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

At this time of year, stock trading tends to slow down. It's hard to read much into trading over the holiday weeks. Everyone's back this week, but just getting into the swing of things. People are rebalancing their portfolios, making changes, doing tax-loss selling. It's generally a time of thinner trading, which exaggerates the trades.

He's seeing natural gas as more seasonal, as the beautiful weather we're seeing outside today has crushed nat gas prices. When it gets cold again, price should go up. It's said that the main driver of natural gas is how people feel when they open their windows in Chicago ;)

At his firm, as long as something is showing relative strength and that it's attracting capital, they're fine with buying high and selling higher. That's actually what they try to do -- buy things that are showing strength. They realize they'll never get the top or the bottom, but want to capture as much of an upward trend as they can. "The trend is your friend till it ends."

His firm focuses mainly on a stock's price and its relative strength. 

First they ask if the market is favourable for equities? Yes. 
Which equities? Canadian and international have been outperforming US equities. 
Then they look at sectors to see which are outperforming? Drug companies, for example, are starting to outperform. Of the drug companies, which ones are showing the highest relative strength?

That's how they work through their process.

After 3 strong years of the S&P 500, and a solid showing from the TSX this past year, it will really be about monetary policy. We assume that we're going to have a new Fed chair, which is dovish. Leading up to that we may have some volatility. Speaking of volatility, we have the renegotiation of the USMCA, midterm elections (which tend to be the most volatile years and with the highest drawdowns). 

Everything underneath that is fairly supportive. There's an expectation of about 14% earnings growth for the S&P 500, which is positive. Inflation is easing, and that also supports a more accommodative monetary policy which, in turn, is constructive for stocks.

Absolutely. Valuations are higher right now. So it's more about the earnings results and the earnings guidance rather than the narratives around many companies (including tech companies).

Still great momentum and great growth in many of the tech and communication companies out there. His team also likes healthcare and financials. Industrials also have a path to outperformance.
 
Technology and communications performed very well last year. But if you look at the Mag 7, not all of them did very well -- only a couple of them outperformed the S&P 500. We're shifting a bit more to the industrials and the financials. Probably not lowering the weighting in technology, as it still has a path to perform well. But we'll have more volatility this year, and it'll hit the higher-beta type of sectors such as technology.

Historically, some of the trepidation about a change in government does lead to greater drawdowns in midterm election years. Those years tend to be weaker, same as with the presidential cycle. 

However, volatility can lead to opportunities to buy things that have gotten a bit cheaper. Same as we saw last April with "Liberation Day".

Depends on size of portfolio and how much diversification an investor needs.

His team is still pretty constructive on the markets. They've been long the tech sector for the last 5-10 years, and think that still has a great outlook. AI will continue to flow into the enterprise market. Tech is a huge part of the S&P 500, so that should continue to do well. 

Tech's had a great run over the last 3 years, and we're now in the digestion phase where multiples are starting to level out after having expanded. We're going to need to see further earnings growth and further EPS revisions for a lot of these companies moving forward.

The Russell's seeing a rebound in more of the "real economy" companies such as auto stocks and equipment rental companies. That turnaround will continue to push the market higher. For the real economy, interest rates are lower and that's helping. From 2021-2022, ahead of the inflation spike, there was a huge surge from stimulus by governments around the world. We got ahead of ourselves in terms of inventories in lots of areas, and we have to work through that.

He has some exposure to metals and materials -- great performers last year, and expects that to continue. 

Still shying away from consumer staples whether it's personal care or alcohol. Multiples in the sector have come down a ton. Sees a lot of headwinds that are structural in nature. Pricing power is non-existent, lower-end consumers are moving to private label. The digital economy has taken away a lot of the shelf space that companies used to have, and there are now a lot more options. 

Likes the space. Most are trading at discounts to NAV, which now properly reflect current interest rates. Balance sheets also reflect current interest rates. In 2022 a lot of them had to refinance their debt, going from 1-2% to 5%. That was a big headwind on their interest expense.

He doesn't expect the same returns in 2026 as in 2025 or for the last 3 years, which averaged 23% annually vs. the historic 8-9%. Tech will remain his largest sector as well as on the S&P; the fundamentals are strong and growth is tremendous. This isn't speculative. He's fully invested and slightly overweight tech. He also favours materials, especially gold, which is a hedge against inflation and the go-to when there's geopolitical risk. Gold stocks remain very cheap with good cash flow. There isn't over-mining and margins remain good.

While the US extricated Maduro and his wife, the government of Venezuela hasn't particularly changed. The people around Maduro still control the mechanism of the state, and they still control many local and regional governments. To suggest that regime change has occurred is probably premature. Not saying that the US can't cause this to occur, but the process of asserting US control in Venezuela, if it's going to progress, has just started. People need to pay attention to that.

There's zero doubt that if the US were to get control of the reins of power in Venezuela, that could begin to change the dynamic of the world oil market. That would impact Canada over time as the Canadian heavy sour crudes, the Athabasca oil sands as an example, compete directly with some of the Venezuelan crudes. In fact, it was Venezuelan and Mexican heavy sour crudes that fueled the US Gulf Coast refining business and led to such demand for Canadian crudes.

Also worth noting that there are substantial opportunities in conventional oil & gas in the Maracaibo Basin precisely because Venezuela hasn't elected to make sustaining capital investments or new project investments. That could open up opportunities for North American companies, but would also present challenges for incumbent producers in other parts of the world, including Canada and the US Gulf Coast.