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

Everyone's watching economic data very closely as we approach year end. Canada almost ran into a recession in the last 2 quarters. A technical recession is 2 negative quarters of negative GDP growth, and last quarter we did just beat that.

Are we starting to turn around from a Canadian perspective? Time will tell. We never really know we're in a recession until later on down the road. BOC has done a good job diverging from the US and making those cuts that our country needed. Those cuts helped us to potentially avoid a recession in Canada.

Growth overall has cooled and inflation's easing. Sentiment swings with every data release. Even though investors are shifting from positive outcomes to preparing for a range of scenarios, we're looking at consumer spending heading into Black Friday, Cyber Monday, and the holidays. Spending is remaining steady, but people are looking for those discounts and pivoting their spending habits.

She'll be watching spending closely.

Earnings from companies have remained resilient, and we've seen policy support. Overall, her team is remaining cautiously optimistic about the road ahead. In the US, attention is really moving from interest rates to what matters for 2026 and how that positioning works.

Quality and durability of earnings is still strong and really carrying the markets solely right now. A big part of the conversation is the growing scrutiny around revenue circularity, especially in AI. This discipline is healthy.

Both from an economic and profitability standpoint, she'll be watching customer expansion, diversified revenue, and improving margins.

From strictly a valuation standpoint starting to see a bit of pickup in the healthcare sector, especially on PE ratios from where they were at the beginning to middle of the year.

Expects materials to still be strong through the end of 2025 and into 2026. Especially for gold, silver, precious metals.

Doesn't see AI going anywhere. There was some selloff in some of the bigger names such as MSFT and META. Thinks momentum will still carry.

Her team's looking at the path forward for Canada, US, and internationally. The rate cut cycle is still continuing, which provides positive momentum for equity markets. Still lots of cash on the sidelines that will be coming back into the market at some point. The Fear/Greed Index is still more on the Extreme Fear side, so that tells her that investors are a little cautious right now. Could be a great buying opportunity.

Heading into the new year, her portfolio positioning remains consistent. Maintaining a neutral equity allocation, avoiding the zombie companies that are stagnant. Lean on quality. Any volatility you see and are expecting is an opportunity to high-grade your holdings in a position -- take profits, perhaps cut losers, and rotate into good-quality companies with strong profitability.

We have a good couple of years ahead. She's optimistic heading into 2026.

It's really sector-specific. 

Energy, for example, tends to be a lot more volatile than, say, consumer staples. Energy is very tightly meshed with oil prices. So if oil prices fluctuate, you'll likely see a lot of these energy companies move too. She wouldn't be surprised to see even a 10% pullback in energy with normal volatility. And a 10-15% pullback in some of the large-cap names would be a big opportunity for investors.

We've had quite a bit of muted volatility. She wouldn't be surprised to see a bit of a short-term selloff at the end of the year or heading into January 2026. It'll be normal and healthy for the market to take a breather.

Economic data and buildup from the US government shutdown should show data a bit weaker than expected. That will affect positioning for 2026. After a sharp V-shaped recovery such as we saw in April, historically 2 years later the markets are bullish. So she believes that 2026 will be strong.

Seeing jitteriness on the US markets. Whether the TSX or the S&P, you see this nice, smooth upward trajectory on the charts. We have a breakout to all-time highs on the TSX. Then around the beginning of October, we've had a lot of volatility and not much progress.

What we're seeing is some brittle behaviour with respect to what's going on in the AI world. Investors are wondering if the AI capex will be rewarded. The capex is real, with $350B spent this year. Global AI spend is $1.5T by year end. So it's not hype, it's real money. But what we have is 1.5B users engaging with consumer tools around AI, but only 3% are paying for the premium services. That's the gap between adoption (which is explosive) and monetization (which is lagging). That's driving the week-to-week volatility.

We really don't know, but he thinks the concern is unnecessary. It could take time for this to roll out. We had 81% of the S&P companies beat earnings expectations. So the tech-led beat is real. It's not the eventual effect of AI that's uncertain, but the timeline in which it will manifest.

Some parts of the market are showing "bubblicious" action. PLTR, for example, is a pretty expensive stock with lots of high hopes. But at the same time, you have Warren Buffett taking a position in GOOG. 

So this is not a bubble by normal standards. Looking back to the tech bubble, it was up 800% by the time the bubble popped. Today we're up 100%. Not a bubble today, but we're working through a natural progression where it's a bit uncertain as to what the adoption's going to be.

Plus, we've talked in the past about the J-curve of resource production to build the AI centres and the power generation required. This is also adding uncertainty.

Stocks are discounting mechanisms. They're trying to discount the future of pretty massive growth -- very small changes to that will have larger impacts today.

Make sure you stick with quality growth companies that have some pricing power. You want commodity and natural resource exposure to get to the picks and shovels that will go into this AI buildout and grid expansion.

For the uncertainty, make sure you have some gold and some high-quality bonds in your portfolio.

Canada is really well-positioned here. Huge cross-border flows coming into Canada, in both bonds and stocks. The TSX and the TSX mid-caps (XMD is the ticker) are doing really well because of industrials, energy, and materials. Those areas will all have an impact in the rollout of AI. So there are places to go.

Digital assets have high volatility, but payoff is potentially large. So you need to make sure your position size is correct. Some small exposure in a portfolio has the opportunity to add diversification and significant asymmetric upside. A little bit of salt makes the dish much better.

Bitcoin is like digital gold. Base layer of infrastructure of having a scarce asset. Scarce assets are great because they can't be printed out of thin air. You have to buy them from someone who already owns. This is a wonderful holding.

Ethereum is more like copper or oil. Smart contract at the layer 1 level. Real-world asset tokenization. Stablecoins. Regulations have added clarity to outstanding issues.

Ethereum and Solana represent transactions that will happen on the blockchain to make things easier. If you want to transfer $$ on a Saturday, it can't be done except with these 2 networks.

As we tokenize assets (and we will, because it's a better, cheaper and faster way to settle transactions) we'll see extreme growth in this area.

Feels like a tug of war. We've been talking about this AI narrative for over 2 years now, and perhaps investors are getting tired of that. On the other hand, we've still had good earnings and growth in the States. Here in Canada, we have a lot of good underlying fundamentals with the banks and gold stocks.

But it feels as though there's a lot of optimism baked into investor expectations, perhaps too much.

He's worried about return on capital on the whole AI side; a number of these entities aren't making any money. Valuation-wise here in Canada, we used to be at a big discount to the US. That gap has closed quite markedly, though our market is still less expensive. On a number of metrics, the S&P 500 is still quite expensive.

Whatever you believe -- bubble, not a bubble, middle of a bubble -- you can find evidence to support that theory.

His firm's strategy is to look at what other investors are not looking at. He likes the middle ground of apathy -- what is it that no one's talking about.

There are a number of businesses that haven't really changed. They still continue to do what they do, but no one talks about them. They get mired in apathy, valuations get depressed, and they provide attractive opportunities to buy for a multi-year view. 

Ignore the noise, look long term, and try to take advantage of the market.