HOW I SEE IT – by Bruce

Here we go again/ Financial Conference 26/ Sooner

It feels like here we go again - Trump 1, was President at the beginning of Covid - then a major correction - Trump 2, started tariffs - creating a major correction - and now Iran war – a correction.... will we recover again – likely.

Positives. Tough to find positives when war breaks out. Let’s try. AAII Investment Sentiment Survey - 31.9% bullish/ 21.7% neutral/ 46.4% bearish - bearish reading in November/2025 highs - before Dow rally for 3 months.

RBC WM - Pulse of the Market - First, the valuation and set parameters were watching suggest the US equity market remains vulnerable to further downside in absolute terms in the near term. Second, our global valuation should help us understand why equities have been resilient on a relative basis. Third, we walked through how we approach current levels from a forecasting perspective, including the results of a stress test re-ran on our valuation early for our model for $100 oil and how we’re thinking about Small Caps.

Earnings growth - FactSet reported that the index for Q4 2025 blended year over a year EPS growth rate stood at 14.2% on February 22/26. This marks the fifth consecutive quarter of double-digit earnings growth for the index.

RBC Strategy Spotlight - US equity market resilience is concentrated. 72% of non-energy analysts expect minimal earnings per share impact from higher oil. Gas prices suggesting fundamental risks from the Iran conflict are limited and localized rather than systemic.

RBC 2026 Global Financial Institutions Conference - Major US banks report strong capital positions and positive momentum heading into 2026, with guidance for revenue growth in capital markets and investment banking despite geopolitical uncertainties. Consumer remains resilient across both segments with stable spending patterns, through a K shaped economy persists - higher end consumers strongly with lower income groups face affordability pressures from inflation and rising energy costs. Credit quality will be stable or improving across retail and commercial portfolios, with manageable delinquency trends and banks optimistic about credit outlook through at least mid-2026. Banks are actively investing in and deploying AI across operations and technology infrastructure, positioning themselves to drive margin expansion and operating leverage while maintaining disciplined expense management.

Bull markets - Over the past 50 years the average US bull market has lasted 8 years and delivered 288% gains. With this one only and its fourth year there is a good reason to believe the run isn’t done.

Trump Playbook - We are now nearing step # 8 - the market and political feedback loop. This is important. This is exactly when the smart money begins buying when retail sentiment has collapsed.

Jim Paulsen – “Who knows how long the stock market remains under pressure or if it will eventually hit a major air pocket. However, the vetting process which plays out during crisis is already produced and this historically has been a good sign that the worst may already be over. Famous last words perhaps. Although its immediate direction could still correct, I like the odds of the stock market will set meaningfully new record highs before the year is over. It may be sooner rather than later.”

Dr. Ed Yardeni – “According to Polymarket the odds of a recession this year, 2-3 months out, has risen to 34%.  We can’t rule out a bear market and even a recession - it all depends on how long the strait will be closed. We are sticking with our roaring 2020s scenario counting on the resilience of the economy.

Presidential Cycle - Ned Davis’s S&P 500 sector Road map. Year 2 of presidential term - midcycle correction could last 20 weeks followed by a strong year end recovery.

Brian Wesbury - There are reasons to remain positive. Technological innovation continues and the use of AI is spreading potentially boosting productivity growth and facilitating entrepreneurship from people who otherwise would not be able to bring their ideas to life because of a lack of programming skills. Remember that although Americans will be paying more at the pump and elsewhere for energy, American energy producers will be earning more income and incentivize to expand production. On that this should not push us into a recession. The economy expanded 2.2% in 2025 it looks like it’s starting out 2026 at about the same tepid pace.

Ned Davis Research - The oil market was well supplied heading into the current crisis with the US hitting a new production record. Current oil infrastructure remains intact, and destruction is with tanker transportation. The volatility should be short-lived. Political consequences in the US leading to war - gridlock could be positive for risk assets in the future.

Tom Lee - Four reasons why higher oil is positive. US is a net exporter of oil. Good for US economy. Relative benefit - China, Asia and Europe are buyers. Higher oil poses global growth risks, but it favors rotation to grow stocks, which is US heavy.  Trump put favors US. Still believe March will be a good month. Wars have been good to the economy. Buy the dip.

Negatives. Dr. Ed Yardeni - Oil prices stay up suggesting market doubts a short war scenario. We started to doubt a short war narrative 3 days after the war began. We are now starting to worry about the stability of the private credit market if the oil persists. By some estimates at a sustained crude oil price of $100 a barrel, oil tax would wipe out the increase in tax refunds attributable to last year’s one big beautiful bill act.

Market worries - are increasing with warnings from people such as Lloyd Blankfein and Jamie Dimon. The market is due for a reckoning. Dimon also compared it to the pre-2008 period.

JP Morgan - deducts value of loan portfolios of some private credit groups.

Hormuz closure cripple’s food security - UN Trade and development warns the Strait of Hormuz disruption - traffic down 97% - is spiking energy, fertilizer, transport and insurance costs, echoing COVID-19 & Ukraine war shocks.

US job numbers - US labour since January 2024, there have been downward revisions in 24 of 25 months. The US labour market data is more unreliable than ever.

Ned Davis Research - They may also weaken the labour market, which even before revisions that are usually downward, was clearly not stabilizing.

 

Brian Wesbury - The size of government expanded tremendously during Covid and has still not receded to pre-Covid levels. Meanwhile, inflation remains stubbornly above the Federal Reserve 2% target. Stocks are overvalued and the loss of wealth that would accompany a correction in the stock prices or a bear market would be headwind for economic growth in the short term.

Investment strategy – “Avoid Emotional Decisions – Ignore market noise and avoid selling during a panic.” Warren Buffett.

Stock of the Days: FCR.UT, CSU, ENB, BAC, SYK

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