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Hello everyone, and welcome to the weekly roundup. Today’s discussion will focus on interest rates, economic data, and market sentiments. Ben and Eva joined in, reporting that while it appears sunny downtown, the cold is deceptive—certainly not Florida weather, so best to stay indoors.

There’s a lot to cover, starting with interest rates. Markets are currently pricing in a strong likelihood of a US rate cut next week, while the Bank of Canada is expected to hold steady. This divergence in monetary policy could influence both equities and currency movements in the coming months, but most of these expectations seem already reflected in current prices. In Canada, the outcome may hinge on upcoming employment numbers, though a rate cut is considered unlikely. In the US, however, the probability of a cut is very high—above 90%—which could have some impact on the Canadian dollar, although recent movements have been more closely tied to oil prices. The US dollar has generally been weak this year despite high interest rates, with contributing factors such as tariffs, debt levels, and the shifting debt ceiling. Unless there’s an unexpected policy shift, the impact on equity markets and currency is expected to be muted and largely priced in, with greater moves only likely if the central banks deviate from expectations.

Turning to economic data, US private payrolls have shown an expected decline, which has immediate implications for policy decisions and the broader economic outlook. Job numbers are becoming increasingly central to policy direction, especially as demographic changes and technology reduce workforce needs. AI is influencing job availability, and a sudden rise in unemployment could prompt swift central bank action, particularly as the US prepares for a new Fed chair next year.

On the geopolitical front, the US is taking a firm stance on Venezuela, including military actions against drug ships in the Caribbean. This is significant for Canadian energy fields and commodity prices since the US relies on heavy crude from both Canada and Venezuela for diesel production. If Venezuela’s exports to the US are further restricted, energy prices could spike; conversely, a strategic agreement or increased Venezuelan exports to the US could negatively affect Canadian producers. Canadian investors should monitor these developments closely, as they have direct implications for domestic energy markets.

Looking ahead to December and the year’s end, markets have been moving sideways with low volatility and a sense of investor discomfort. The US recently ended quantitative tightening, which could increase money supply and influence market activity. Quiet markets are a concern, but for now, stability persists, with unemployment and money supply remaining key metrics to watch. There’s hope for a “Santa Claus rally” to push markets higher, but low volumes and volatility also introduce risks of sudden downturns. For now, a sideways market is acceptable, and close attention to data is advised.

Charts and data indicate that policy rate cuts are mostly behind us, with the Bank of Canada ahead of the US in the cycle. This has created a healthy differential, but as the US continues to cut, that gap is closing. The yield curve is expected to flatten over the next 12–18 months, particularly in five- and ten-year bonds. This is important for anyone with mortgages or bonds, as a flattening yield curve could materially increase bond prices. The current cycle is nearing its end, barring any major economic downturn.

Market sentiment is currently subdued, with indicators from National Bank and CNN’s fear and greed index showing pessimism. This middle-range sentiment suggests some comfort in maintaining current portfolio exposures, as extremes in sentiment usually signal market tops or bottoms.

Tax-loss switching is a focus at the end of the year, with investors reviewing portfolios for capital gains and considering tactical switches to optimize tax positions. For example, selling BCE for a loss and buying Telus can help realize losses without losing sector exposure, as both companies are likely to recover and offer strong dividends. After 30 days, investors can switch back without affecting their tax position, making this a smart strategy for those with significant capital gains.

As always, opinions expressed do not necessarily reflect those of National Bank Financial. For specific tax advice, consult an accountant, and for investment advice, reach out to your advisor. Everyone’s risk tolerance and situation are different, so personalized guidance is recommended.

Next week promises to be significant, with central bank meetings on Wednesday—Bank of Canada in the morning and the US Federal Reserve in the afternoon, including a press conference at 2:30 p.m. Canada’s economic calendar is quiet, while the US is still catching up on data after the government shutdown. Most company earnings have been reported, with Canadian banks showing notable results this week.

Canadian banks have reduced their exposure to residential real estate, shifting focus to capital markets and trading, which have been strong drivers of recent earnings. Accelerator and principal-protected notes are prominent products, but could pose future liabilities. National Bank is also acquiring some of Laurent Bank’s assets, which remains under review.

Thank you for joining, and remember to visit, subscribe, and follow us on YouTube and LinkedIn at Hard Investment Group. The link to daily financial updates will be available in the video caption and emailed to clients. For questions or to book a review meeting, please reach out. Have a great weekend!

Hello everyone. Welcome to the weekly roundup. Today, we will cover interest rates, some growing trends, and market sentiments. Hello Ben. Hey Eva.

How's it going? It's going good. Happy Thanksgiving if you're American. Thank you on behalf of the people in America. First football game starting right now. Oh, nice. Yeah.

Well, it seemed like a quiet week this week. Yeah. Yeah. Maybe because of Thanksgiving. Yeah. I mean, volumes tend to start to get pretty light by yesterday around lunchtime and then short trading day tomorrow and US markets closed today. So, okay. Much quieter.

Okay. Starting off with some unemployment rates. This seems to have hit multi-year highs in the US and Canada. Do you think this could be the moment that pushes the central banks to change course on interest rates? What are we watching out for in the coming months?

Yeah. So I think you called it there. I think that's the big flag that we need to pay attention to. I think there's been obviously a tremendous amount of focus coming out of COVID around inflation and every single meeting that they have is focused on inflation but say the last six months that narrative started to change certainly in Canada and now more so in the US where unemployment seems to be a bigger concern and so you've seen quite a lot of big layoffs and that's coming from generally a lot of it tech-related so we saw IBM with some big layoffs. We've seen some of the other tech companies with some big layoffs. And in our beautiful city here, we're starting to see some on the Canadian side, the Canadian government, we're starting to see some layoffs there. So, that's starting to have an impact. And so, I think it drives a lot of what the central banks are going to do for the next little while.

Yeah. Speaking of tech, there's been a lot of buzz in the AI sector lately. Some people argue that companies like Nvidia and Oracle might have peaked and others are pointing to new winners that are emerging. What's your take on this? Is there a shift going on there?

Yeah, so I think so. So I think it's something to be very concerned and/or cautious about and you know one of the things that we've seen with those big tech companies like Oracle is that these companies have been growing steadily and now we've seen a little bit of gains I guess with how their growth continues. Oracle's raised a ton of debt, so they have more leverage than they've ever had and it seems like a little bit where Nvidia is selling to Oracle who's buying from Microsoft and it appears that not any money actually changed hands. So there's a lot of strange dynamics happening in that space and maybe you're going to start to see a shift away from some of those processors, GPUs, semiconductors and maybe more a switch into software and pure regenerative AI—those types of businesses doing a better job. You know, I know ChatGPT is integrating where you can buy directly through the prompts now, where you can click on buy links similar to Amazon. So maybe you get a shift there. The thing that I think is a bit different than the last tech mess in 2009 and 2000 was that all these businesses are making money. Could their revenues slow down? Are they overvalued? I think yes, certainly. But I think it's a bit of a different dynamic and it may be shifting as opposed to completely popping.

Okay. So as we wrap up third quarter earnings season, were there any results or trends that surprised the markets? Anything investors should look out for?

So I think the government shutdown certainly muddied the overall big picture of the world and as a result I think that flowed in a bit into the financials that we saw and the numbers come out. I think, generally speaking, the consumer has been much more resilient than you'd think—at least in the US that is. And so that's been a bit of a surprise. I think we've seen some bottoming in some of the names, the value names. The food companies are trading at like 10 times earnings. Some of the consumer discretionary names like Nike, Under Armour, and Lululemon—these names are trading as low as they have in many, many years. So you're seeing some bottoming in some of the good quality names that are trading undervalued, where the top of the index and the top of the market right now is looking maybe a little bit heavy and so I'd be watching that. But yeah, it's been a bit of a messy time because of the shutdowns and data is a bit confusing. So lots still to happen for companies prior to year-end.

Okay, next set of charts.

Okay, so as you know we were recording on Thursday. This is around 1:00 on Thursday. US markets are closed, so things are quite quiet. But anything that happens between now and next week, we'll comment on next week. So, a lot's going on still in the world. I thought this was an interesting chart just to talk about Canadian residential real estate, which we haven't done too much lately. I know probably a year and a half ago was the topic du jour—everyone wanted to know about rates and where we're going and so on and so forth. But now we are kind of on the other side. Rates have come down in Canada and that's made home purchasing a little bit easier and refinancing a bit easier. So this was a good chart that shows mortgage activity has surged over the past year and so there may be, if you looked at that in a vacuum, you would think that housing prices would be accelerating as well but certainly not the case. So it's not a function of buying activity. It's mostly a function of refinancings of properties that would have been bought in 2020. We're seeing a massive amount of refinancings and rollovers and even some extending—mortgages getting revised at higher levels. So, interesting. If you look at this chart and only see that, you'd think things are booming in the Canadian housing market. Not the case. It's just more of a reflection based on what's going on with the refinancings of five years ago.

This from our partners at Evercore ISI company survey diffusion index just gives a view on how companies are feeling right now in the US. This is an eight-week moving average. I guess some of that data would be a bit messed up from the last month and a half of shutdown, but it's not looking super healthy. If you look across all of the company surveys in the US, you're starting to see a little bit of concern and that also plays into the start of our conversation about how the employment picture looks in the US and continues to look a little bit slower and slower each day.

The last one, which I think is quite interesting, is just long tax loss selling. There are certainly lots of things to do as you get into year end. We're going through tax losses now. If you have questions or comments, certainly—we had a few people reach out to us last week after. But please feel free right now. I'm reviewing gains and losses. Could we be doing anything, making changes?

This is from our ETF team. ETF is an exchange traded fund and this is their team that reviews ETFs and this is something that people would potentially be looking at doing as you get close to year end as you're looking to harvest some of your losses. If you've had a good year of trading, you made some money, but you don't want to pay tax next year on it, you'd be looking through your portfolio and seeing if there's any losses. So what this chart is showing you—the one on the left hand is the TSX and the top line here would be communication services. In Canada there are five stocks; 60% of those stocks have year-to-date loss. So three of the five have losses. Some people potentially looking at, say, selling your loss in Telus, for example, and then you can switch that into the telecom ETF, which gives you exposure to that space and allows you to take your loss. You can go back in and buy Telus again in 30 days to have realized your loss as an example. This would be something that I think is worth considering and something that I do as well when I'm looking for tax switches.

If you look over onto the right hand side, this is the S&P 500. Obviously, a lot more stocks in their indices. But if you look at consumer staples as an example, which I mentioned, total stocks in there is 37, 24 of them with year-to-date losses, so 65% of the total. You may look for that opportunity to sell one of those that's down and buy something else that's similarly down to realize that loss. You can either do it in individual names. In this case, this gives you an option to switch it into an ETF that'll give you consumer staple exposure, so that if we do get a recovery in the new year, you're not going to miss out on that by selling the stock and realizing the loss. I think it's a great idea. It's something important to look at into year end. If you're not doing that or your advisor is not doing that, I think it's a missed opportunity from a tax planning perspective. So I think this is something to think about and something we do as we get into year end.

As always, the opinions expressed do not necessarily reflect those of National Bank Financial. Everyone's risk tolerance is a little bit different. If you do have any questions or conversations, please feel free to reach out to us and we're happy to address those at any point.

Thank you Ben. You're welcome. So, what's on the agenda for next week?

So, we get into a new month, of course, next week. So, it'll be December 1st on Monday. December 1st. Yes. Heading quickly towards Christmas. So that's exciting. I think it'll be important to see just what's happening as one of the trends that we talked about going into the government shutdown was money supply. Now we're seeing a lot of, we'll say, uncertainty around that. There's money moving from the Treasury General Account supporting this. You're seeing a lot of money flowing back and forth. One of the places that hedge funds used to access for their leverage was to buy yen, hedge out the risk, and then put it into some kind of risk asset. But what we're seeing in Japan is they just announced a trillion dollar investment policy. So their rates have been going up and so you're starting to see some of that liquidity in the system that has been here for two decades starting to trickle out a little bit. So we'll be looking at money supply quite closely as we get into year end.

Tons of tax loss switch ideas. I know we've been talking about that, been spending the better part of a few weeks here going through looking at names, seeing where there's some potential opportunities. That's what the focus will be next week.

Great. Thank you, Ben. Yeah, you're welcome. Thank you, everyone. Remember to visit, subscribe, and follow us on YouTube and LinkedIn at Hard Investment Group. The link to our daily financial heartbeats will be in the caption of this video and in your email box. For our clients, please reach out to me if you have any questions or if you'd like to book a review meeting with Ben. Thank you for listening and have a good weekend everyone. Bye. Thanks everybody. Take care.