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

Last Friday's US Supreme Court decision cancelling Trump's tariffs reiterates that Trump will continue playing the tariff game. So, he's leery of any sectors that can be hit, like manufacturing. We had a great 2025, but not February-early April which was terrible and could come back. Leery of oil and gas, because Trump wants to get the gas price down ahead of midterm elections. The market is looking beyond that as oil stocks rise, which he thinks will continue. Inflation seems to be cooling, so the chances of a US rate cut are increasing, but he doesn't focus that much on the macro. He trades only midcaps which have been left behind by the markets and trade at lower valuations than large caps.

More of the same in terms of Trump's style, pivoting and using tariffs as a negotiation tool. None of this should be a surprise to the markets. The SCC ruling was a bit of a surprise, and we got a pop on Friday.

The reality is that Trump was always going to try all these other avenues for implementing tariffs if SCOTUS didn't vote in his favour. Now he's going to try a different approach, and the market shouldn't really care too much about whether it's 10% or 15%. Ultimately, it's more status quo. 

The most interesting thing will be what Trump says about Iran. One of the US presidents called it the axis of evil -- North Korea, Iran, and another player. 

Most of the world understands that there's some sort of regime change coming in Iran. We hope it's peaceful, but it's looking as though it may not be. That matters more for the market because all eyes and ears are going to be focused on that speech.

If he ramps up the rhetoric around "cooperate, or else", with the military buildup in the Persian Gulf right now, that's what the markets are probably most nervous about right now.

If you believe strongly in Israel's right to exist, and there's a country whose official policy is to wipe Israel off the map, there can't be a version of the world where they get access to nuclear weapons. That's the discussion here. Larry said that what happened on October 7, 2023 wasn't going to end in Gaza until Hamas is eradicated and there's leadership change in Iran. He doesn't see it any differently now.

Standard definitions can be found online. Typically tied into credit expansion and contraction of the economy.

Think of the business cycle in terms of quarters and years of positive GDP. When it contracts, that's the end of the cycle. The economy going up and down is the business cycle.

There's also the presidential cycle. In the US, we know that it's every 4 years (unlike Canada). Most countries in the world don't have that fixed cycle. Depending on the makeup of Congress and the White House, spending happens in certain periods to get re-elected. Some years of that cycle are better for markets than for others.

There's the commodity cycle -- typically related to the business cycle. There's more demand for commodities as we build more and more things.

Harvest has been great. But you have to be careful. A lot of what you're getting is eating into capital appreciation compared to just owning the underlying securities. 

But if you're seeking tax-efficient income, a lot of these high-yielding products are very good. Though not a material benefit inside a registered account.

NVDA

Back in 2022 there were rumours about MSFT taking a big stake, which was finally confirmed in 2023.

If you look at the average annual return of the tech sector of the S&P 500 for the last 2 years, it's about 30%. The S&P return is ~20%. For NVDA, it's ~110%. NVDA has a huge influence, and everybody knows that.

We're very early in the AI game. He's long-term very bullish. There's general concern about AI and growth rates. That's why what NVDA says this week is far more important than what Trump says in the State of the Union.

Make no mistake, if you measure in decades, both the AI impact on the world plus how the US governs itself globally matter a whole lot. But this week, NVDA gets the nod.

As for the State of the Union, Trump's going to say that this is the best economy ever (!). He's already said this over many weeks. Reality is that it's one of the worst economies ever. In the US in 2025, it averaged about 20k jobs a month -- the worst employment growth in decades. AI is starting to have an impact, on top of the dislocations around Covid.

Let's look at GDP. Initial expectations were for it to be higher. We saw some revisions in the last few weeks -- it now comes in at ~2.2% for 2025.

He's brought in a graph that shows the US deficit as a percentage of nominal GDP. You can see that during trying times, the percentage goes up. We're in an environment where the US is running a deficit of ~5-7% of GDP for the last couple of years, while it's getting 2% economic growth. That's a very structurally weak economy, and has been the case for the better part of 25 years now.

What it means is that the debt keeps building up and building up. One day it will matter. What upsets the apple cart of debt is inflation. AI is very disinflationary. The dynamic of poor government spending in the backdrop of disinflationary technology is a very interesting debate.

This week, it's more about technology in general than about governments and deficits.

A dystopic essay today warned that AI will cause mass unemployment and suppressed consumer spending. He thinks that's a reach, doesn't agree. It's like an essay when the GLP-1 drugs first hit and someone predicted that people would weigh less and airlines would save money on fuel. He agrees with Nvidia CEO Jensen Huang, that software won't get destroyed but will get smarter and will create new jobs we haven't thought of.

It's been a headline-heavy morning. GDP in the US came in well below expectations, while inflation remained sticky. That's painting a picture of slower growth with persistent price pressure in the US -- stagflation. Markets initially sold off on that news, but rebounded sharply higher after the SCC ruling came out.

This ruling removes one of the biggest policy overhangs of the past year. The ruling signals a meaningful shift in trade policy. Markets are treating it as a net positive for both consumers and businesses.

If we look under the surface, it remains a market of dispersion. Nearly a quarter of the S&P 500 is already up or down 20% this year. Seeing leadership continue to rotate away from broad momentum and toward earnings quality. This is benefiting real-economy sectors like energy, infrastructure, and select industrial names.

Seeing that AI spending still remains a major theme, but now investors are really raising the bar for proof that elevated capex is translating into sustainable returns.

Her positioning overall still remains constructive and active in this environment. She's being patient, with some cash on the sidelines. Likes the sectors of energy, infrastructure, and industrials. Seeing a broadening out as well.

Materials are still extremely strong, so she continues to favour that sector. Energy has seen some pickup, especially with some geopolitical risks.

She's been taking profits along the way on a lot of tech names.

Gold is having a moment for a reason. Uncertainty like this is why she's maintained her gold allocation for clients.

Not necessarily about reducing all of their equity exposure, but being more selective in the businesses and companies they hold. Favours high-quality companies and earnings that lean toward commodity exposure in Canada, while adding a lot in international diversification.

A market that rewards discipline. Remain nimble as politics, geopolitics, and earnings are reshaping leadership. Stay focused on quality names with pricing power and strong balance sheets. Companies like MSFT, COST, and RY -- businesses that will continue to do well whether the economy grows at 1% or 3%.

Not making big moves right now. It's one data point at a time.

It's been more a story of equal weight. Metals had a stunning January, and then this incredible fall -- now trying to base. The S&P is testing its 50-day moving average right now and so is the NASDAQ. Lots of things going on.

We've seen a few reasonable things in the last week or so. Inflation is coming down relatively in check, US employment numbers have been pretty good. All eyes are on earnings season -- everyone expected them to be up 11% for the quarter, but they were actually up 14-15% and that's really great.

What drives markets? It's earnings and interest rates -- both these things are cooperating fairly well. For the most part, tariffs seem to be passing through and not causing big inflation. 

The concern was, and remains, the new Fed chair. Is he a hawk, or is he going to try to lower rates? There's uncertainty there. 

And we have this overall theme about software bleeding out. But remember, software stocks are now trading ~20x PE, which is their normal level. They were so very inflated at the start of the year.

All this behaviour is to be expected in an unfolding bull market.

This is the question -- are they overspending? We really have this dispersion among the Mag 7 into winners and losers. Lately, GOOG's been winning. 

The market seems to be thinking that there are very few winners, at least in tech land. The truth is that these are the smartest companies in the world. They're not spending $180B for nothing; they see the return there. Valuations of most of these companies are very reasonable. 

Take GOOG, for example. It's trading ~21x PE for an 18% growth rate. MSFT is the same. So they've all come into very reasonable territory. There will be a time when this is not the trade anymore (he promises). But for now, it remains a really good investment to buy on dips.

These companies were enormous free cashflow monsters, and they're not so much anymore because they're doing all this spending. But he thinks it's really going to pay off.