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

Market Update

Canada’s tech job market has gone from boom to bust in a matter of years, as August job openings in the sector were down 19 percent from the early 2020 levels. While the CIBC economics published a report showing that unemployment among 15- to 24-year-olds has climbed to the levels typically seen only during recessionary periods. The Canadian dollar was 72.72 cents USD. The U.S. S&P 500 ended the week flat, while the TSX was up 0.6%.

It was a mixed week of greens and reds. Financials and Materials rose 1.4%, each, while energy gained 1.1%. Consumer discretionary dropped by 1.3%, while consumer staples and real estate slid by 1.2%, each. Technology and industrials ended the week lower by 0.9% and 0.8%, respectively. The most heavily traded shares by volume were Toronto-Dominion Bank (TD), Canadian Imperial Bank of Commerce (CM), and Royal Bank of Canada (RY).

His team thinks so. An object in motion tends to stay in motion until it doesn't. 

There's a lot of flow coming into the market. Part of that may be because a lot of market participants don't want to be in the bond market -- returns are low, perhaps not better than inflation, and could be facing a loss if interest rates do go up. Part of it could be FOMO, because the last 2 years have been great, and now European and Canadian markets are really shining. Third thing is margin debt; in the US, it's almost back to the record levels seen in 2021 before the huge S&P correction from 4800 to below 4000.

He's cautiously optimistic. Short term, markets may need a bit of a pullback. We have PCE numbers coming out tomorrow in the US. Next Friday, September 5, we have the labour report for August and we'll see how the market reacts. Then we're back into earnings season in October.

We need to make a distinction, because there are some great bargains in that sector. NVDA is the poster child; it's gone up a lot, and its valuation is probably 40x forward PE. That's quite expensive, unless you believe that they can maintain the treadmill of that kind of growth. He's not saying the growth is over, just that maybe the growth slows down from here. Perhaps the valuation on this type of name has to stay here while earnings catch up, or it has to come down a little bit.

Doesn't mean that capital can't rotate into other parts of the AI growth market, or even into NVDA's competitors which have lower multiples. See his Top Picks.

Can't use just 1 metric across all industries. Industries can be capitalized or financed in very different ways. His team uses quite a few different ones combined in a type of matrix, which allows them to compare companies in different industries.

Trump should leave the Fed alone. Powell has already signalled he my cut rates next month, based on data. However, tariffs will lead to inflation.

He's held cash for about 3 months now, as he typically likes to hold cash over the summer. He shuffled a few things around. 

Continues to believe that certain tech stocks (Mag 7) are way overvalued. So he's been trying to go into whatever is not in that category -- value stocks, commodities, etc. 

He's seeing it flow into a lot of the defensive sectors. This tells us something. 

It was all about tech since the April selloff. But as of the middle of August onward, tech has taken a backseat. They had a bit of a bit last week with the speech from the Fed. But $$ is shifting into the defensives -- staples, utilities, industrials, and even healthcare (the dog of the universe for the past few months). He did a video last week that shows relative performance of the sectors.

Not a bad idea to choose from these sectors and avoid tech.

You might just as well ask, "Why did it snow last January?" There are a lot of vacations and golf playing and so forth. Volumes are always low over the summer. 

All he does is pay attention to patterns, and half the time he doesn't care about the "why" of stocks behaving the way they do. Whatever the case, as we get into October/November, you'll see that markets start to find a bit of legs. Probably because traders are off their vacations and are back at it.

When it comes to indicators, there's a longer way to look at it rather than just overbought/oversold. This could be a half-hour discussion by itself, so he'd steer the investor to a couple of videos. 

He just recorded a video yesterday (being posted to his YouTube channel tonight) on how to prevent falling victim to topping stocks. He also did one a couple of days ago on bottoming stocks. 

A Canadian company (such as ENB) is a Canadian stock. If you look at the chart for the US listing, you're now also looking at the effect of the currency exchange. That will distort things, so there's no point. For example, this year the USD got smashed; once converted, that would make the US chart for ENB artificially look better than it actually was.

So for a Canadian company look at the Canadian chart. For a US company look at the US chart.

There's been A LOT of volatility this year, from the Epstein files to the bombing of Iran and today Trump complaining about the Cracker Barrel logo. What is this all about? Can Trump legally fire the Fed governor? This will be messy to resolve through the courts. Trump is pressing the Fed to lower interest rates. The stock market is at record highs, so there's a disconnect between the market and economy. Typically, you cut rates when the economy starts to weaken. Some areas are, like job losses and company bankruptcies. Suppose the stock market corrects during a rate cut? We cut see a 25 bps cut in the U.S., but no more, based on conditions. If there were no tariffs, inflation could decline. If tariff inflation gets bad, there will actually be a need to raise rates.

US Fed's Jerome Powell has signified he will start to cut interest rates and he's very dependent on data. There's a slowdown in labour demand, but the borders are shut to prevent new labour from entering. Super-core CPI is Powell's key indicator, at 3.2% now. But there are many people on the Fed board and some fracturing of opinion. It's possible a new Fed chair will be more malleable to the president, but he frets over that.   

After Jerome Powell's remarks last Friday, stocks ripped, but not bonds. We didn't learn much from his speech, except that September is on the table. Futures indicate 5 rate cuts from now to the end of 2026. He expects Powell to cut 0.25% in September with the market pricing that by 80-85%. It was slightly less than before Powell spoke. Canadian futures indicate 1 more 0.25% cut by mid-2026. Therefore, the US will cut more aggressively and catch up to Canada. Canada is way structurally weaker than the US, and the CAD lacks a catalyst to rally. Normally, the CAD would rally a lot. Maybe the CAD reaches 75 cents, unless there is a rocky Sept-Oct and trade negotiations get rocky. Those with lots of USD exposure in ETFs should consider moving that into a hedged version should the CAD drift to 70 cents in the next few months. 

We are heading into September which is seasonally weak. The recent message from Jerome Powell hinted at inching into rate cuts. Inflation has been cooling but the fight is not over. They want to see the core inflation at 2%. Another question is: will tariffs feed into higher pricing into the fall. The labour market is slowing but steady enough to avoid recession fears. Equities are holding up fairly well and earnings strength is spreading beyond tech. The equal weight S&P is starting to rally. Investors are shifting from tech to other sectors so this will create diversified portfolios. Canada is a softer echo of the U.S. Real estate and energy showed a little pop and consumer discretionary and healthcare are starting to show signs of strength. Expect volatility and she advises to start taking profits and reduce risk.