North American Equities: The Month of TACO Trades

Transcript

Good day, everyone.  Pete Hofstra here with an update on North American equities.  We are June 2nd, 2025.  May, micro-wise, was a great month for both Canadian and U.S. equities.  Strong recovery after the volatile April.  Call May the TACO month.  Have you heard that one?  “Trump always chickens out”, TACO.  Meaning that any time he announces or threatens tariffs and the market tanks, you step in because inevitably he will back off and the market will recover.  So it certainly felt like April was the threat down and May was the recovery, as we backed off, granted additional time, and such things.  But clearly the headlines aren't over.  Announced tariffs on aluminum and steel, coincident with Nippon and U.S. Steel forming a partnership and protecting U.S. steel manufacturers.  So maybe getting more strategic.  But I think too it was sort of the end of earning season, at least most of the S&P 500 has reported.  I think 89% of companies.  January was also pretty good.  Was sort of the magnitude of 72% exceeded expectations.  And believe it or not, that's a bit below average.  I guess typically a vast majority of companies will exceed expectations, and that's good management knows how to manage expectations.  So that is more typically the routine.  If we start to break it down a bit, I think one thing we've been talking about is the spend on AI has never slowed down.  It never paid attention to the tariff tantrums.  When NVIDIA reports, I think for a lot of us it's as much relief as anything else.  But put up very strong numbers and gave good guidance.  And they're really emphasizing it and Jensen, their CEO, is really trying to find that balance between distributing product globally and being sensitive to the Trump Administration's desires to ensure U.S. leadership.  But he's made the point is you actually want the world using U.S. infrastructure.  For everyone who has common infrastructure, obviously the cross learnings are important.  So if another country, China, whomever, has a hack and improvement in an innovation and it's all in the same platform, then you can quickly translate that hack, improvement, innovation, whatever it is.  If they're isolated and ultimately build their own platform, it can be much more difficult to actually ascertain what they might be doing that might be giving them an advantage or not.  And so we'll see where those discussions go.  Probably the space to really watch closely going forward is retail, as you are.  There still is tariffs and tariffs being negotiated on goods coming into the U.S.  But you get companies like a TJX, which you may know as the off-price retailer, the Winners brand here.  Of course, most of their inventory would already be here.  It's the inventory that the branded shops couldn’t move and ultimately flows to them.  So they're just fine.  And you're seeing the Home Depots and the Walmarts, they've got the scale to really squeeze their supplier.  So obviously they want to work to keep prices somewhat contained, and certainly the Trump Administration is very vocal with regard to Walmart and pressuring them to say you're a multi-billion dollar company.  You can eat this and be good to our consumers.  So shaming them into managing that price.  Of course that's what central banks are keeping an eye on.  How much of this tariff is actually going to flow through into price increases?  So they remain cautious, on hold, and want to see the data.  You look at after the recovery in May.  We're looking a lot like what we used to where the broader market can look expensive, but we're back to well it's really because a handful of stocks, the highest quality companies in the world, are priced like the highest quality companies in the world.  And the rest of the market is not too far off it's long-run average, which is exactly where we were call it a year ago, eight months ago.  So that's the market we're in.  All of that to say as we head into the summer months maybe expect some volatility.  There's going to be continued announcements.  The Fed watch is going to be alive and well.  A lot of the earnings, of course, are backward-looking.  So companies have been tepid with their guidance saying there is a lot of uncertainty, both with whether it's other business clients or consumers.  So everyone is pretty cautious here.  There is impact that's been in the market, probably hasn’t come through fully in prices.  But that's the thing to keep an eye on.  It tends to be lower volume.  Lots of commentary.  So let's just be careful here.  Great, we've had the recovery, but it probably gets harder from here.  That's it for now.  Be well, and we will check in with you in a month.

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