The notorious “October Surprise” could come from any direction, most obviously the Middle East. But one doesn’t happen until it happens. The term October Surprise originated in 1956, when two crises rocked the world just ahead of a U.S. presidential election. There were two “October surprises” that helped re-elect Dwight Eisenhower. The Suez Canal blockade and an uprising in Hungary dominated the news back then. Unfortunately, at the moment, other crises seem inevitable. Hezbollah has been crushed by Israeli forces, and faces an all-out war in the region, which could raise a major October surprise - a war involving Iran, the provocateur. In addition, the campaign for President has never been closer. We are one month away! The nation is awaiting clarity in a tense presidential campaign that appears stuck in a dead heat. The polls have been fascinating and confusing. Kamala Harris has a lead of perhaps 1 point nationwide, but Donald Trump may have a tiny lead in the Electoral College. In Canada, we have recently seen increasing focus on the contest in Canada, with a federal election to take place by October 2025. Regardless of what surprises may lie ahead we are well prepared. In scenarios where geopolitical fragmentation intensifies and geopolitical tension increases, we have stress tested our portfolios and the drivers behind various scenario returns. In my opinion, this is a dangerous time to be owning a passive index fund. We much prefer a selective approach to curating a portfolio of excellent and resilient businesses combined with flexible positioning. For further insight, I am highlighting some interesting RBC Research here:

MIDDLE EAST UPDATE: BRINKMANSHIP

RBC STRATEGY: US ELECTION

RBC STRATEGY: CANADIAN ELECTION

RBC FX STRATEGY: CANADIAN DOLLAR & US ELECTION

Should you have any questions or concerns, please feel free to reach out.

Portfolio Notes

(+) indicates a positive development, (-) indicates negative, and (~) indicates neutral

(~) BCE (BCE-T) Scotiabank analyst Maher Yaghi, however, believes the company needs a period of balance sheet recovery, one that precludes further dividend increases. The recent sale of MLSE for about $4.1-billion after tax is not enough to repair the balance sheet in his estimation and he further adds that one-time, non-core asset sales should not affect payout decisions. Management expects that dividend coverage at current levels will fall to 99% of reported free cash flow (FCF) by 2026, down from this year’s 127%. But Mr. Yaghi’s calculations of true FCF, once adjustments for (entirely legal and conventional) accounting at BCE are made, suggest a current dividend payout ratio of roughly 200 per cent. The analyst has no issue with the fiber-to-the-home business strategy that led to the company’s recent spending binge. Mr. Yaghi writes, “We believe that this investment has future proofed the company and even repositioned it for growth in the long term.” On the other hand, he doesn’t think they should have been raising the dividend during the period. There is also the question of domestic oligopolies themselves, whether in telecom, banking, grocery stores or airlines. Former Bank of Canada governor Stephen Poloz has been traveling the country warning about declining productivity in the economy. Shares yield 8.7%. We just recently purchased shares in the Cash Flow Portfolio.

(~) Constellation Brands (STZ-US) The beverage company rose slightly on the back of better-than-expected fiscal second-quarter earnings. Constellation Brands earned $4.32 per share, beating estimates, and revenue of $2.92 billion, however, marginally missed expectations. The company also reiterated its full-year earnings per share guidance. The shares are up 6% year-to-date, underperforming the S&P 500. It appears investors are growing impatient with the continuous drag wine and spirits are producing, making it pertinent that they turn around this business sooner rather than later. Unfortunately for the company, this still largely depends on when current economic headwinds will ease. The stock trades at a forward P/E multiple of 17x, a discount to its historical long-term average of 20x. Owned in Core and ESG+ Portfolios.

(+) LVMH (LVMUY-US) will become a top sponsor of car-racing franchise Formula One as the leading luxury group pushes further into the world of sport. The decade-long deal is being called “historic” and will involve several of Bernard Arnault’s luxury empire’s top brands, including Louis Vuitton—the world’s biggest luxury brand by sales—drinks division Moët Hennessy and watchmaker Tag Heuer. Luxury groups have increasingly targeted sports to grow their audience and popularity. While luxury has long been associated with elite sports like show jumping and tennis, links with more mainstream sports like basketball and football are becoming more frequent. The deal comes despite the wider downturn in the luxury industry as aspirational consumers have cut back spending on products such as watches, jewelry and Champagne. The Wall Street Journal says that LVMH, which owns a stable of some 75 brands, sees F1 and its global reach as a vehicle for maintaining the upscale image of its brands while speaking to a broader audience. We also learned this week that they sold the streetwear brand Off-White, founded by the late designer Virgil Abloh, to a brand management company. Owned in Core and ESG+ Portfolios.

(-) Tesla (TSLA-US) fell 4% after the electric vehicle maker reported Q3 deliveries that fell short of estimates. Tesla said it delivered 462,890 vehicles, compared to a consensus of 463,897. According to the company, 3% of the total deliveries was subject to operating lease accounting. Meanwhile, Tesla produced 469,796 vehicles in Q3. The company's full financial results for the quarter will be announced on October 23. Ahead of that is the EV maker's highly anticipated robotaxi event on October 10th. Owned in ESG+ Portfolio.

Company of the Week: Powell Industries

INVESTOR PRESENTATION

Weekend Reading

September 2024 Interest Rate Announcement: 5 Questions Canadians Might Be Asking The cumulative impact of a 75 bps reduction over the last few months could be significant – the cut will likely pull more Canadian prospective buyers off the sidelines and may help ease some of the stress homeowners with upcoming mortgage renewals are feeling. ROYAL BANK

When a Crystal Ball Isn’t Enough to Make You Rich What trader hasn’t dreamed of being in the enviable position of "knowing the future?" We put the idea to the test and it turns out that knowing the news in advance is one thing—turning it into profits is quite another. ELM WEALTH

Meta Unveils Orion Augmented-Reality Prototype Glasses Give this review of their new AR “Orion” glasses from Bloomberg’s Tech guy, Ed Ludlow, a watch. Ed spent two hours with the new tech and says “it’s the most profound experience he has with a technology so far.” YOUTUBE

Netflix's Engagement Report for the first half of 2024 is based on over 94 billion hours of viewer time. What We Watched the First Half of 2024

Is food the new fuel? Convenience stores look to become food destinations. The category is growing in importance for convenience store retailers as the industry grapples with a time of unprecedented change. GLOBE & MAIL

Canadian CEOs more worried about growth, KPMG survey finds CEOs in Canada are feeling confident about their own company’s prospects but less so about Canada’s economy. KPMG

The Longshoremen Strike Will End Up On Wrong Side Of History The union is looking for a variety of things, but the two headline requests are a 70%+ increase in pay and a ban on automation technology in the ports. But the proposed ban of automation technologies — this is insane and dumb. Anthony Pompliano

What happens when a millionaire decides to star in his own James Bond-style movie? Lots of men wish they were James Bond. Remember Michael Flatley of Riverdance and Lord of the Dance fame? Well he actually made it happen. And it's awful. CRAPPY FILM FANS

This Fascinating Tower in Singapore Was Named Best New Building Worldwide The interior volumes of the Pan Pacific Orchard in Singapore will take your breath away. Looking like something out of science fiction or fantasy renderings, the 350-room hotel is very real, indeed. With huge planted landscaping, massive planted columns, and mirrored ceilings, the open spaces house a fantastical swimming pool, and large lounge spaces. MOSS AND FOG