25 year bonds at this point, because the curve is fairly flat. Owning something in the 3-5 year range will be far more accretive than just buying really short bonds and maturing them. You can ladder both corporate and government bonds, it comes down to your risk tolerance in terms of credit.

It's a bit different in the US, where there's a much more inverted curve than there is in Canada.

He doesn't actually know what annuity rates are offering at this point, but beware of the tax consequences for sure.

Preferred shares have done exceedingly well over the past 18 months. Partially because the market has shrunk so much. Banks have started issuing a different kind of non-recourse capital lending. Lots of buybacks of preferreds, shrinking supply and liquidity.

He'd have no problem buying a number of different ones, don't concentrate on just 1 or 2 names. Nothing wrong with the George Weston preferreds. The only challenge with the preferred market is lack of liquidity, so difficult to get in or out at any kind of scale, but likely not an issue for the individual investor. Generally, treated very well from a tax perspective.

The market rally started to broaden in April-March, but fizzled in May-June. That's why the market is hesitating to rotate now--is the Dow and small-cap rally today a blip or a true broadening out?