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

AI is the easy narrative to blame. Sure, it has it's place, but it's not 100% responsible for the increase in unemployment in Canada or the US. 

The US has the model somewhat correct -- cutting taxes, pressure to reduce interest rates. That's spurring growth and the economy. 

Canada has announced some deals up north and overseas. But how about cutting taxes and interest rates here? Those measures alone will start promoting growth in Canada.

Despite the run, his firm is a big fan of gold -- more to go because of USD weakness. Turmoil in Iran is causing the price to fluctuate as investors shift over to oil. Gold will come back to life once things settle down.

If we see oil prices sustained above $100, or even $95, it will change the narrative of the macro outlook quite a bit. That said, thinks things will calm down in the next little while and oil might come down a bit.

Navigating a complex backdrop of geopolitical tensions. Supply chains are changing due to onshoring and nearshoring. Yet consumer spending is still strong, corporate balance sheets and earnings still appear pretty good. Looking at 13% earnings growth this year and 15% for 2027. Employment numbers continue to be pretty sturdy as well. Economic backdrop continues to be solid.

Wild card is the energy market.

When you look back at history, geopolitical events like these tend to have a short-term impact but rarely have an intermediate- or long-term impact on markets. After the immediate shock, you find that markets are back to normal 1 or 3 or 6 months later.

Treat this environment as an opportunity to pick up high-quality names or names that aren't affected by what's going on around the world.

Some of the infrastructure and pipeline names look OK. Otherwise, it's a bit extended at this point. Likes the sector for the medium term, but probably a bit overbought at this point.

We're insulated here in NA because we produce more oil and gas than we need. The people who sell the stuff will jack up the price because they can. So it's going to cost people extra money, though the release from oil reserves will help.

We really need to see the conflict resolved in some form so that they can reopen the Strait of Hormuz. 

Still uncertain. Trump's threats will hang over CUSMA negotiations. Most American businesses want free trade to continue. Putting capital to work is much harder without a long runway ahead for your business.

The AI trade is still like buying GM in 1922. Long runway, though you wouldn't know if GM or Ford or Chrysler will be the winner. AI will dominate and change how we do business, especially in white-collar jobs. New jobs will emerge. But there is uncertainty.

He rebalances positions as weighting drops or increases. This forces the team to evaluate every stock that's not moving with the market. When a stock drops, (and as long as there's no reason not to) they buy more to bring it back up to the target weighting. Same thing in reverse on the upside.

He waits and watched event-driven cycles like this US-Israel-Iran war. Don't react to what Trump says on a Tuesday, because it could change on a Wednesday. Certainly, don't change your investment stance. Be long term and buy good companies which will act away from the current noise. Oil companies haven't reacted like oil prices have, and see current moves as event-driven. 

We haven't seen too many spikes like this in history. This has been an over 4 standard deviation move, which hasn't happened in the last 50 or so years. Significant.

The lag time for any pullback depends on what happens with the reason for the spike in the first place. Typically, these moves tend to come back down to a normal trading pattern over 3-6 months.

His team has a dashboard of signals, and there's one called the "early warning indicator". It gives a signal of potential weakening in the market, usually a few months in advance. It's like a flashing yellow light. 

A few weeks ago, it turned negative for both the S&P and the NASDAQ. Still remains positive for the TSX. 

With market weakness last week, his intermediate indicators (a weekly timeframe) turned negative for the S&P and NASDAQ. TSX continues to be strong, which probably has a lot to do with its makeup -- energy and materials. Financials have been weaker the last week, but have had a really strong year.

One of the things he's watching is the volatility index. Though not at historic highs, it's still very high right now and that makes it difficult to put capital to work. When it drops below 20, that's when he'd feel more comfortable moving cash from the sidelines.

Last week we talked about markets pricing in the anticipation of an event. Typically, the happening of the event is a good catalyst to take a profit on the trade. The energy sector really ramped up on stocks and underlying commodities, but now the sector (in US and Canada) isn't making higher highs from when it opened last Monday.