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

Innovation in the tech sector creating tremendous opportunities for investors. Finally seeing growth avenue to re-invest large cash reserves within tech companies as A.I. accelerates. Large amounts of capital investment into tech development also contribution to larger economic growth within North American economy. Early stages of A.I. make it difficult to determine who will be the "winners" in the business cycle. No doubt, some companies will fail - but there will also be winners. 

Uncovering Investment Gems: No Analyst Coverage

Look for companies that have absolutely no analyst research coverage. At times, this can be a red flag: maybe there is something at the company that analysts don’t like, so do not bother covering the company at all. But no coverage can also create opportunities. Owning a stock with no brokerage talking about it can often work out very well when they do start talking and promoting the company. It is surprising sometimes how little attention some companies get from the Street. IES Holdings Inc., for example, is a US$5 billion company in the electrical contracting business. Despite its stock being up 200 per cent in the past year and more than 20 per cent this year already, it has not a single analyst covering the stock. Zoomd Technologies Ltd. in Canada is much smaller, with its market cap at publication at about $85 million, but you would think that its more than 1,000 per cent gain in the past year might attract at least some attention. But no, not a single analyst.
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Everybody's scared. Forecasting markets is difficult enough -- you have to pick through the direction of earnings growth and of interest rates, and figure out those 2 variables. Macro-economic things can develop every day, and now we have Trump pondering 25% tariffs on Feb 1, or kicking them down the road to April, talking at Davos right now, and ordering interest rates down. Powell's really got his work cut out for him. It's all very opaque.

At the end of the day, it's the art of the deal and Canada is more the solution than the problem. We're necessary for the supply chain. The trade balance is favourable, though the US has a surplus except for our energy that they need, and Trump just told OPEC to lower prices and the Saudis that he wants $1T instead of the $600B offered. Lots going on and people are very nervous.

He thinks things will be OK and "this too shall pass", but over how many months he doesn't know. But we're talking about people's money here, and we don't know for sure what's going to happen when because nobody really knows the mind of Trump.

If he's placing new money today, he's looking at themes and ideas that are fairly insulated from any sort of eventuality of tariffs.

According to Mr. Trump, we're in the golden age. If interest rates go in the direction they're supposed to, we don't have massive tariffs, earnings continue to go the way they should, and AI themes continue to develop, then markets probably have further to go.

On the S&P, a lot of people are coming out with targets of 7000 by the end of this year, and that can happen. There are pockets that are pretty cheap such as Canada, the rest of the world, and dividend payers. But we have to have smart policy for that to work. He believes there will be a return to common sense, with more rhetoric and less delivery, but we don't know for sure.

Not just in Canada and the US, but the world abroad too. Intersection of politics and investing seems to be at the forefront of everything right now.

If we walk through the markets he invests in domestically, we don't have a leader. We have the folks who are vying for leader, as well as the provincial premiers working together to try to put something together to counteract what might be tariffs coming as soon as February 1. Lots of moving parts there.

If you look at the data, and see some of the claims being made by the Americans, there's a $45B trade deficit (more goods coming from Canada and going to the US). But if you back out the cheap energy that we sell them, there's actually a $45B surplus. That will have to get negotiated.

Looking at the US we're 2 days into Trump 2.0, and we have interest rates, GDP growth, inflation, US dollar strength. A number of different issues, and it will take some time (6-12 months) before we know how this all shakes out. Investors needs to be cognizant of all the executive orders and what the impact can be over time.

Europe is another area he's actively investing in. France is going through political turmoil, and its stock market was quite challenging last year. But this year, 3 weeks in, it's the best-performing market in the developed world.

High-quality companies. In spite of all the things that could potentially change from a tariff perspective, look for companies whose business models are fundamentally strong. For those types of companies, there's probably room for them to outperform.

One example is CNQ, and what the impact of "drill, baby, drill" in the US will have on oil here. We'll get a lot of noise now. Executive orders are flying, but it will take time before we see the outcome of it all.

It may not matter what the Fed does; the matter may no longer hand on every move the Fed makes or guess and guess what that will be under Trump. We may revert to a case where the Fed plays a role only in extreme moves.

Market Update:

The TSX Index was down 3.59% in the month of December, up 18.47% YTD and 18.47% over the past year. Canadian GDP was up 0.4% in the fourth quarter of 2024 and 0.50% for the full year; in the USA the GDP was up 1.4% for the fourth quarter and 2.90% for the full year. Canadian inflation rate was 2.70% annually in December 2024 and the US annual rate was 3.30% in December 2024. 
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The rate-hiking cycle ended in Q3-2023, and it takes 18 months to work itself through the economy, about now. We may see a soft landing. Declining rates has coincided with the stocks rally since the December CPI report. Large stock market corrections come during recessions. He doesn't expect a recession this year, which should be good, though perhaps in 2026. But more volatility this year than usual. Trump is pro-business and pro-hydro-carbons which is good for Canada (amid the backdrop of looming US tariffs). 

The rate-hiking cycle ended in Q3-2023, and it takes 18 months to work itself through the economy, about now. We may see a soft landing. Declining rates has coincided with the stocks rally since the December CPI report. Large stock market corrections come during recessions. He doesn't expect a recession this year, which should be good, though perhaps in 2026. But more volatility this year than usual. Trump is pro-business and pro-hydro-carbons which is good for Canada (amid the backdrop of looming US tariffs). 

You can't go wrong with the banking sector including Canada. But the US looks more opportune now, given its economic strength. Europe is more fragmented and faces a strong USD.

Trump will be empowered this time. He's more experienced and wants to make things more efficient for U.S. business. Everyone is wondering what his impact will be internationally, including Russian and Ukraine. U.S. earnings season so far sees the big banks doing very well, but there remain issues with the long-bond rates. Blackrock's deputy CEO expects inflation to be far stickier than what the street expects. So long-bond yields have to stay higher for longer. 

Trump 2.0 will see him using tariffs as a negotiating tool to add jobs to the U.S., but there will be inflation. The debt problem is real. Trump wants tax cuts, too. His decisions will add a lot of volatility. For every 10% tariff, the US dollar gains 4%, so we're pricing in a 20% tariff across the board now. But at 8:30 am, the Wall Street Journal said that Trump won't impose tariffs, so the Canadian dollar rallied as the US futures and US bond market rallied. Risk assets rallied. Get used to volatile markets in the first 100 days. Private equity and bonds are very attractive now.