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

Looking back on this year, it's been crazy. It feels like four years instead of one :)  This time last year we weren't even talking about tariffs in a major way, and now it's part of everyday discourse. Even if we'd known that, we wouldn't have expected markets to behave the way they have. We probably wouldn't have expected the TSX to be up as much as it is.

It's been a surprisingly strong year. And that's why you stay invested. You don't know when things are going to perform or not perform, so you have to stay the course no matter what.

He has concerns. Many of those are because a lot of this looks like and rhymes with a lot of things that have happened previously. He's a student of history, so he uses the past to make decisions about the future.

The other thing that's concerning is how big an influence this space has on the broader market. If we have a problem here, it will be systemic. Concern is really starting to be seen around the bond market. Companies have done a lot of borrowing, and capex continues to inflect upwards from already-elevated levels which now must be financed with more debt than equity. That's where the rubber's going to hit the road, and we're going to have to start seeing some cashflows from all this investment.

His team hasn't really changed positioning much in the last couple of years. They were early into the themes of electrification and demand for electricity. AI has pushed that further than they would have thought. So there is some concern that if the data centre buildout proves not to be quite as broad as people are thinking, that disappointment will be seen in many stocks. But it's going to hit the hyperscalers even more.

He's not necessarily counting on the demand from AI. He's counting on steady demand from near-shoring and re-shoring, climate change, migration, warmer temperatures increasing demand for cooling. Data centres are on top of that.

His firm is pretty happy with how they're positioned. What they'd like to see is a broader mean reversion (aka a pullback) to get some more $$ invested. Right now holding about 10% in cash, and would like to get that down to 2-5% (especially with interest rates dropping).

We've seen strength in materials pretty much throughout the year. Financials have been fairly strong. Those have been two of the dominant sectors in Canada.

Looking at the US, technology has been a very strong sector. Now seeing a rotation. Healthcare, which didn't really perform at the beginning of the year, is now starting to in the back half of the year.

This indicator looks at long-term momentum, and it often gives a "deterioration" signal well ahead of what we actually see with prices (and even as markets go higher). It's been positive coming out of everything that happened with the tariffs in April. 

Right now, not seeing any deterioration in that at all. Even with the pullback in November, the indicator remained positive the whole time.

He also looks at short- and medium-term indicators. In November, the short-term reading turned negative across a number of different indices. It's since repaired itself. As with the long-term signal, the medium-term outlook remained positive all the way through that.

All this showed that it was a standard run-of-the-mill correction of 5-7% that you can expect to see every 3-4 months. That's exactly what we saw. Things recovered, and we're heading higher into year end.

A tough call. His team looks at the indicators they have right now, which are telling them that everything is positive. 

When they look at some of the economic data and the economic rate-of-change data, it looks as though we have visibility into a strong first 6 months of the year. With the move that the Federal Reserve has made in the US by continuing to lower interest rates, as well as integrating some QE and some activity with the balance sheet, things should continue to be positive.

In Canada, the infrastructure push will certainly help. What we really need to see is a control on inflation. The consumer continues to struggle. The affordability from everything from housing to fast food is off the charts. Inflation needs to come in line. We need to see incomes catching up to the inflation we've seen over the last 5 years.

It's been a spectacular year, far better than most people would have thought. He's been very happy. There are a few reasons for the massive dislocation between what oil has done and what the energy stocks have done. 

Thinks we're at the beginning of a realization that the biggest force of incremental supply (US shale) is reaching a permanent plateau to decline. We're being told that the big banks are seeing a significant increase in US fund flows and attention from US investors into Canada. We're blessed with companies that have decades' worth of drilling and inventories. Our companies trade at a discount, and we have better messaging from the federal government in terms of its support. We have incremental takeaway capacity on existing lines over the next several years.

As well, natural gas has been strong this year. He's quite bullish on nat gas going into 2026. The time will come, as well, for oil; thinks we're on the cusp of the next mega-bull market for oil.

Three big reasons.

Firstly, systemic increases owing to LNG capacity both in Canada and in the US. Secondly, increase in power demand in areas where data centres are being built out. For example in Texas, power demand is up 5.5%; for the past few decades, US power demand was growing about 0.4%. Finally (and thankfully), winter has finally arrived. We've had the coldest December in 10 years, and the forecast is for at least normal seasonal weather.

Broadly speaking, natural gas has gone from being a bridge fuel (to some future where we were going to live off solar panels and windmills) to being a foundational fuel. GE Vernova (makes gas turbines) reported this morning and spoke to clear, visible growth into the 2030s, and it's all going to come from natural gas.

Market sentiment is crappy, but you want that to invest. People are really fearful. Will tariffs be repealed? Now, we're in a pause before the rally resumes. Corporate earnings aren't too bad. Sentiment is negative. So, a good time to start investing. Technology, energy and small caps look good. Also, biotechs and financials. International markets are perking up, like Europe.

He prefers gold. They call silver the "widowmaker". It's up nearly 100% this year, a big move. Silver has commercial application in AI and aerospace. The trend is up. Gold and silver enter seasonal strength now. To follow gold, watch the biggest silver companies like First Majestic.

He expects the Bank of Canada to hold rates this week due to strong Canadian labour numbers. It's expected that the bank will hike rates late in 2026. The US Fed will likely cut rates slowly, perhaps catching up to the Bank of Canada. Powell will move rates according to economic data. Likely, the Fed will have a hawkish cut where they signal a slower path forward. A larger question: Will the Fed lose its independence under the thumb of Trump. He hopes not.

Bonds. He was shocked by the bond market reaction to strong Canadian job numbers last week. The market is pricing in a rate hike; bond ETFs sharply went down after that jobs data. The XBB has returned only 1.86% annually since end-2014, bad relative to inflation. Corporate bonds offer more yield, but also more risk; XCB-T returns 2.79% annually, barely keeping up with inflation. Both bonds and equities look challenged looking forward, so investors need to look at private markets to generate returns. As for passive vs. active ETFs, most active funds don't deviate from the index, but charge active fees. Stick with passive funds.

After the April draw-down in 2025 the U.S. budget was very stimulative. We can continue to expect a stimulative budget because of the US midterms next November and the US president will want the incumbent party to remain entrenched, so the US will be a big driver. Defense spending is a consideration. The crypto guys might be a bit disappointed. In Canada gold stocks have surprised and he thinks precious metals and gold will move much higher again, although money may start to move from gold to the Magnificent 7. As to the AI trade, to him it has the look and smell of the 2000.com era. He feels that AI is just a chip processing story with a lot of hype to it. There  are billions in opportunity in AI beyond semis. There is an overbuild for network and energy. How much money will be redundant. Also where are the AI opportunities in the discovery market and in prevention/security.

The question was on the Indian market. The outsourcing companies look quite interesting including the generic drug market. Not everyone has the ability to buy in the Indian market since you have to have a license. However some stocks can be bought in the US.