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

Dividend is important, but not the most important thing. The way you get high dividends is with high payout ratios. That brings with it the risk of a dividend cut. You have to be careful. He'd much rather take a lower, but safer, dividend than a higher yield that's a little bit tight.

To buy one of the Big 6, you have to believe that the Canadian consumer is going to be OK. As well as believing that Canadian home prices are going to be OK. The majority of the loan books of the Canadian banks are consumer-related, and those Canadian loan books are extremely profitable for the banks.

He's optimistic on technology, but not as much as the optimistic predictions out there. It won't have a bad year but, boy, has it ever had a few good years so far.

Healthcare has been left in the lurch for the last couple of years. This year should be interesting, as some of the worst fears (claims inflation and battering by the US administration) are starting to dissipate. The year will be more diversified, and healthcare will be a part of that.

It's madness. It's not just the last day of the year, it's the last day of the first quarter of the 21st century. The year and the century began much the same way, with catastrophes.

In the last 25 years we've seen wars, invasions, and terrorism on an unprecedented scale (at least in NA). Global pandemics. Donald Trump elected twice as president. If you thought about what's gone on in the last year or quarter century, you'd think there was no way the stock market could do well. And yet, here we are -- strong US market and an even stronger Canadian market (rare for our market).

Looking ahead to 2026, the lesson of the last 25 years and the lesson of the last year are the same. Politics are interesting to talk about but, long term, they don't have the impact on markets that interest rates do. Should interest rates continue to go lower, then stock markets will continue to rise.

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.