North American Equities: How about all time highs

Transcript

Good day, everyone. Pete Hofstra here with an update on North American equities. It is August 4^th , 2025. For those of you getting a long weekend, happy long weekend. How about all-time highs? Yeah, July brought us all-times highs for the S&P and the TSX, kind of fueled at the end, I think, by great results out of Microsoft as well as Alphabet. So again, as much as Nvidia is sort of providing the concrete to this AI buildout, the ones renting the buildings are the Amazon, Microsoft, Alphabet, and certainly Microsoft is capturing a lot of tenants, high-paying tenants, so results were very good. Growth in their cloud Azure business was strong, and a lot of that supported by AI. Amazon came along, however, and their guidance wasn’t as strong as people hoped, some thinking that AWS is not gaining the tenants that they would want, and those are going to Microsoft, so a bit of a wobble at the end. Though, before we move on to what really drove the wobble, it’s important to know that when you listen to the Amazon-Microsoft-Alphabet, all roads lead to Nvidia, the spending only going to higher, CAPEX numbers getting yet bigger, so yeah, the AI theme is strong, it just continues to plow along. But, I think, the big news impacting markets was, of course, the labor numbers, and this should have been somewhat predictable, particularly the downward revisions, so as we talked to companies, there was definitely project delays associated with the trade volatility, going back to liberation day, and companies just kind of holding up and saying “let’s see the rule,” so it’s a bit not surprising that job creation had certainly weakened. Some of the subtext in here, while the actual unemployment rate looks pretty healthy, it’s quite low, labor force participation did go down, and the foreign-born labor force, of course, has diminished significantly, no surprise given the immigration policies of Trump, but you know what? But, I’m trying to stay open-minded here. There’s a lot we can learn from Trump. When you get data you don't like, you fire the person who delivers the data. That's brilliant. So, I think what we’re going to do is we have to get ourselves into a position where we control the different agencies, so anytime fund performance isn’t what we like, we just fire the agency that provides fund performance, so there you go. We’ll stay open-minded and learn, learn from this President. Anyway, so some concern in the labor market, that could be supportive of rates going lower. I think inflation is still a bit stubborn, so that's kind of the worst case scenario, if unemployment does worsen while inflation doesn't weaken, but even the tariff rates that are now being threatened, frankly, are manageable. And the 35% slapped on Canada is all the stuff that is outside the USMCA, which is actually a minority percentage of our overall trade, so the net impact of that tariff rate is not particularly impactful on GDP for Canada. We have a great macro team, and they were sort of saying what’s happening now is not going to have significant impact on Canada’s economic growth. So yeah, nothing to necessarily fear there, and if it goes lower to the 25 or 15, like some think, you know, we did get a deal with the European Union, they [PH] made a deal with Japan, those help the market, and again the rates that are being threatened, frankly, are likely manageable. So look, as we head into the next few months, quick theme for you is level and direction, level and direction. These are the things we need to think about. When we think about interest rates, it's what’s the level, we’re probably in restrictive territory, what’s the direction, right? If we’re going higher, that means we’re going to get more restrictive, but most of us think we’re probably going lower, and there’s lots of capacity to help stimulate the economy. Of course, if you’re low and going lower, that more indicative of a problem, so level and direction matter. When it comes to the stock market, same sort of thing. Where is the level and where is the direction? So level, yeah, stocks aren’t cheap. Certainly, the mega-caps are leading the charge. Again, we’ve got a table-for-two for the 4 trillion-dollar club, with Microsoft joining Nvidia. so the level, yeah, it’s certainly not low, probably moderately high, and then directionally, where are we going? So, here’s a quiz for you. What is typically the highest-performing month in the year, say over the last 60 years? Anyone? Anyone? It’s actually November. November, on average, is the highest-performing month, so there you go, your Santa Claus rally is real. It’s followed closely by April, for whatever that means. Okay, what’s the worst-performing month, typically, in a year, worst? Anyone? Anyone? September. September by far is the worst-performing month on average. How about the most volatile, biggest highs, biggest lows? Come on, everyone knows this one. Of course, it’s October, right? If you think of all the big events that have gone down in the market, often they are in October. Point is, as we come through the summer, when everyone gets back to their terminals, we should expect some volatility, so directionally, markets aren’t cheap, that's why an Amazon guidance is a bit wobbly, you know, you do get punished. There’s concern for the economic backdrop, and you’re coming into some volatile months, so September often challenged, October being volatile, and then Santa Claus often bailing us out. Again, the results of the mega-caps generally look very strong. Nvidia reports August 27^th, so always a big one to watch, but the evidence would be that things are gangbusters for Nvidia, and certainly not slowing down there. So all that means probably, as always – eh, not necessarily as always – but today would be a good time for a balanced portfolio, and happy to share, you know? When things are low, levels are low and direction is up, that's the time to go all-in on a given space, but I would say for the next few months, probably levels are a little expensive, and probably some volatility to come, so hang in there, we’ll get through it again. The great thematic is holding up well. Enjoy the month of August, and we’ll connect around Labor Day. Be well.

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