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

There are 10-11 sectors, but only 3 outperformed the market as a whole -- both in Canada and the US. In the US it was communications, technology, and financials. In Canada, it was financials and materials (mostly gold producers) -- they did so well, they dragged the whole index up with them.

He's hoping to see a bit of broadening out, not just 1 or 2 sectors driving everything. Interest rates really will be the determining factor in that. It's a bit of a guess, but he thinks the material sector (and, therefore, Canada) should continue to do well. The economy will carry on and won't be hurt by lower interest rates. It's a strange situation where they're lowering rates not so much to boost the economy, but to boost the markets. The US president will likely appoint a more dovish, accommodative Fed Reserve chair. Trump wants interest rates lower, as that trends to drive markets higher.

Over the last 25 years, we've seen a very low interest rate policy, but it hasn't really flowed over into the CPI going up, either in Canada or the US, until very recently. But now the Consumer Price Index is being affected, and we've really seen an impact on investable assets (particularly the stock market).

Dividends of 5-6% are great, probably. Dividends of 9-10% -- market's telling you the dividend is likely to be cut. Think of BCE.

Find a company that you like with a growing dividend. You're likely to do better with a company that grows the dividend than one that has a high dividend but has to cut it. The growing dividend payer almost always outperforms the other.

In Canada, today, December 31, counts as the first trading day of 2026. Anything you sell today for a gain doesn't count as a gain on your 2025 tax return because Canada uses the settlement day. So in this case, the settlement day would be Friday, January 2, 2026. Americans, on the other hand, have to wait until the first trading day of 2026 to sell and have the gain applied to their 2026 tax return. So if you want to sell to lock in your gain ahead of all those Americans, sell today.

He's not a tax adviser, but this is what he's been told.

The lesson for 2026 is don't let the winners of 2025 imprison you. Don't get over-risked. Watch for index concentration. So, rebalance to your target risk. Precious metals and tech have probably ballooned to be outsize part of your portfolio. Don't wait for a pullback to rebalance. He sees more market volatility in 2026: there'll be a Fed Chair change; a debt ceiling problem at end of January; disinflation, if rates aren't cut fast enough. Diversification is important again. Return stacking sees you layer on your diversifyer (bonds or managed futures) atop your stocks.

It's the most important index in the world, but the valuation is high and is dominated by seven stocks with little of the base materials and energy that go into the AI build. The S&P is a bit of a tech bet.

He's constructive gold, but it's had such a good run that you need to cut back and rebalance. There's still some upside to gold.

Markets are usually quieter this time of year heading into the new year. Coming off the back of 2025, we've seen this year really be more about resilience than about momentum. 

Many investors expected higher interest rates to slow the economy in the US much more sharply than what we've seen. Instead, we really saw the US deliver a soft landing. So growth cooled enough to bring down inflation, but not enough to break earnings or consumer spending. That balance is still visible today.

Markets are quiet and mixed, but the bigger picture around where we're headed in the new year hasn't really changed. Labour market is still holding up strong, but is clearly cooling. That's helped ease inflation pressures without triggering a downturn.

For her she's still investing, particularly around AI, which has shifted from a concept to a real spending cycle. What has changed is how investors are behaving. Even with valuations as high as they are, rate cuts are being pushed further down the line, and leadership is still there. 

It's no longer a market where everything is going straight up. Going forward, it's going to be a little more selective on where to allocate capital. Instead of broad multiple expansion, returns are increasingly driven by execution, earnings quality, and balance sheets.

In Canada it's a little bit different, as Canada had a more uneven year. But the setup has quietly been improving. Interest rates in Canada have come down quickly, inflation has cooled, and growth has moderated. Uncertainty around the BOC's next move is more balanced than restrictive -- tends to favour companies with visibility and long-dated cashflows.

Overall, patience matters. Investors are going to be a bit more patient in deciding where to allocate capital in 2026, rather than just predicting.

Typically, it's between Christmas and New Year's. On average, it's something less than 1%. There's a big flood of headlines, but it really doesn't mean a whole lot.

What it does mean is can we get close to 7000? That magic rounding number on the S&P 500. By the way, 7000 means nothing other than it's a round number. But it is something the financial media will, he's sure, talk about.

He's getting more and more concerned about valuations -- never a great thing to time markets on.

Leadership has been technology, and AI in particular. The NASDAQ hasn't made a new high, while the S&P has come closer. The broader markets have made marginal new highs, even though they've scaled back into the range recently. As we get more expensive on the markets, it becomes harder for them to break out from an already-expensive level. 

He's been reading and following Jim Grant for decades. Grant put out a note recently that compared the capacity being built in cloud versus compute storage for AI (near impossible, as everything's an estimate). They think we're going to be grossly over-supplied in terms of compute, and that will be a challenge at some point. Next month? No. Next year? Maybe not. But 2, 3, 4, 5 years from now? Very likely. That's just started to enter the market narrative, and is part of the recent correction.

But the tailwind is still investors buying the dips. Until that changes, the market can continue to grind higher. The US administration has every need going into the midterm elections to keep the market in good shape and the economy as strong as possible. That's going to be a big part of 2026.

If trading takes up the vast majority of your day and is a major source of your income, you lose the benefit of the tax shelter. The actual determination is done by the CRA.

(Now, he's not a tax expert, but has been told this by several people. Best ask for qualified advice.)

In some cases, yes -- where the underlying provider will take clients directly. But it does require you to be an accredited investor, which means you have to pass the asset or income test. That's the challenge for the space.

Firms like his are involved in the space, but then you have to work with an advisor to get access to that investment area. The area is complex. Many people could understand it, while others would need financial advice. There's more and more interest in this area, and regulators are going to have to weigh these considerations.

Thinks we're going higher before we go lower. But once we enter a risk-off market, these things are going to correct. Getting to be very richly priced. Doesn't think a correction will be a story for 2026.

A really high yield of what a company earns is a warning sign, as the company will have to go into debt to sustain the yield. A payout ratio north of 70% is when he'd start asking a lot of questions.

You want a lot of coverage on the distribution. Banks in Canada, for example, pay out just less than half of what they earn. But they're really stable, robust earners. You don't have to worry too much there. You'd have to keep your eye on a company that has more variability because it's not as big or as robust. Remember that BCE is a big, big company, and it still ran into issues.