North American Equities: Trump Time?

Transcript

So, should we call it Trump time? When a month seems to last forever, or at least in terms of market time, that we saw everything in the month of April and ended up almost flat, frankly, both in Canada and the US with regard to equity markets. Anyway, it's Pete Hofstra here with an update on North American equities. It is May 5th, 2025. Boy, quite a start to the year. You know, the 100 days, all that stuff. We look through where do we go from here. What did we sort of anticipate, how did we adapt during it? And again, we did think the Trump administration would come out fast and furious, which is certainly true, trying to get as many things in that they believe in, that they can then point to before the midterms come around so they can get a positive outcome there, and maybe further solidify their position within Congress and the Senate. And we shall see, but certainly that does seem to be the pattern as now we're behaving a bit more friendly.

But I think it is important to realize that some things will have real impact. I know if you follow some of the manufacturing and shipping coming out of China, I mean, it's obviously created chaos and it's still not clear. So, while there's frameworks for other countries, whether that's Japan, India. Europe is wanting to chat. Mark Carney, our new prime minister, is going to meet with Trump. Certainly, while both China and the US have talked about de-escalating, it hasn't happened yet. In the meantime, where do you ship to? How much do you manufacture? The US is still China's biggest customer. Less than a 50% customer, but still the biggest. And so now there's chatter that Christmas toys won't be available. And it's still really going to impact the US. And even Trump's base, if they're the low-cost goods shoppers, the Walmart shoppers, where those goods coming from, if not from China? And it is trying to find other customers. And so without this de-escalating quickly, you can see some longer-term impact in terms of relationships formed.

Of course, I think a few podcasts that we talked about, the US dollar and the privilege of being the reserve currency and whether this also starts to be impacted. And frankly, the US dollar has been on the decline as a percent of foreign reserves. So, indicating its strength as the reserve currency, it was over 70 at the turn of the century, now below 60. Whether that trend continues and you did see Treasury markets get pretty rattled, treasuries selling off, which I think some people looked at and said, 'Hey, is this the world dumping US dollar?' Or was it hedge funds that actually apparently had gone long treasuries in a highly-levered trade and therefore simply had to unwind. And so, a lot of unpacking there, but certainly again, longer term dynamics, we want to continue to keep an eye on in a world where we seem to be backing off the worst of it. So that's just where we are on the trade negotiations. But we expect to start to see some frameworks and deals and positive things with certain countries announcing a bit of hardball with China and the peace negotiations will leave that for now.

I think one of the key things we're starting to see, the first quarter results and one of the themes we have been big believers is obviously spending on artificial intelligence and that does look like it's remained incredibly robust. So, it's interesting to look at this period of the world we were in six months ago and the world we are in now, or might be in a quarter from now. And how different are they going to be? And this is by no means a typical market cycle when it's been this orange wrecking ball, sort of having their full impact on the market. Again, some of the ideas aren't bad. It's just the way it's being done. I think leaves a lot to be desired. But I think this core theme is certainly one that's very well intact. Look at Microsoft's results. They're not just spending a lot; they're making money on what they're spending. And I think that's what the look-through people want. You know, Meta similar alphabet. All this bodes well for the spending on AI, both in terms of the models that are being deployed as well as the infrastructure, Nvidia reports at the end of the month, I think it's May 28th, so we'll certainly see how they do. But positive indicators there.

And look, it's things like they're using AI to help with the peace negotiations with Russia and Israel. You can create personas and then negotiate with that persona so you can create a virtual Putin and then threaten different things or offer different things and sort of get the uptake and we'll see how useful that is. But it just goes to show the potential application when you can turn the computer loose on a vast treasure trove of data and what you can create from that. And they're using the Llama model as part of other models. So, you're seeing just incredible application. So, lots of positives there. So that core theme does seem to be holding up intact.

So, let's pivot a little bit. Congratulations Canadians, you have a new prime minister. I won't get too much into the politics or break that down. What you did see is the two main parties, conservatives and liberals, take a huge portion of the overall vote. So, I think Canadians are expressing we want something centrist, we want to get something done, and we want to be slightly right-leaning right now, meaning pro private enterprise, fewer taxes. Let's get our precious resources to market. Let's do all those things. Let's get our productivity higher. Let's get our cost of living more manageable. So, Mark Carney, a big job ahead of you. Let's hope you're the pragmatist that you appear to be. You're new to legislating and creating laws, but let's lean on the people around you, and we're all hopeful that you can reconcile across this country, east and west. And let's see if we can strengthen Canada's position globally. So, let's be optimistic at this point, and we'll see where that goes from there.

Let's give a quick shout out to Warren Buffett. He is going to retire at 94 years old. Good for him, end of the year. So, he gave us lots of notice at 94. Certainly, appreciate that. But he will stay on as chairman. So that was certainly interesting news that came out of this annual meeting from the weekend. And if I may, go Leafs go. Can we do that? I mean, come on, even if you're not a Leafs fan, you probably just sick of hearing about them from your friends. So, let's see some positive outcomes there. Anyway, so, broader markets. Yeah, maybe the worst is behind us. We said we were cautiously opportunistic through the worst of it. And we'll keep an eye on both the longer term and near-term trends. And we will check in with you in a month. Be well.

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