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

Going back the last century, November and December have traditionally been the best-performing months. While September and October tend to be the worst months, but we had some good performance this year. The averages are always there to misguide you to some extent.

We came into the end of the year with a lot of good expectations baked into valuations. There's a point at which investors just get too enthusiastic, and he suspects that's what we're seeing in markets in the last little while.

A number of bodies such as IEA are pointing to a glut for next year. Track record of predicting is not particularly good, so take it with a grain of salt. But there is a lot of potential supply coming on next year, which is concerning the markets to some extent.

As discussed at the beginning of the show, there's apathy in the oil patch and that makes for attractive opportunities.

A number of them give you exposure to the US, not sure about Canadian equities. 

First, go with a reputable provider. BMO, for example, has a number of offerings. Second, what are you paying for the exposure? Shouldn't be more than 30-40 bps. Would be a mistake to pay for active management.

Good way to diversify down from the mega-caps, and the valuations are at a discount too.

REITs are starting to pick up after a slump. Now is an opportunity because RE stocks are trading at a wide discount to NAV and earnings growth is 7% in the US in Q3. Supply has been limited by a lack of construction and immigration and high inflation of recent years. Also, interest rates are stabilizing. Lots of capital on the sidelines could see a lot more M&A. Industrial REITs are in the sweet spot because manufacturing will return to North America and that will require warehouse demand. Residential REITs, though, see an oversupply. Also, he likes grocery REITs and seniors housing.

Canada offers government funding long-term care for seniors, a sector he really likes. He avoids the same sector in the US, which is seeing pressure from Medicare and Medicaid.

Though Nvidia's stock fell after the reported, the reported eased anxiety over capex spending from all the big players, who all reported good numbers. Before Friday, there was a feeling the US would not drop rates, but sentiment was since swung to a likely drop. Also, the headline jobless number was positive--the US economy isn't collapsing and fears of a recession are fading. Next earnings will answer whether tariffs are effecting US consumers.

Despite a change in sentiment with more optimism that the US Fed will cut rates and with this market upturn, his doesn't see a new upleg for the market. Given valuations, now's the time to take some money off the table, and rebalance to buy more defence. Volatilty will stay for a long while. Look at risk assets like Bitcoin and AI stocks.

All the gains that happened when Trump was elected have been wiped out. Is volatile. When markets go risk-off, Bitcoin will go down. Should be seen as an indicator. Bitcoin broke down weeks ago, before stocks did.

The EIA forecasts peak US oil and gas supply in the coming year. Trump wants flat/lower oil prices until the US Midterm Elections, OPEC+ has been overpumping, while there is peak supply in the US. So, short-term oil prices stay weak. Longer term, the strategic petroleum reserve won't be replenished until after the Midterms. The XEG and XLE ETFs are both returning 7% annually historically, including 60% of that return being dividends. Since oil's peak following the 2008 recession/collapse, there's been zero capital gain (all dividends). There's no growth in oil. In coming years: buy ENCC (Canadian focus) and ZWEN (global focus), both using covered calls. During 5-10% corrections: XEG and XLE.

Extreme overvaluation

Bubbles can occur when market valuations far exceed historical norms relative to fundamentals such as earnings or book value. Common metrics include the price-to-earnings (P/E) ratio or the cyclically adjusted P/E (CAPE) ratio; when these remain well above long-run averages, it often signals excessive optimism. Many pundits think the market is overvalued right now, but we don’t think it is, at least to the same degree as many think. Earnings are rising and interest rates are falling. This should allow for higher valuations. The S&P 500 is at a forward price-to-earnings of 23 times right now. Certainly not low on first blush (it was as low as five times in the early 1900s), but if we look at data past 1990 the average has been 24 to 25 times. Most would say it is “fairly priced” not “bubble priced.” The index price/earnings multiple has been as high as 130 (in the dark days of the financial crisis, when companies were hardly making any money, if at all).

Part of the lesson being taught right now is that for the last 2-3 years we've really had a momentum market. Now it's being tested. Now that we're out of Q3 earnings season, investors are wondering what's going to happen next?

Usually when you have a company that's a large market-cap component of the S&P 500, chances are that it will tend to slide a little bit. 

We've had a topsy-turvy year because in September the market usually falls, but we rallied. Now we're into November when we normally rally, but we're starting to see a selloff right now. It's tax-loss selling season as well, so there could be a lot of portfolio managers selling losers and eventually getting back in and buying the winners.

Today the market's up 0.5-1%, so it's holding steady right now. But it's almost as though every news item that comes out these days is either going to push the market higher or push it lower. 

Right now the focus is on the Federal Reserve and whether they're going to cut interest rates in December. Everybody's sort of sitting on the fence right now, just waiting.

It would definitely put a shadow over stocks. The expectation is for a cut. Growth and momentum stocks need interest rates to continue to fall for them to see their profitability rise. So it's not just the tech stocks, but also the small caps.

The small cap stocks are more interesting right now because the Russell 2000 index hasn't really performed much this year. That's because small businesses in the US are taking it on the chin because of tariffs. If you're a small business and seeing a 40% tariff attached to all the things you import to create a final product, you have 2 choices. Either increase prices to customers for fear that revenues will fall, or eat the tariffs yourself and watch your free cashflow fall. If they have to borrow money to grow, the banks may not lend it to them.

Think of a grid. The AI hyperscalers are at the top. That's MSFT, AMZN, and GOOG. They're going to lead everything going forward with the fast computation.

The next level would be the chips.

Third level is infrastructure. Think FIX, TIH, or STN.

Utilities are next, as you're going to need energy to run these data centres.

Financials will do the funding.

If the US cuts rates and the USD falls, something like nuclear power would benefit. You might then be at the beginning of a bull market for resource companies.

Finally, you have the serial acquirers. Small-cap companies that are out there making acquisitions where AI can't impact their future. They're getting mom & pop companies much cheaper than if they were publicly listed. These companies are growing the business by 2.5% a year, and then making acquisitions in the 2-3% range. This gives you 4-6% revenue growth when global economic growth is in the 1.5-2.5% range.

Investors need to look at their portfolios and have at least 1 company in each of these 7 different categories.

Probably around 10-15%. We're in the middle of a semi-correction right now. So he might pull the trigger to add new names or more shares of what they already own.