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

What really matters is what the daily flow is through the Strait of Hormuz. There's some great data on that, and everyone is able to watch it in real time. As long as there's a blockade, and as long as Iran's oil exports remain contained, we're slowly drawing down available reserves. That's a challenge.

It's being felt most specifically in Asia. It'll be different in NA, as we (fortunately) have so much domestic supply. Prices across the board are starting to move higher. The pressure point is ~$105.

Feels as though we're now entering the prolonged phase of the conflict in the Middle East. Eventually higher oil prices will hit the consumer, but we're still early in that process.

We're very bifurcated at this point. High oil prices, geopolitical uncertainty, and an Iran war stalemate on one hand; extremely high levels of AI infrastructure and US fiscal spending on the other.

As long as those trends continue, we'll see this seesaw back and forth. Last month the market was very strong, as were technology results. But at the same time there's uncertainty over energy prices.

We're now 2 years into accelerated spending from the US hyperscalers, and the spending continues to ramp higher. Tech results were really strong last week, and that's validating the level of spending for at least the next 6-9 months.

The concern that his firm has is that the companies spending all this $$ are not going to see a high enough ROIC to justify it in the long run. The long run doesn't matter at all right now. All that matters is that we had another good quarter of tech results and that spending will increase. We have the conditions for a boom, which works for many parts of the corporate sector.

Other parts of the corporate sector are hurting from oil prices. It's a real yin-yang balance in the market.

Everyone's watching the next 12 months to see what the government's actually going to put in place. We're heading in the right direction.

Government's made it clear as to the levels of defense spending it wants to make. There's infrastructure associated with that component. They're trying to incentivize private capital to mobilize around larger infrastructure projects. Holdup on large projects has always been regulatory hurdles.

Portfolio managers need to take the larger themes and determine which companies will be helped/hurt by those themes. 

Not a Top Pick today, but they own TIH to play the infrastructure theme. Largest Caterpillar dealer in Canada, really good results for years. Also benefits from some AI data centre infrastructure spending. Now that everyone's wised up to it, it's run up. How do you manage these high-quality positions that are doing great, but have a lot of positive expectations priced in? Still owns, but at a moderate position size.

The back months contracts are moving higher, elevated and breaking out of a trading range. The December futures in oil are trading at $90-100, so we got to worry about higher oil prices for the rest of the year. This concerns him. Geopolitical events are measured in weeks or months, but this event will be far stickers. Stock markets don't care, because earnings have been fantastic. The markets will pay more attention to the geopolitical risk and the high oil price at some point. Today could be this inflection day. He expects eventual weakness in companies impacted by higher oil, like FedEx. Earnings are generally okay, concentrated in the tech-AI area.

It's May 4 (Star Wars Day). SpaceX will go public in a few months at $1.75 trillion apparently. When it gets into ETFs, it will dominate many exposures (i.e. QQQ). So, you will hold a very expensive asset in your portfolio. Exciting (mining in space, space travel), but don't expect it to be profitable for who knows? The ARK ETF over 5 years has lagged the S&P and US Aerospace/Defence ETF, which took off in the past year. When SpaceX launches, you will be paying an awful lot for it. Be cautious. Risk: one bad move by Musk could kill the stock. Not sure if he'll buy the IPO.

He and his clients own MSFT, AMZN, GOOG, META, and AAPL. Results from all were fantastic, with accelerating revenue growth. They're starting to show inroads in making money from AI. 

What continues to put pressure on some of the names is the huge capex spending. Doesn't look as though spending will come down in 2027. But, as an investor, don't you want your companies to reinvest their cashflows to deliver high rates of return?

Price has run up. You'd have thought that with the start of a war it would go up more, but it hasn't. He doesn't know what the bull or bear case is going forward. He owns no gold companies.

The only reason to buy is if you have a firm belief that gold prices are going higher, and it's impossible to know.

He invests other people's money, and he treats that as though he's investing every single dollar they have (whether that's reality or not). He focuses on capital preservation.

His firm uses strict rules. For example, they trim if something gets too big in a portfolio. It's one way to rebalance. If a stock's valuation gets too high, even if he likes the fundamentals, he trims a bit and rebalances into something more attractive. Asset allocation is also very important; if stocks go up and do well, he trims and buys fixed income.

Doesn't sell because a stock's going up or down. It's because they've found a better investment idea or because the investment isn't growing anymore. If the fundamentals turn negative, he doesn't want to be around. If he sees double-digit earnings growth, then he's interested.

We are seeing the market take a bit of a pause, as it resets and determines which direction it's going from here. After a strong recovery, things aren't pulling back in a big way. But investors are starting to look more carefully at what comes next. Where will the next leg of returns come from?

In the US, major indices are finishing a bit mixed. The real story she's seeing is under the surface. Leadership keeps shifting. Energy, AI, and tech names are holding up well. Consumer and rate-sensitive areas are easing.

At the beginning of the year a lot of people took profits on tech names to rotate into value. The peak-to-trough selloff in March was ~9%. What carried us out of the recovery was growth.

She's not surprised to see growth continue to do well. However, having a diversified portfolio (including exposure to value) is prudent. Great environment for more active management, as she expects more volatility ahead.

As expected, both the BOC and the Fed held rates.

She's certainly monitoring oil. Its move above $105 is now front and centre because that can feed into inflation. Canada is still an energy-heavy country, so that makes it harder to determine the path of rate cuts going forward.

At the beginning of the year, markets were anticipating 3 rate cuts out of the US. Now we've gone down to 0. To see US rate cuts on the table, we'll need to see energy and oil pull back.

She expects a short-term blip in inflation, which could cause some panic and volatility in markets. Once we get through that short period, we could see inflation pull back down, which could possibly put rate cuts back on in the US for the second half of the year. It's a matter of wait-and-seeing the economic data to determine what impact closure of the Strait has had.

There's history that always rhymes, and there's human behaviour that always repeats. That's what's happening here.

Investors were concerned about the conflict and what that meant. They then shrugged that off and started to look at what individual companies were doing. So far, earnings that have been released have been very strong. As a result, confidence just comes right back into the market.

That's where a lot of the strength has been in this recovery. Looking at advance/declines over a 10-day period, we've seen it go from a low to a high. When that happens, it speaks to very strong returns over the next year for that sector.