HOW I SEE IT – by Bruce
Since October 28 - equity markets/ indices have been correcting- 8 days- expected after such a strong October- will this continue in a month that’s historically positive- it's always the unexpected.
Positives:
AAII Investment Sentiment Survey- 38% bullish/ 25.8% neutral/ 36.3% bearish - confidence slipping again- it’s been back-and-forth last few weeks.
RBC CM - Pulse of the Market. “Percentage of S&P 500 beating consensus EPS remains well above 2Q25 levels - 81% beating on EPS, 76% beating on sales - rate of upward EPS estimate revisions remains well below the high of 2Q25. Mixed tone on earnings calls for overall macro - strongest tone from tech and healthcare sectors, weakest from consumer sectors. Companies involved with AI buildout highlighted strong demand and increasing cap X. Consumer related companies described a price sensitive and value conscious consumer.”
Charts - Reward for beats is slightly below average, misses getting punished much more than usual.
With 70% of companies reported, S&P 500 operating earnings are up 90% year over a year. The 11th straight positive quarter and the highest growth rate since Q421.
In the 1950s, the S&P 500 was up 500% or almost 20% per year - it’s the only mega bull market to end with a whimper not a bang - there was no crash in the aftermath. The 1960s saw 8% annual returns.
Not all good things end badly.
Diversification is starting to pay again, especially internationally.
AI investment is real, physical, and massive, not hype.
Noah Blankstein – “Data centers -this isn’t the case of build it and they will come -it’s they’re already here and we can’t keep up.”
ISM services PMI climbs to an eight-month high of 52.4 beating estimates of 50.7 driven by a pickup in new orders, employment and business activity signaling healthy demand in the services sector.
Jim Alworth RBC WM- Pragmatic optimism. The global equities markets upward trek to a succession of new highs is being delivered by more than the so-called magnificent 7. It is being fueled by confidence that earnings can grow at a solid pace through 2026. These constructive expectations need the US to avoid recession, central banks to remain accommodative, and the AI spending story to continue unbated.
Jim Paulsen - Scattered thoughts. An equal weight S&P index still trailing but close to a bounce. How to monitor economic growth and inflation during government shutdown. Small cap EPS leading. Fed has beat down housing. Eps power rising. Cyclicals about to take the lead - if history is any guide, it probably won’t be long before cyclical sectors of the stock market start outperforming again.
Ned Davis - The midterm cycle for leadership lines up well with the 2026 cycle composite showing a strong start to the year for cyclical sectors but a potential defensive shift heading into the election.
Dr. Ed Yardeni - Met him the other day at a conference. Roaring 2020s scenario still intact and will continue into the 2030s. Expect S&P 500 to be at 10,000 by the end of the decade. The first wave of AI adoption was about making work more efficient. The coming wave will be about redesigning work itself. AI is likely to transform the labor force by eliminating humans grunt work and creating new human in the loop roles.
Tom Lee - The wall of worry is growing again prompting investors to de-risk. We still see a choppy November start but ultimately a strong month. November likely an up month. Past 100 years show after being up six months in a row, November likely up 2.5% or 200 points. Reasons for November gains. 3Q25 EPS- 83% beat, best in several years. AI continues to gain visibility. Crypto suffers from October 10 deleveraging, but tokenization driving adoption. Fed dovish and inflation weakening. Private credit lingers in background. Sentiment remains muted, equals fuel for year end rally.
Negatives:
RBC WM - Global insight - Five disruptors to the US economic cycle. Tariff head fakes -a cycle disrupted from inflation to growth. Two America’s -the emergence of the K shape economy. America needs workers -a shifting new labor market. Forever big government -the cost of a constant floor under the economy. A housing market held hostage-the lost growth engine. ( good article)
Canadian budget highlights - The 2025 budget did not provide transformational changes. There was no major tax or regulatory reform.
Thousands of employees being laid off before year end.
The US freight recession is deepening- US truckloads index fell to its lowest since 2014- as fewer goods are being moved across the country.
The volume of US corporate bonds that have dropped from investment grade to junk status has grown to $42 billion this year from $6 billion last year.
68% of US consumers now live paycheque to paycheque, up from 60% two years ago.
Dr. Ed Yardeni - Central banks around the world have lost control over their economies, amend and unprecedented array of challenges. As a result, trust in central banks is eroding. When Central banks lose credibility, global macro, economic stability is put at risk
Investment trategy - “You do better to make a few large bets and sit back and wait. There are huge mathematical advantages to do nothing.” Charles Munger
Stock of the Days: META, AMT, BRKB, DIR.UN, GEI