HOW I SEE IT – by Bruce

 

All the above/ Investing with confidence/ Roaring 2020s

Equity markets drifting lower since the highs of last week - Is it mid-month correction - option expiring day - trading range since January 1 – US global tariff vote - lower US GDP due to government shut down – Iran - hotter US PCE inflation - sector rotation - all of the above.

Positives: AAII Investment Sentiment Survey - 34.5% bullish/ 28.5% neutral/ 36.9% bearish - bullish reading continues to slide - not close to bargain prices…yet?

RBC CM. Pulse of the Market - First, we review our stance on small caps. We had a little more love for them coming into Valentine’s Day weekend due to better fundamentals, but still see challenges that raise the bar for further outperformance (less appealing positioning and valuations, plus continued linkage to evolving views of the Fed). Second, other things that jump out include more evidence of a tough reporting season, the slide in sentiment on the AAII survey which is not signaling oversold conditions yet, and thoughts on why we’re not intrigued with the tech sector yet from a generalist perspective.

RBC WM - S&P 500 valuations are high - S&P 500 P/E ratio is 22x versus long-term average of 16.6x - earnings growth keeps supporting the valuation, expect 15% growth this year and 16% next year.

The world is entering an unprecedented technology investment cycle.

S&P TSX composite forward P/Es ratio is 17.3x versus long-term average of 14.7x - S&P TSX earnings growth forecast is 15% this year and 12% next year.

TSX market cycles - the average bull market is 68 months.

Fidelity – “Where we are. Roughly 2/3 of stocks above the 200-day moving average. Long-term trend remains up, but the slope is flattening. This is a maturing bull market undergoing rotation not breaking. Roughly half of the rally since October 22 has come from earnings and dividends not just P/E expansion. Earnings momentum remains intact. Liquidity is expanding, global money supply $120 trillion growing at 12%. Credit spreads are tight. Margins are strong. Strong employment data and falling inflation. AI boost productivity.”

Jim Paulsen – “Investing with confidence - don’t sell a confidence revival. US optimism has again wilted during the last couple years. Indeed, the contemporary economic expansion and bull market have been uniquely characterized by chronic pessimism. It seems an oxymoron to call a period of intense and widespread US pessimism and expansion bullish. What are the primary reasons I have been and remain bullish about the prospects for the current bull market is because US confidence remains so pessimistic. Bulls end with optimism not when pessimism rules. Change in tone among policy officials toward delivering more accommodative policy support which perhaps is also the beginning to improve Main Street confidence. Poor Rich sentiment indicator - says buy stocks. When the rich start complaining more than the poor, it’s often been a good time to step up and buy some equities. Will this four-month stall in the stock market ultimately break higher or lower?”

Dr. Ed Yardeni – “10 reasons to remain optimistic about the US economy. Roaring 2020s refresher course. Roaring consumer spending. Amazing wealth affect. Roaring tech capital spending. Roaring onshore. Accelerating productivity growth. Stimulating fiscal policy. Stimulating monetary policy. Energizing energy.  Rebalancing globalization. Animal spirits.”

Micheal Hakes – MWG – “Despite a flat start to the year the fundamental backdrop for the S&P 500 remains healthy with earnings growth projected at 8 to 10%. This resilience is bolstered by a stable job market and anticipated US federal reserve rate cuts.”

Tom Lee – “It does feel challenging out there. It’s choppy even though I think the trend is slightly higher. Fed funds rates could have 7 cuts in it. I think we’re getting close through the rotation out of the mag seven - it’s not the crowded trade while gold is. Software is going to eventually bottom. So maybe it’s a rolling bear market and then strong rally into the yearend - stick with energy, basically materials and small caps.”

Negatives. JPM - Large cap banks. Key concerns driving sell off - all emanating from AI, directly or indirectly - some new concerns and a revival. Exposure to software companies. Impact on parts of the securities services business. Impact on deposits. Slowdown in investment banking. Impact on interest rate outlook if weakness in the economy leads to more rate cuts & flatter yield curve.

Charts - US jobs revised down. Since 2019 - 2.5 million jobs have been erased from official data with negative revisions occurring in six of the last seven years.

Charts - Though moving in the right direction, CPI is still uncomfortably high. Tariff pressures on prices are being masked by declines in a few select sectors.

Fidelity - Mag seven are at technical support. Valuations depend on sustained earnings momentum. The AI narrative is being tested. Concentration risk remains elevated.

Brian Westbury – Monday comments - “If you’re grading the economy based on real GDP it looks pretty good - if grading it based on jobs not so much. It looks like GDP grew at a 3.2% annual rate in the fourth quarter. And yet job growth has sputtered. Good news, but we don’t expect growth as strong in Q1 or for 2026 as a hole.”

Investment strategy – “Contrarianism and the Herd. The general idea is that what works most of the time is nearly the opposite of what works in the long run.” - William Eckhardt

Stock of the Days: KMP.UN, C, CHR, NFLX

 

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