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

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.

Comparing BAM to BN in general, the parent BN is probably the better way to go. But the dividend is important as part of the total return.

When you look at the Brookfield universe, BEP.UN gives you about a 5% yield. The yield from BIP.UN is a bit more than that. There are times you do want to own the satellites.

For all the Canadian banks, expects this quarter to be very constructive. Upside to margins, even with lower loan volumes. Credit losses remain manageable. Typical PE for banks was 10-12x, now 13-14x -- investors are getting comfortable with that shift, but there could be some fickleness there.

Need to draw a distinction between Canadian oil stocks and the rest of the world. Canadian oil stocks should outperform, due to years of underdevelopment and now we're getting resources off shore and our differentials are narrowing. All great.

Energy's benefited from the "everything else" trade. Also a pop from possible conflict with Iran. Expects oil prices longer-term to have a hard time in 2027-2028. He'd be fading the rally.

He'd be buying nat gas stocks, such as TOU.

We're living in a world of fear. Profound change is happening. AI will change the way we live. A lot of companies will really benefit, and there will be those that will be hurt. 

Investors are asking the right questions.

S&P 500 still remains very healthy -- earnings growth for the year still expected to come in between 8-10%. That resilience will, hopefully, be bolstered by a stable job market and Fed rate cut (or cuts).