Key Points U.S. Stock Market
- – The bear market bottomed in October 2023, transitioning into a bull market. Bull markets target to two years old typically last over five years, and this one is 2 ½ years.
- – The S&P 500 recently hit new highs, signalling market strength, even though bearish sentiment is rising …Bull markets die on OVER optimism not pessimism
- – Stock picking remains crucial, with only 49% of U.S. stocks participating in rallies, highlighting the importance of choosing winners in this environment.
Global Market Performance
- – YTD global stocks are outperforming U.S. stocks, with notable strength in Japan, Taiwan, and the EU.
- – Eurozone stocks are hitting new highs despite weak investor confidence.
- – Global markets, in general, remain cheap compared to the U.S., offering significant growth potential.
- – China is showing signs of recovery, bolstered by stimulus measures… similar to the U.S. in 2009.
Sector Performance and Stock Picks
- Financials: Financial stocks, particularly in the U.S. and Europe, continue to lead performance, with strong contributions from banks and insurance companies. The TSX (Canada) is also benefiting from strong financials.
- Industrials and Materials: The industrials sector is strong, with European industrials and key players like Meta, ERJ, Axon, and Deere performing well. Energy stocks, particularly Canadian companies like Arc Resources and Suncor, are seeing positive performance and strong dividend growth.
- Technology: Technology stocks are weaker with exceptions, especially in cybersecurity (e.g., CrowdStrike) and semiconductors (e.g., Broadcom), remain strong. Meta’s growth continues to impress.
- Commodities: Commodities, particularly gold, uranium, and agricultural products, are on the rise, offering inflation protection and benefiting from strong year-to-date performance. Commodities are crucial for infrastructure and manufacturing growth.
Fixed Income (Bonds)
- – The bond market remains challenging, with inflation pressures continuing to impact returns. Since 2020, bonds have been avoided, with dividend growth stocks outpacing bonds in performance.
- – Long-term yields remain high, which negatively impacts sectors like real estate that are sensitive to interest rates.
Fairfax Financial
- – Fairfax Financial is a long-standing, top-performing position, similar to Berkshire Hathaway, focusing on operational excellence and profitable underwriting.
- – The insurance market is “hard,” meaning insurers can charge higher premiums, supporting future profit growth.
- – Fairfax’s premiums are growing and currently trade at a discount compared to peers like Berkshire Hathaway, with strong profitability reflected in a combined ratio of 89% (best in class).
TMX and Performance Diversification
- – TMX continues to be a diversified exchange group, with a significant portion of its revenue coming from recurring sources like market data, technology services, and clearing. Their goal is to increase this to two-thirds of their revenue.
- – The company saw strong trading and derivatives performance, and the Vertify acquisition has helped expand into private markets and global indexing.
- – TMX has a robust dividend growth rate of 9% annually, supported by high-margin businesses and strong free cash flows.
Economic Outlook and Resilience
- – Despite some concerns about global recession and tariffs, the market is showing resilience with earnings growth and benign credit spreads.
- – The global market remains cheap relative to the U.S., and sectors like energy, financials, and materials are poised for growth.
- – Inflation protection from commodities, such as gold and uranium, is crucial, and a secular bull market in commodities is expected.