North American Equities: What’s Ahead for 2026

Transcript

PETER HOFSTRA:  Good day, everyone.  Pete Hofstra with an update on North American Equities.  It is February 2nd, 2026.  Another interesting month.  It seems we have lots of those.  At least the market started pretty strong as we got into the New Year.  Waned a little bit towards the end of the month, but we ended up positive, both in Canada and the U.S.  And I do see a strong first month.  Usually portends for a good year.  However, I'd submit that under the Trump Presidency, a lot of these cycles and traditional correlations have broken down.  Seems the behaviors are quite different.  I think it's in part what maybe our prime minister, Mark Carney, is trying to address at his Davos speech.  If you haven't heard it, it's certainly worth a listen.  It's got a lot of popularity across Europe.  Basically him making the case that the U.S. is no longer that trusted partner and the rest of the world really needs to figure out how this is going to work.  We need to work with the U.S. but we need to do more together.  And so obviously that resonated with a lot of European countries.  I'm sure it did quite a bit around the world.  Of course not necessarily pleasing to President Trump.  So we'll have to see how all these things evolve.  Jerome Powell's held interest rate.  So U.S. Federal Reserves staying on the macro.  I think one interesting thing is trying to link some of these things, whether they should be or not.  But the Venezuela, there's obviously no plan to bring about democracy, or at least no articulated plan.  But there certainly has been a plan around energy.  I think of what, again, our prime minister might have indicated that maybe the U.S. was never that trusted a partner.  It just sort of played the game.  How much does vice play tribute to virtue, sort of thing.  Versus just saying here's why we're doing this.  But access to energy helps keep prices low, keep energy prices low.  And maybe that's how you get inflation lower and interest rates lower in the U.S.  And so Powell held interest rates seeing still some inflationary pressure.  But the next chairman of the Federal Reserve has been named.  Kevin Warsh.  We'll all have to get used to saying that name.  But I think there was strength in that he's considered an Independent.  And so it's not the worst-case scenario of a true Trump puppet, at least that's the view.  And I think that's in part why gold corrected.  Obviously gold had had a fantastic run.  But keep in mind, what's great for gold is uncertainty everywhere else.  So if we do think things are stabilizing, again, we've got a Federal Reserve Chair who wants to reinforce independence.  I mean again, if you start to get some unwinding of these conflicts around the world, none of that would be good for gold.  But all these things, I think it's a bit of a valuation reset.  So getting to why did the market reset a little bit at the end of the month, things do get ahead of themselves.  I mean the trends around gold, there's not a ton of certainty out there.  So again, the underlying trends are there, but it was probably well over bought when you look at a lot of the retail buying that had come into that market.  And so these corrections are inevitable.  How you look at a Microsoft, I'll follow that stock.  It corrected quite a bit.  Not entirely surprising.  Does it mean we should be selling it?  No.  The results are actually fantastic.  But what happened is it gets more than 30 times earnings.  It tends to be a little bit expensive.  And the challenge always is if something is growing its fundamental value at say 20% or 25% and you want to make a 10% return, how far ahead of itself do you let it get before maybe you resize that position?  And so Microsoft is going to be just fine.  Meta had also reported that actually their ad business is much stronger than expected, so that certainly lifted the stock.  But what's very evident through both of those is that the spending on the infrastructure to support artificial intelligence is not slowing down.  So Nvidia reports are the end of February, but certainly everything looks like it's going to come up roses for those providing the infrastructure.  Still very strong spend.  One we're watching closely is the rumblings around this OpenAI capital raise.  It's going to be very important.  Right now you're just hearing some investors putting their hand up and saying we'd participate.  And that's coming out of the Middle East, Amazon, Nvidia, Microsoft.  But the valuation that that business gets and the amount of capital they're able to raise is very impactful.  Again, this is if there's real concern around a bubble, it's these private markets.  That's where you have stretch valuations and unprofitable tech.  So this raise is going to be critical to know how much AI can continue to control their own destiny, but also how much spend it's going to continue into the infrastructure.  So again, broadly things look okay.  Things just look okay.  Employment is holding up just fine.  Canada's employment picture, interest rate picture, everything looks okay here.  So bit of a wobble.  I don’t think it's, it's cause for panic.  These, these resets need to happen every now and then.  But it's where the underlying trend and fundamentals holds up.  But anyway, never a dull moment.  Hope you're well.  We will connect in a month.