News and articles

Hello everyone, and welcome to the weekly roundup. Today’s discussion will cover tariffs, interest rates, and earnings releases. After a brief greeting with Ben and Eva, the conversation quickly shifts away from weather talk and dives right into the main topics.

The session begins with an analysis of the US Supreme Court’s decision to strike down President Trump’s Supreme tariff. There is widespread uncertainty in the markets following this announcement, which has coincided with earnings week in the US and among some Canadian banks. Global leaders appear to be signalling a desire to move forward without dwelling on past tariffs, suggesting what’s paid is paid. However, the future remains murky, as the situation has led to another round of negotiations—something markets generally dislike due to the volatility and unpredictability it brings. The removal of tariffs has led some leaders to question the enforceability of previous deals, further complicating matters. The prospect of refunds for countries and companies that paid the tariffs could be a significant positive surprise, particularly for capital markets, potentially leading to a weaker US dollar and boosting markets. However, the overall direction remains uncertain, with the possibility that affected parties may simply refuse to pay going forward. This uncertainty is contributing to market volatility, as evidenced by recent corrections in gold and silver prices. It’s anticipated that this chaotic environment may persist into the coming year, especially leading up to the US midterm elections.

The conversation then shifts to the fourth quarter US GDP, which posted a modest 1.4% growth, falling short of expectations. Despite this, inflation remains stubborn. The Federal Reserve’s challenge is to balance supporting economic growth against the risk of persistent inflation. The consensus is that the current Fed Chair will likely hold off on making rate cuts, prioritizing his legacy as the central banker who tamed inflation. However, the US economy is slowing and consumers are under pressure from high interest rates, record-high debt, and credit card balances. The next Fed Chair is expected to cut rates, which could help consumers and boost certain stocks and bonds. Until the new chair is in place, a wait-and-see approach is likely to prevail.

Attention then turns to Canadian banks, which have reported strong results. The primary drivers of this success appear to be capital markets activities such as loan syndication and new issuances, as well as gains in wealth management. Improved net interest margins—essentially the spread between borrowing and lending rates—also contributed positively. Nevertheless, there are concerns about the underlying health of the Canadian consumer, with similar pressures seen as in the US. The Canadian housing market has been in decline for several months, and while loan-to-value ratios on mortgages remain healthy, there are signs of broader deterioration. The banks’ strong performance is notable, but their future prospects are closely tied to real estate and equity market trends. For now, they appear fairly valued, but their sensitivity to these sectors warrants ongoing attention.

The discussion then reviews recent movements in interest rates across Canada, the US, and Europe. This year has seen significant fluctuations, continuing the volatility experienced last year. In Canada, the probability of a rate cut at the upcoming March meeting is rising, influenced by economic data and expectations of softer inflation. In the US, expectations for multiple cuts have moderated due to persistent inflation, while the European Central Bank now appears poised for several rate cuts in the coming months. These trends reflect broader attempts by central banks to smooth out economic cycles and avoid recessions, with aggressive rate cuts playing a central role in the current narrative.

Next, the focus shifts to the US 10-year bond, a key indicator of economic health. The 10-year yield has climbed significantly since the lows of 2020, and speculative positioning remains balanced. The consensus is that long-term rates may fall, easing pressure on both the US economy and consumers. Monitoring these trends will be crucial going forward.

The session concludes with a review of S&P 500 earnings. With 86% of S&P companies reporting, 76% have beaten expectations, 8% met them, and 17% missed. Misses are spread across materials, industrials, energy, and consumer staples, while information technology—a large component of the index—has also seen some underperformance. Assessing whether these results are systemic or one-offs is key for future investment decisions. The discussion emphasizes the importance of forward guidance and looking for opportunities in stocks that may have overreacted to the downside but have strong future prospects.

As always, it’s noted that the opinions expressed are personal and do not necessarily reflect those of National Bank Financial. Listeners are encouraged to consider their unique risk tolerance and to reach out with any questions or for further discussion. The team also teases upcoming topics, such as artificial intelligence and developments from the US State of the Union, including a proposed 401k matching program that could benefit both individuals and markets. With month-end approaching and more economic data on the horizon, the team will continue to monitor inflation, unemployment, and GDP numbers closely. The meeting wraps up with thanks to the audience and reminders to subscribe for further updates and to reach out for personalized advice.

Hello everyone, and welcome to the weekly roundup. Today’s agenda includes discussions on interest rates, inflation, and market opportunities. Greetings to Ben and Bea—it’s good to see you both. The weather has been fantastic lately with clear blue skies, and perhaps Willie was right about an early spring. Here’s hoping we don’t jinx it.

To begin, let’s talk about interest rates. The Federal Reserve has indicated a pause as internal debates continue regarding future hikes. This raises the question: is the narrative around a rate cut in 2026 still intact? It’s a pertinent issue, given the recent back-and-forth between Chair Powell and political figures like Trump. Economic data have come in slightly better than expected, with unemployment numbers improving, though December saw a downward revision. There are a lot of mixed signals at play. With the Olympics currently ongoing, Trump appears less vocal, which has provided a brief respite in market volatility. February’s inflation figures last year were elevated in both Canada and the US, so once those numbers fall out of the calculation next month, it will be interesting to see how the annualized figures look. The expectation is that inflation could approach 2% in both countries, assuming no significant surprises. For now, it seems likely that the central bank will maintain its current stance, at least until there’s a change in leadership in May, at which point the policy direction might become clearer.

On the Canadian front, new legislation targeting groceries and essential benefits has passed, promising billions in direct payments to households this spring. This could pose a risk to inflation control and influence future interest rate decisions. The Canadian economy continues to face challenges, with consumers feeling the pressure. While direct stimulus of this nature can help households, it also carries the risk of reigniting inflation, especially in categories like groceries and food, which have already experienced upward pressure. This situation underlines broader concerns about the pace of economic growth in Canada, raising questions about the country’s recovery trajectory.

Shifting to artificial intelligence, which continues to dominate headlines and is advancing more rapidly than anticipated—even disrupting the healthcare sector. The key question is: where will the profits ultimately accrue, and how might investors best position themselves to benefit? It’s a complex issue, much like the earlier evolution of crypto and blockchain. The most straightforward benefit is improved efficiencies, as suggested by thought leaders like Elon Musk, who predicts a future where massive deflation makes many things cheaper. This scenario would boost company profitability across the board. As AI accelerates, nimble and smaller companies may capture more direct benefits, while larger, slower-moving organizations could struggle with the pace of change, particularly as automation reduces workforce needs. Businesses with significant personnel costs stand to benefit most in the short term from AI and robotics. Healthcare is already embracing AI at many levels, from assisting doctors and radiologists in interpreting scans to the development of personalized medicines based on individual DNA profiles. This transformation could shift the focus from traditional pharmaceutical companies to those specializing in genomics, with AI playing a central role in this evolution. While it’s difficult to pinpoint exactly where immediate profits will land, companies that can adapt and leverage these technologies—especially those in people-heavy sectors—are likely to see increased profitability.

As we move to the charts, it’s worth noting that this session is being recorded on February 19 at around 1 p.m., just before the Canadian and US women’s Olympic hockey teams face off. Any developments from now until next week will be addressed in the next update. Looking at historical context, communication missteps can pose significant risks. For example, when Ben Bernanke signalled quantitative tightening in 2013-2014, markets reacted strongly, leading eventually to lower interest rates. This highlights the importance of central bank communication on market reactions. Influential figures like Ray Dalio believe that US interest rates must ultimately decline, possibly moving toward yield curve control or a flat yield curve as seen in Japan, to address economic realities and fiscal deficits. The way central banks articulate their intentions will continue to shape rate expectations and market outcomes.

Examining term premia, we see elevated levels as investors demand higher yields to compensate for the risks associated with holding long-term US government debt. This could indicate that the market is currently mispricing the likelihood of falling rates. If rates do decrease and the yield curve flattens, the term premium should also come down, presenting an opportunity for investors—particularly in US bonds across the yield curve. For example, Amazon’s 25-year bond issued in 2020 at a 2.5% yield and $100 per unit is now trading around $60. Those who invested initially have seen a 40% decline, underscoring the volatility in long-term bonds. However, the current yield to maturity on this bond is 5.43%, which offers attractive returns for investors, especially institutional ones like pensions that value long-term certainty. A 1% drop in rates could yield significant capital appreciation, while a rise would result in losses. It’s worth noting that high-quality corporate bonds, such as those from Amazon or Microsoft, sometimes offer better risk-reward profiles than government bonds, presenting underappreciated investment opportunities.

As always, the opinions expressed here do not necessarily reflect the views of National Bank Financial. This report is compiled to the best of my abilities, and everyone’s risk tolerance is different. If you have questions, please reach out to Eva or me—we’re happy to help. Thank you for listening and reviewing the charts of the day.

Looking ahead to next week, as February draws to a close, the market remains volatile. There are more earnings reports to come, and several tech companies have faced pressure, which might signal potential buying opportunities. Energy stocks, which were acquired late last year, have reached new highs, so it’s important to monitor their performance, especially in light of geopolitical risks like the situation in Iran. It will also be worth considering whether tech stocks have been oversold and if there’s a chance to deploy cash into select names.

Thank you to everyone for joining. Don’t forget to visit, subscribe, and follow us on YouTube and LinkedIn at Hard Investment Group. You’ll find the link to our daily newsletter, The Financial Heartbeats, in the video caption or in your email if you’ve subscribed. Clients are encouraged to reach out with any questions or to book a review meeting with Ben. Thanks again for listening, and enjoy the rest of your day. Goodbye!