North American Equities: From Tariffs to Tech: Lessons from 2025 and What’s Next

Transcript

Well, Happy New Year, January 5th, 2026. Hope everyone had a decent break. Markets were reasonably well behaved, so it didn't necessarily trigger any crisis behavior, but we're certainly starting 2026 with a bang as the U.S. has gone into Venezuela and taken Maduro into New York on drug charges. So we'll see what happens in that situation. Maybe we'll come back to that, but let's review 2025. We got through it. We won. Crazy year. When you think of everything that happened, I'm not going to try to recount them, but you know, certainly the volatility of April with the tariff threat down to where we evolved to the end with the market kind of stumbling into all-time highs, or pretty close therein. So obviously people ask, “Well, does that create risk for this year, the fact that the market is near all-time highs?” So to address that, maybe at the outset, I think there's two things that create sort of dramatic corrections or periods where you might want to step out of the market. And that is either you've got incredible overvaluation of equities, or you're about to go into a substantive and prolonged central bank tightening cycle. I think both of those were probably okay. I know there's sort of a chat around AI evaluations. They're not crazy. We've talked about it in other podcasts. I mean, trading in the 20 times versus the 100 times of the 90s, this is very different. Private markets, again, could be something different and something we keep an eye on. But public market valuations are not out of control. And frankly, the market is kind of in line with its long-term trend. And underlining that is you do expect markets to reach all-time highs, in theory, every year just based on inflation with a bit of true GDP growth. So that nominal number should drive markets higher. Equities, which is ownership in companies, are actually great inflation hedges. Inflation is prices going up. And who passes through pricing is those companies. So just in theory, that value should go higher. So we don't need to intrinsically fear all-time highs. We just need to look at the setup for 2026. Obviously, the key trends that drove ‘25, gold and AI, you can look at each of those. And frankly, it's interesting that TSX outperformed the S&P this past year and that's twice in four years. And it's actually pretty rare it ever outperforms, that Canada does outperform the U.S. So twice in four years is certainly something interesting to look at. But with the AI thing, look, my comment to you, there's lots of commentary out there. One thing I would maybe put to you is that when are we going to see the return on investment, all those CapExes being spent, when is the return going to come? It's not going to matter. This spending is not going to stop. This is just becoming table stakes. You want to deliver a service, it's going to have an agentic element associated with it. Think of assembling furniture. You just scan a code and the phone gives you a whole video on exactly how to do it and even real time. You can show it parts. And anyway, the spending is not going to stop in just the sense that nobody asks, when you build a website, what's the return on investment? You just have to have a website. You think Walmart wanted to have an e-commerce business? No, they just had to do it. Nobody asked what the return on investment is. You just have to do it to run your business in today's world. So we don't see the slowing on the infrastructure going behind CapEx and you're just going to see a continued build out of the use case. So and again, valuations aren't crazy. It doesn't mean there can't be some volatility, but we do see that as a trend that remains robust. You know, gold is harder to judge. It's a sentiment trade. Things I would say though is that what's driving that risk off sentiment probably remains in place. I think there's a lot of concern, you know, with the current administration, the Trump administration, that they don't respect the separation of duties from monetary and fiscal policy. It's a president who would like a lot of influence on a lot of things. And I think for those that believe in the world order as it exists and certainly the developed world, like to see that separation. So increased influence on central banks creates the risk of inflation, which could ultimately create a prolonged tightening cycle. So in the near term, it's probably okay, but certainly something to track. Then there's things around international law and we'll see what happens in Venezuela. Now that the government, or at least the leader of the government, has been removed, it seems that those that remain are positioning to gain power and we'll see what the U.S. does to actually run the country, let alone invest in the resource. And frankly, you know, extra oil to the market, when the affordability thing, that might have a big influence on the midterms, oil's obviously a big factor in affordability. You know, central banks take it out of their core number just because it can be quite volatile. But then when it comes to the consumer, it's where does the wallet go? And if gasoline is cheaper, you know, fossil fuel-based heating is cheaper, that's kind of good for consumer spending. So a lot to keep an eye on there. I think maybe the final piece is the employment picture is mixed, certainly not strong. We're hearing more things around layoffs, whether that's AI-related or not. It can often be the smoke screen that companies just routinely restructure. But if the employment picture is weakening, that sort of would imply we're certainly not going to be raising rates and likely continuing to cut. But Chairman Powell's term does end in the first part of the year, so we'll see what that transition looks like. But all that to say, again, the setup is probably okay for this year. Valuation is not insane, not likely going into any dramatic tightening cycle, but plenty to keep an eye on. Anyway, we'll keep chatting once a month. Hope you're well. Hope you had a good break. Lots of viruses going around, so ideally you survived those. And we'll chat again in another month.