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

The way they manage risk is to not only keep the percent weightings in line, but also to keep 50% in the 4 inelastic industries:  consumer, healthcare, financials, and utilities. The other 50% can go in the more volatile technology or industrial sectors. By country, again, he keeps that 20/40/40 mix among Canada, US, and international. 

He wants to have 50% in large caps, where most of the profits are being used to pay out dividends, and that's the income side of the portfolio. Still wants to have another 40-50% in small-mid caps; that's because more of the profits are going back into the business for capital appreciation over time. This way, you get that nice blend of income and growth. Dividend growth offsets inflation.

He doesn't have to chase sectors or areas because they're global managers. So when EMs and Europe took off, they were already there and benefited from it.

He favours insurance companies over banks right now. What's going to happen to all those people who bought houses in 2020 with 20% down, with 5-year fixed mortgages at 1.5%? The value of their home has dropped 20%, now they have no equity in their house, and they suddenly become high risk. 

Canadian banks haven't yet had to face this problem. If payments double or triple, and more income has to be allocated to debt repayment, that will impact loan loss provisions and profitability. Most banks raised provisions, but not enough. BOC may have to lower rates to keep the economy going, and that's not good for banks either.

Markets are becoming somewhat desensitized to the rapidly changing tariff outlook. President "TACO" spoke out on Friday, so markets didn't have a real chance to respond. So last night, as futures opened, they were softening. But this morning, we're right back to an upswell on the day for the US market.

On today's Educational Segment, he'll talk about where he thinks the focus will go and, ultimately, hard economic data and how the economy will play out in the back half of the year with all these things factored in.

President Trump knows that low oil prices are needed to contain inflation. We're in a regime where between now and the midterm elections, from a US perspective, low oil prices are a good thing because that will help the average family.

Oil prices have come down. Over the last 3-4 years, it was thought that under $70 the US would be buying back for the strategic petroleum reserve. Now he thinks they will, but it will be below $50 at some point. That support for the market's been deferred. As long as supply exceeds demand, prices will remain well contained, notwithstanding the little bump we got today.

We're going to be in a heightened period of uncertainty, and tariffs are part of that. Increasingly, we're starting to see some economic data that's starting to soften. To him, the recent pre-April highs are good highs; we're not going to go through them. Unless, that is, we see a significant uptick in economic outlook. And he just can't see that with all the uncertainties in front of us yet to be resolved.

That said, the extreme low from April is probably a good low until we see a really hard economic landing where we're talking about massive layoffs and recession. That doesn't appear to be on the agenda for this calendar year. Something to worry about down the road.

Right now, there's a 20% chance it cuts rates. None of the big 6 banks are expecting a rate cut. So he doesn't think we'll see one, though GS is expecting one. BOC is pre-emptively way ahead of the US market in terms of cutting. Still, we get employment numbers this Friday and we're likely to see a loss of jobs in Canada.

Canadian economy is structurally weaker than the US right now. BOC will be biased toward cutting further as we progress.

There are ways to buy a US security that gives you exposure to other parts of the world. US money market or HISA would get you a 4.5% yield. There are USD instruments that trade in Canada.

He'd ask how fundamentally opposed are you to getting a better return on your money compared to your anti-US sentiment based on politics?

US economy.

As we get desensitized from tariffs, though those are still real and still matter, we're starting to see decay in the US labour situation developing over recent months.

He's brought in a graph of the JOLTS survey on job openings / losses / turnover going back a couple of years. Number of job openings is continuing to fall. The need for workers is falling. 

Last week saw another uptick in initial jobless claims data. It's very cyclical. Generally speaking, in the post-Covid normalization we've hovered in a range. We're now back up to the top end of the range, and we're worried it will break to the upside. We just heard that DIS is laying off people. That's a big part of what the market's going to start to care about, as it means the Fed will be off the sidelines and maybe start to cut rates.

That's initial claims. What worries him a bit more are the continuing claims. The graph is at a multi-year high for those numbers. Since Covid, it's taking people who have lost their job longer and longer to find a new job.

So you have less demand for labour from business (fewer job openings). You have an uptick (though modest) in initial jobless claims. And then you have the extended continuing claims. Those things are combining, and this Friday we get non-farm payrolls. There's some expectation that we get job growth, not negative, but less than 100k. If we start to see the US labour market weakening, it's going to matter a lot because the market (at 22x forward PE) is priced for 8% earnings growth this year.

If we start to lose jobs, and recession risk becomes real, then equity markets are not priced for that risk.

Finally, we have the big beautiful bill. A gentleman on social media at Piper Sandler took all the components of the bill, and calculated that we'd get an economic bump into 2026. But the growth rate for GDP following that is going to decline. It won't be the economic boost they hope. Larry's not sure the markets are correctly priced for what's coming.

Bottom line:  if you want to participate in the US market, use buffer ETFs. ZJAN is his recommendation. Gives you about 10% upside, and about 15% a year downside protection. Keeps you invested, in case he's wrong and the market goes higher.

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He never liked this. Looking at the S&P's summer performance: 5 of 10 summers between 2000-2009 where down and the average summer performance was -1%, though the median was +0.5%. 2002 was the worst summer at -14.2%. 2001 and 2008 were also negative years. So, sell in May didn't give you an edge at all. Consider 2010-2019: the summer was positive 7 of 10 times, with an average 1.2% rise and 3% median. 2011 was the worst summer at -9.4%. From 2020-2024: the S&P rose 4 of 5 summer at a 6.6% average or 7.6% median. Over the past 25 summers: up 16 of 25 summers, 1.4% average and 2.7% median. So, selling in May and going away is a loser this century.

This rally has been one that everyone's hated because it didn't make a whole lot of sense. We still have all this tariff noise, though there has been some de-escalation. A lot of hedge funds sold near the bottom. People are scrambling to try to keep up and chase this market higher. 

Tariffs are hard for people to deal with. There's an acronym going around -- TACO (Trump Always Chickens Out). And it's what the market is starting to believe. By and large, what market participants got wrong in April was that earnings in the US and Canada actually held up better than people thought. Forward guidance held up better. There is some de-escalation, maybe 2 steps forward and 1 step back (as today with China). 

You have to ask yourself some questions. Does Trump want to be unpopular? No. Does he want to lose the midterms, which are not too far off? No, but he probably will if he puts the economy into recession. Softer inflation data came out in the States today. But it's sell in May and go away, and we still have this opaqueness.

We end up with the next 18 months looking pretty good, with a big beautiful bill coming in with deregulation, tax cuts, spending, etc. And all that will be good for the economy. But the short term will see tough markets.

What they're saying is that this number captured the front-running of trying to get ahead of tariffs, and that we'll still see the negative effects. But there is all this optimism with this new government being much more stimulative for Canada. Getting more projects off the table and boosting inter-provincial trade. 

It's nice to see this better-than-expected number. What does that mean for the BOC next week? Probably will be on hold and not lower rates. Our currency is going up, which isn't as much a secular Canada call as it is a weak greenback.

Investors can take comfort in that he thinks we've seen the big moves down. But we're still going to have trading ranges. Markets are back near highs, so you don't need to go full-in. And it is May.

Still cheaper than the banks, and with better growth and lower payout ratios. Great place, plus it's fairly down the line exempt from tariffs.

New money always has to be put to work. So you have to ask yourself:  what should I own, and how much of it? Where should I be on asset allocation -- at, over, or under? And it all depends on the economic outlook, which is hazy. Prices are expensive here.

So he's trying to find places that are going to work regardless of the cycle.

You still have to own US stocks, especially if they're cheaper and more compelling. 

He might be naive, but we have Team Carney in place. You have to be considered a "bad country" to be punished with taxes to such a large degree. He believes we'll be able to avoid the worst. It might mean going against the OECD. But Canada has to do what it has to do.