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

We've spent 46 weeks getting to where we are for the year, and you don't want to let it all whittle away going into the last 6 weeks. He's being a little conservative here.

Tech stock valuations are rich. Right now, he wouldn't say it's overbought, but it isn't cheap either.

In the technology arena, lots of people focus on the semiconductor stocks and so on. For him, it's all about the data, and you need rich, reliable data. His analysts have always said that it's about the integrity of the data.

Take a look at a chart that's set up like a dartboard. The bullseye is all about the data infrastructure, which provides the foundation. The second ring represents data processing and analytics, which unlocks the value from the data. Outer ring focuses on protecting the data from unauthorized access and ensuring compliance with regulatory standards.

This all has to work together to allow people to have faith in the data -- stored properly, best analytics, and protection of sensitive information.

His fund is an investment vehicle, but a lot of investors also own a stock from the fund in a trading account. In that case, they can sell calls against a position, or they sell some puts if they don't have a position. In other words, if you're going to own it outside a fund, treat it as a trade rather than an investment.

Corners of the Market:

2024 has been a very solid year for the equity markets due to a favourable macro backdrop of declining interest rates, a slowdown in inflation, and especially after the election results, where the markets expect Trump’s policies of putting America first can help corporate earnings over the next few years. As a result, not only broad market indices but risky asset classes, such as small-cap, high-growth stocks, cryptocurrencies, etc., have performed strongly and hit new record highs.

That being said, despite a record year where both the S&P 500 and TSX achieved double-digit returns, not all sectors performed well, and there are some corners of the market that have been under pressure. These are where investors can take advantage of their temporary “losers” by claiming capital losses for tax-loss selling, which could offset capital gains.

This strategy can be accomplished by simply selling a temporary losing name in a non-registered account, which could then be used to offset the net capital gains tax investors have on their investments. The unused amount of capital losses can be used from up to three years in the past or carried forward indefinitely. After 30 days of the sale, these holdings can be bought back if investors believe in the long-term fundamentals of these companies.

Although writing off good companies based on one year of bad performance could become a regret for many investors, some of these names that have been under pressure may continue to see underperformance over the long-term. During a bull market cycle, we think investors should respect the wisdom of the crowd. Therefore, investors need to evaluate these names for future reinvestment on a case-by-case basis.
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A lot of people were surprised with the outcome, especially that they took both sides of the house. According to history, a republican sweep has been better than average for the markets. It is a pro-growth, pro-individual agenda with lower individual and corporate taxes. This is leading the market to recalculate estimates on earnings and expectations. 

We saw a weaker week following a very strong week, so the honeymoon period did not last too long. It will probably persist into the new year, for some technical reasons as well as people won't be too quick to sell with hopes of favourable changes to capital gains legislation. It's seasonally a good time of the year. There is a certain degree of stealing from the future. Valuations are on the higher ranges of normalized ranges. This is demanding on the market, needs stronger corporate earnings, favourable inflation and other economic trends. 

He would like to see a tempered market with average returns. Doesn't think that there is any reason, outside of a shock eg geopolitical shock, that there is a reason for the markets to be negative. However, he does not like runaway momentum markets. Wants a quiet, normal year next year.

Though he doesn't believe in it, cryptos are one of the safest areas to invest in under Trump, because he's so positive about it. He has his own crypto business. 

Thought this would be one of the first named to establish a degree of confidence in the marketplace. Now it will be one of the last chosen. Market is still very troubled by the deficit outlook, and there's still a lot of pressure on interest rates. Until we get some clarity on who's running Treasury, that will likely persist. Funding the deficit is going to be a really big thing. Is Trump going to have his thumb on the scale in terms of doing things in a way that's better for capital markets, and not necessarily for the greater good? Yet to be determined.

Looks as though Trump's really trying to shake things up with some of his appointments. The guy who's been appointed to run the Department of Energy is a climate-change skeptic. The Department of Government Efficiency that Musk is involved with seriously intends to clean things up this time. Last time, Trump didn't do any of that.

Trump seems to be appointing yes-men and yes-women. Anyone who's not going to do that hasn't got a chance.

Yes, though not all. There was a gap in the surprise we got on election night. Last week, markets came back and tested the upper range of the gap up. If it doesn't hold, we're going to go back and wipe out all the gains. From the series of higher highs and lows that we've seen for months and months, these November lows are pretty key.

By the time Trump's in the White House if these levels don't hold, particularly the November lows, look out below. He's not predicting, just saying we need to watch. If you're concerned, the early November lows would be the levels to manage your risk against.

See the Educational Segment.

It's a problem. Today, with over $37T of outstanding federal debt, at an average rate of a little over 3%, that's about $1T. The longer interest rates stay high, and the more inflation that's in the system to keep interest rates higher, the higher the cost of debt is going to be. The only way to get rid of it is to balance the budget and stop spending. That's not on the agenda at all.

Elon Musk is going to try to wipe out a few trillion dollars with his Department of Government Efficiencies, and Larry wishes him well. But what Larry learned when he did his due diligence on the government in Ottawa is that you can't take things away from people, because they get mad at you. That will be the biggest challenge. It will move the needle a little bit, but not enough, and certainly not enough to support all the tax cuts Trump wants.

NVDA's upcoming earnings on Wednesday, after the bell.

The last of the behemoths to report. He's wildly bullish about everything AI, and he's terribly scared. Even during the recent election campaign, you'd see something online and you didn't know if it was real or not. Quantum is coming and it will be a disruptor, just as INTC was for others. Always something new coming along and that concerns him a bit.

NVDA is now the biggest weight in the NASDAQ, recently passed AAPL and MSFT. Let's look at the QQQ and draw trend lines along the lows and the highs. The last time we got to the upper channel was July. But we did the same thing last week. If NVDA doesn't beat and get people still excited about AI, odds are we're going to come back down into the range. Eventually (months or quarters), we'll come back to the bottom of the trend. That's the bigger risk here. 

Options market is saying it'll be a move up or down of $11. It'll either gap up above old highs, and hopefully hold. But if it doesn't, you have a big reversal coming to the downside and it could break the market. We talked about the gap after the election, and it would bring the NASDAQ back into the range that would close the gap in the S&P 500 and create bearish momentum with a failed breakout.

Let's cross our fingers that NVDA doesn't disappoint.

i2i Capital Management was set up three years ago to invest in U.S. stocks. It is a hedge fund, non-Canadian and has accredited investor status. He loves the U.S. market which has massively outperformed the Canadian one. The regular 5i Research has been in business for 13 years helping Do-It-Yourself investors. It is a pay for research company which covers Canadian stocks, has model portfolios and a Q&A section. They have answered 180 000 questions over the 13 years. They need the small cap market to kick in because that's their focus. The largest companies are great and have just kept on climbing and could still do so for a while. But this leads to small cap companies falling behind in valuation and it has always been like that. However small caps do better since they grow faster, can have leverage to contracts and do outperform longer term. No one really cares about this most of the time including now because everything else is going so well. However we might see a switch as the value gap has changed and small caps which are still growing fast become cheaper. He would rather find a small or mid cap right now and enjoy it as it grows into a big company. The giant large cap companies can come in and buy out good Canadian companies at good valuations because they're not rewarded by the Canadian market.

Peter talked more about his reasons for liking small caps. Historically small caps have always been more expensive than large caps because they grow faster. Small caps get more attention as takeover or merger candidates. In the last three years they became cheaper especially in 2022. Small caps have the capacity to meet the market's needs when business is brought back to Canada. M&A will be easier over the next 4 years. Small caps got their house in order during Covid so they are in good financial shape. The stocks are volatile but growing and having no debt and lots of cash.

Company Highlight - Revolve Group (RVLV):

Revolve Group (RVLV) is a next-generation online fashion retailer with a focus on Millennial and Gen Z consumers, primarily catering to female audiences. It mostly operates through two brands: REVOLVE and FWRD. The company has built a large, engaged audience through collaborations with influencers, and its proprietary algorithms analyze consumer behaviour to help manage its inventory. In the past few years, it has seen sluggish growth as e-commerce growth normalized and consumers returned to physical stores, and its margins also came under pressure due to inflation. However, its brand presence among the younger generations remains strong, and with inflationary pressures easing, its margins are expected to improve, helping its stock price. 

RVLV is up significantly on the year, up 107% year-to-date and 161% on a one-year basis. It is a small-cap stock ($2.4 billion market cap) and while it is not cheap (47X forward earnings multiple), its forward earnings growth is expected to average around 27%. It is profitable, but its profit margins have compressed in recent years as higher logistics and fulfillment costs and inflationary pressures have taken hold. Although, these pressures are beginning to ease, and its core Revolve segment is beginning to see a strong rebound in demand, helping future margin expectations. 

RVLV has a strong history of beating earnings estimates, and we can see its profits have begun to rebound in recent quarters. We feel that with inflationary pressures easing and the potential for lower interest rates, that RVLV can continue to benefit from a strong US economy. 
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