Author: Scott Barlow

In this issue I try and guess what this year in finance will be remembered for in the history books and later discuss a compelling way up, then way down forecast for equities in 2025. I’ll also look back to the biggest technology blunders of the past year and look ahead to new data releases.

Lookback

2024 in the history books

This year I’ve tried to follow Morgan Housel’s advice on media consumption – namely, to first ask whether I’m still going to care about the subject in 12 months. If not, ignore. With year end approaching I’m going to try a similar exercise with the events of 2024 by identifying the market-related developments of the past 12 months that we are most likely to care about most in one, two, or five years’ time.

It’s been a year of renewable power confusion. Economics professors were writing credible guidelines to the end of oil while the IEA and OPEC were constantly revising crude demand forecasts lower. At the same time, the S&P/TSX Renewable Energy and Clean Technology index underperformed the S&P/TSX Composite by 34 percentage points.

EV demand evaporated in some areas as Ford Motor Co. cut production of its F-150 Lightning truck and Tesla Inc., according to predictions, will sell 30,000 fewer cars in the U.S. and Europe. Copper, the metal that decarbonization requires in abundance, is down about 17 per cent from its mid-May high.

2024 was also the year of AI, to the point many readers are tired of hearing about it according to our web traffic monitoring. Nvidia Corp. is up about 163 per cent so far this year on GPU demand (the semiconductors needed most for AI-related data centers) and – for a period of time – became the largest company in the world by market cap.

I started using AI almost exclusively for search purposes. I think we’re only at the very beginning for the AI proliferation trend that can potentially make all knowledge a commodity. News that 25 per cent of new code at Google is written by AI highlight how quickly some industries are adapting the technology, and how many workers may be displaced. Investment-wise, I’m looking for the next, software stage of AI to push companies like Atlassian Corp. and UiPath Inc. to greater heights.

Demand for obesity treatment Ozempic rose so sharply this year that there is a production shortage. New, similar treatments are on the way, notably an oral application from Eli Lilly. It’s possible we’ll remember that 2024 was the year the developed world obesity epidemic peaked, at least in countries where the drugs are available.

Betting markets were more accurate than pollsters ahead of the U.S. presidential election. Prediction markets like these could begin to dominate forecasts in political and other fields if the trend continues.

Ok, now we get to the touchy one. Last week I asked the following question to a colleague: “What are the odds that in five years, 2024 will be known as the year a CEO assassination kicked off the class war?”

I’m not suggesting the odds are 50 per cent or even 30 per cent that this will be the case and more class-related violence erupts. However, the widespread cheering of suspect Luigi Mangione on Reddit and other forums is to me indicative of the same frustrated rage that animated Donald Trump voters.

I do believe the U.S. health-care system is simultaneously broken and inhumane (although given some of the news domestically I will be careful at throwing this stone from a glass house), even if it subsidizes drug development for the rest of the world. Even so, I don’t think the social contract can allow for vigilantes waxing executives on New York streets.

I don’t think former UnitedHealthcare CEO Brian Thompson’s name will go down in history with Archduke Franz Ferdinand but that won’t stop me from worrying about it for a bit.

And on that note, I’d like to thank all readers who followed along in 2024 and wish you happy holidays and a lucrative 2025 in the market.

Equities in ‘25: Up, then down

Richard Bernstein Advisors (RBA) argued that the first half of next year will be great for U.S. equity markets but the second half might be very unpleasant.

The report identified five reasons for a fast start to 2025: the Atlanta Fed’s GDPNow indicates an economy currently growing at more than 3.0 per cent which provides momentum; likely Fed rate cuts; accelerating profits; tariffs spurring domestic activity; and onshoring. (The last two are almost related enough to be the same thing but five is a rounder number I guess).

The potential for inflation has RB Advisors recommending shorter-term bonds. Higher prices for consumers and businesses that increase inflation expectations will also push long-term bond yields higher – which is historically inconsistent with a risk-on backdrop for equities. The team projects peak profits for the S&P 500 in the second quarter and decelerating earnings is likely to cause volatility thereafter.

Sentiment is an issue because investors are extremely bullish. The report emphasizes that investors are the most bullish they’ve been in the 40-year history of the Conference Board’s consumer confidence expectations for stock price Increases. Once everyone’s bullish, there’s no one left to buy stocks.

The full report is here

Diversions

Biggest tech disasters of 2024

The MIT Technology Review outlined the eight biggest technology failures of 2024 (soft paywall), a nostalgic trip down the memory lane of nerdy screw-ups. Boeing features heavily thanks to its misadventures in space and AI’s failure to adhere to social norms is also front and center. In hindsight the Crowdstrike Holdings Inc.-related outage was likely the most important story.

The essentials

Looking for our updates on market movers, analyst actions, stock technicals, insider trades and other daily, weekly and monthly insight? Click here to visit our Inside the Market page.

Globe Investor highlights

Rob Carrick reports on how investors lost millions of potential gains in the postal strike, and it’s not just Canada Post’s fault

High on hope, much of Wall Street is only hearing what it wants from Trump, reports the New York Times

David Rosenberg thinks the loonie may have finally bottomed out

Looking for inspiration on what to do with the additional $7,000 TFSA contribution limit in 2025? Here’s a profile of one investor sitting on $1.2-million in his account thanks to growth stocks

What’s up next

There’s still some important domestic data before the big day on the 25th, starting with retail sales for October on Friday. Economists forecast a topline month-over-month increase of 0.7 per cent and 0.4 per cent ex-autos for a release that could provide insight into how well Canadians are dealing with high debt loads.

GDP growth for October will be out next Monday along with industrial production for November.

Thursday will see the release of U.S. GDP growth for the third quarter – 2.8 per cent annualized is forecast. On the same day, the (mis)Leading Economic Index (MEI) is expected to show a 0.1 per cent decline for November (misleading because it keeps predicting a slowdown that never happens) and personal spending for November is expected to increase by an inflation-adjusted 0.3 per cent when it’s out on Friday.

For U.S. earnings reports there’s Accenture PLC (US$3.41 per share expected), FedEx Corp (US$3.95) and Nike Inc. (US$0.63), all on Thursday.

See our full economic and earnings calendar here (You can bookmark the page – it gets updated weekly)

REITs that might be able to compound cash flows and a simple way to use risk-adjusted returns for stock picking highlight this edition of Market Factors. We also report on new research uncovering a mass poisoning story worthy of a sci-fi novel, and we look ahead to important data reports.

Equities

Sharpe stock picking

The Sharpe Ratio is a reasonably simplistic measure of stock-specific risk-adjusted return but, according to Goldman Sachs chief U.S. equity strategist David Kostin, it has been working well as a stock selection tool for U.S. equities.

The Sharp Ratio formula provides a measure of return per unit of risk. The numerator takes the average annual return for an asset and subtracts the return for a risk-free fixed income asset (the three-month T-bill often) for the same period (hopefully three years or longer to provide better statistical significance). This is designed to calculate excess return – how much an investor earned above what they would have earned by taking no risk.

The denominator of the Sharpe Ratio calculation is standard deviation – how volatile an asset is. (As an aside, I am ok with standard deviation here as a proxy for volatility because there aren’t many other good options. There are other cases, like the formerly vaunted “efficient frontier”, where similar normal distribution-based analysis is used but is entirely useless without manhandling with arbitrary constraints and biases added afterwards. The limitations of normal distributions in finance is one of the main points of Nassim Taleb’s The Black Swan).

Let’s assume we have a hypothetical investment that returned 11 per cent on average for the previous three years and had a standard deviation of 14. Assume an average annual return of 3.5 per cent for the risk-free short-term bond. The Sharpe ratio would be 11 minus 3.5 (that’s excess return) divided by 14. The Sharpe ratio is 0.54.

Mr. Kostin reports that a 50 stock portfolio of the best Sharpe Ratios generated a return of 29 per cent so far this year, equal to the market cap weighted S&P 500 but with far less volatility or risk. It should be emphasized that the best Sharpe Ratios are stocks with the best relationship between risk and return, not necessarily the top performers. Low volatility is as equally valuable as high returns in finding high Sharpe Ratio stocks.

Stocks in Mr. Kostin’s high Sharpe Ratio basket most likely to interest domestic investors includes Alphabet Inc. (a Sharpe Ratio of 0.9 using his more sophisticated version of the formula), MGM Resorts International (1.0), snack maker Mondelez International (1.3), Intercontinental Exchange (0.8), Berkshire Hathaway (0.6, I’m surprised it’s not higher), Biogen Inc. (1.5), Becton Dickinson and Co. (1.3), General Dynamics Corp. (1.0), Microchip Technology (1.1), Dow Inc. (1.2) and CDW Corp. (0.9)

For those of you wondering where the Canadian Sharpe Ratios are, and whether they work as indicators of performance, it was my plan to provide the answers to these questions but had data issues. Hopefully soon.

Reits

Real estate compounders

Scotiabank analyst Himanshu Gupta believes he’s found three real estate companies capable of compounding cash flow growth – Colliers International Group Inc. (CIGI-T), Firstservice Corp. (FSV-T) and Storagevault Canada Inc. (SVI-T). Known smart person Albert Einstein once described compound interest as the eighth wonder of the world, which strongly suggests that companies capable of compounding cash flow are a good thing for investors.

All three companies are roll-up stories – they acquire properties in highly fragmented market sectors. Insiders own a significant amount of the shares in each case and all three companies have generated double-digit earnings growth over the past decade.

Colliers is Mr. Gupta’s favourite opportunity of the three. He recently raised his price target on the property and investment management company from US$167.50 to US$172.50. Firstservice, which manages residential communities and offers services through brands like California Closets, now has a price target of US$217.50 at Scotiabank, up from US$200.

The analyst’s price target on self-storage provider Storagevault is C$5.50, implying a 34 per cent return from current levels near C$4.10.

Diversions

Mass lead poisoning and violence

I previously mentioned the Marginal Revolution podcast that attempted to explain the rise in violent crime in the 1970s. One of their suggestions, that lead poisoning from gasoline and outdated water infrastructure negatively affected mental health, was supported by a recent academic paper.

The study by researchers at Duke University and Florida State University estimated that childhood lead exposure contributed to 151 million excess cases of psychiatric disorders over the past 75 years.

This story is dark, I get that, but the fact that gasoline was causing widespread insanity in western countries sounds like the premise of a science fiction novel. I originally found the report through Gizmodo

The essentials

Looking for our updates on market movers, analyst actions, stock technicals, insider trades and other daily, weekly and monthly insight? Click here to visit our Inside the Market page.

Globe Investor highlights

Canada’s benchmark stock index is about to welcome four new stocks. (And when it comes to the narrower S&P/TSX 60 index, there’s some good news for Algonquin Power shareholders.)

Tim Shufelt tells us why there’s no need to worry about whether we’re in a stock market bubble

David Berman argues that a potential cut to BCE Inc.’s dividend is no reason to sell the stock (and, John Heinzl writes on why he thinks that cut is coming)

David Rosenberg is backing off his long-held bearish view of the equity market. Here’s the lengthy note he sent to surprised clients last week

CIBC’s chief market technician reveals 10 stocks and 9 ETFs with uptrend forces this month

Robert Tattersall provides a helpful checklist on how to tell when a merger or acquisition will succeed

What’s up next

The most relevant event of the domestic schedule is the Bank of Canada decision on interest rates on Wednesday. Most economists expect another 50 basis point cut (Mark Rendell has a full preview). Manufacturing sales for October on Friday is the only other domestic economic report of note.

The Americans have the November CPI release on Wednesday. The headline month-over-month result is expected at 0.3 per cent and the ex-food and energy reading is predicted at the same level. Producer prices are out Thursday – excluding food and energy, a 0.2 per cent month-over-month increase is forecast.

For earnings, Oracle Corp. will announced profits late Monday with $1.481 expected. Adobe reports Wednesday – analysts expect $4.668.

See our full economic and earnings calendar here (You can bookmark the page – it gets updated weekly)

In this edition of Market Factors, we tackle a plausible argument that investor sentiment is overheated to the bullish side and the rally is overdone. It’s Outlook 2025 forecast season and Darcy Keith reviews the accuracy of prognostications last year (hint – not terrific). There’s more bad news as an expert opinion disproves the geological validity of cartoons. We also look ahead to data releases on the calendar this week.

Equities

Wall of Worry too short, or maybe dead

Ritholtz Wealth Management director of institutional asset management Ben Carlson believes that the U.S. election resulted in the return of animal spirits in the market, and not the good kind. Mr. Carlson is concerned that the wall of worry is not only too short, but temporarily deceased, setting bullish investors up for disappointment.

Mr. Carlson highlighted a prediction by strategist Ed Yardeni that the S&P 500 will climb to 10,000 by the end of the decade from current levels near 6040. This would require gains of 11 per cent per year, which doesn’t sound preposterous at first glance. But the index has been climbing at a roughly 16 per cent per year for the past 15 years and rallies don’t usually last 20 years.

Investors are racing to put money in U.S. equities with a speed that suggests a general lack of caution. The middle of November saw the second biggest weekly inflow into U.S. equities since 2008, well over US$50-billion. A Wall Street Journal interview with a random 37-year old investor led to an unsettling quote that “the euphoria everybody’s feeling is warranted.”

I’m old enough to remember when euphoria was a danger sign for markets. I agree with Mr. Carlson’s sentiment here: “I … prefer a bull market that climbs a wall of worry. Once everybody is in the pool I get a little nervous.”

U.S. household equity is already at extremes, as I noted last month, and the situation appears to be getting worse.

Mr. Carlson admits that no one in the history of equities has been able to sustainably call market tops and denies trying to do that here. I take his point, however, that markets are looking frothy, and investors should review their portfolio to ensure that the weightings are not creeping towards higher, unwanted levels of aggregate risk.

Forecasts

Pollsters are even worse at markets than politics

Reuters was out last week with its latest survey of what the TSX will do in 2025 – so what better timing to go back and see how all those forecasts fared for the year that’s just about to wrap up.

Seasoned market watchers won’t be surprised here: those forecasts were pretty woeful. The median prediction of nearly two dozen portfolio managers and strategists in a survey conducted in November 2023 was for the S&P/TSX Composite Index to reach 21,000 by the end of this year. Even a subsequent survey conducted this past February suggested the 2024 high water mark would only be 21,750.

What actually transpired? The Canadian benchmark far surpassed those forecasts, reaching a record high so far in 2024 of 25,706.50. Few saw those types of gains coming until 2025.

To their credit, the survey participants were directionally correct (though it’s rare for market strategists on the whole to project a down year ahead in markets. After all, their popularity with clients can depend on it.)

And many of those strategists did presciently call for a series of rate cuts by the Bank of Canada and highlighted dividend stocks as an area of the market that would benefit.

But if you need a reminder in this ‘Market Outlook’ season that forecasts should always be taken with a grain of salt, there you have it.

Last week’s poll by the way for 2025 suggests the S&P/TSX Composite Index will reach 26,550 in 2025, with the consensus being that investors have front-loaded much of the positives that have been circulating, such as further rate cuts. Put your bets in now how far from reality that will turn out to be.

-Darcy Keith, Globe Investor

Diversions

Diversions headline

Apparently the cartoons lied to us. The Gizmodo story, Is It Possible to Dig All the Way Through the Earth to the Other Side?, by geophysicist Andrew Gase, lists the many reasons how.

The essentials

Looking for our updates on market movers, analyst actions, stock technicals, insider trades and other daily, weekly and monthly insight? Click here to visit our Inside the Market page.

Globe Investor highlights

Feeling bullish these days? Ian McGugan explains why investors would be wise to curb their enthusiasm – or as he puts it, beware the bezzle

To what extent can the markets serve as a check on the power of the president? Jeff Sommer of The New York Times tries to answer this important question

Rob Carrick details the Canadian brokers now offering fractional shares – and provides some thoughts on each of them. Meanwhile, Rob also has this quick guide for investors with maturing GICs and questions about what to do

Norman Rothery provides an update on his Perch portfolio of smaller cap stocks, which has easily beaten the TSX Composite over the last 25 years

Magna investors are ignoring Trump’s tariff talk. David Berman explains why they may be onto something

The IPO market is dead. Tom Bradley looks at what may resurrect it

What’s up next

Employment data is front and center this week in Canada as the net change in employment for November will be released Friday – economists expect a gain of 20,000 jobs. The unemployment rate will be reported the same day and 6.6 per cent is expected.

It’s also a big week for bank earnings. Bank of Nova Scotia kicks things off Tuesday and the consensus analyst forecast is for C$1.598 per share. Royal Bank (C$3.027) and National Bank (C$2.568) follow on Wednesday.

On Thursday, CIBC (C$1.788), TD Bank (C$1.833) and BMO (C$2.385) report.

The U.S. ISM Manufacturing survey results were out Monday and the contractionary (below 50) 48.4 reading was above the expected 47.5. ISM Services results will be released Wednesday (55.6 expected), along with a final durable goods report for October.

The U.S. jobs market for November will get a report card on Friday with the change in nonfarm payrolls released. Economists expect 200,000 new jobs. Average hourly earnings is also reported with a year-over-year change of 3.9 per cent forecast.

The one U.S. earnings report worth noting is actually a Canadian-ish company – Lululemon. where profits of US$2.710 per share is forecast.

See our full economic and earnings calendar here (You can bookmark the page – it gets updated weekly)

In this edition of Market Factors, we tackle a plausible argument that investor sentiment is overheated to the bullish side and the rally is overdone. It’s Outlook 2025 forecast season and Darcy Keith reviews the accuracy of prognostications last year (hint – not terrific). There’s more bad news as an expert opinion disproves the geological validity of cartoons. We also look ahead to data releases on the calendar this week.

Equities

Wall of Worry too short, or maybe dead

Ritholtz Wealth Management director of institutional asset management Ben Carlson believes that the U.S. election resulted in the return of animal spirits in the market, and not the good kind. Mr. Carlson is concerned that the wall of worry is not only too short, but temporarily deceased, setting bullish investors up for disappointment.

Mr. Carlson highlighted a prediction by strategist Ed Yardeni that the S&P 500 will climb to 10,000 by the end of the decade from current levels near 6040. This would require gains of 11 per cent per year, which doesn’t sound preposterous at first glance. But the index has been climbing at a roughly 16 per cent per year for the past 15 years and rallies don’t usually last 20 years.

Investors are racing to put money in U.S. equities with a speed that suggests a general lack of caution. The middle of November saw the second biggest weekly inflow into U.S. equities since 2008, well over US$50-billion. A Wall Street Journal interview with a random 37-year old investor led to an unsettling quote that “the euphoria everybody’s feeling is warranted.”

I’m old enough to remember when euphoria was a danger sign for markets. I agree with Mr. Carlson’s sentiment here: “I … prefer a bull market that climbs a wall of worry. Once everybody is in the pool I get a little nervous.”

U.S. household equity is already at extremes, as I noted last month, and the situation appears to be getting worse.

Mr. Carlson admits that no one in the history of equities has been able to sustainably call market tops and denies trying to do that here. I take his point, however, that markets are looking frothy, and investors should review their portfolio to ensure that the weightings are not creeping towards higher, unwanted levels of aggregate risk.

Forecasts

Pollsters are even worse at markets than politics

Reuters was out last week with its latest survey of what the TSX will do in 2025 – so what better timing to go back and see how all those forecasts fared for the year that’s just about to wrap up.

Seasoned market watchers won’t be surprised here: those forecasts were pretty woeful. The median prediction of nearly two dozen portfolio managers and strategists in a survey conducted in November 2023 was for the S&P/TSX Composite Index to reach 21,000 by the end of this year. Even a subsequent survey conducted this past February suggested the 2024 high water mark would only be 21,750.

What actually transpired? The Canadian benchmark far surpassed those forecasts, reaching a record high so far in 2024 of 25,706.50. Few saw those types of gains coming until 2025.

To their credit, the survey participants were directionally correct (though it’s rare for market strategists on the whole to project a down year ahead in markets. After all, their popularity with clients can depend on it.)

And many of those strategists did presciently call for a series of rate cuts by the Bank of Canada and highlighted dividend stocks as an area of the market that would benefit.

But if you need a reminder in this ‘Market Outlook’ season that forecasts should always be taken with a grain of salt, there you have it.

Last week’s poll by the way for 2025 suggests the S&P/TSX Composite Index will reach 26,550 in 2025, with the consensus being that investors have front-loaded much of the positives that have been circulating, such as further rate cuts. Put your bets in now how far from reality that will turn out to be.

-Darcy Keith, Globe Investor

Diversions

Can you dig it?

Apparently the cartoons lied to us. The Gizmodo story, Is It Possible to Dig All the Way Through the Earth to the Other Side?, by geophysicist Andrew Gase, lists the many reasons how.

The essentials

Looking for our updates on market movers, analyst actions, stock technicals, insider trades and other daily, weekly and monthly insight? Click here to visit our Inside the Market page.

Globe Investor highlights

Feeling bullish these days? Ian McGugan explains why investors would be wise to curb their enthusiasm – or as he puts it, beware the bezzle

To what extent can the markets serve as a check on the power of the president? Jeff Sommer of The New York Times tries to answer this important question

Rob Carrick details the Canadian brokers now offering fractional shares – and provides some thoughts on each of them. Meanwhile, Rob also has this quick guide for investors with maturing GICs and questions about what to do

Norman Rothery provides an update on his Perch portfolio of smaller cap stocks, which has easily beaten the TSX Composite over the last 25 years

Magna investors are ignoring Trump’s tariff talk. David Berman explains why they may be onto something

The IPO market is dead. Tom Bradley looks at what may resurrect it

What’s up next

Employment data is front and center this week in Canada as the net change in employment for November will be released Friday – economists expect a gain of 20,000 jobs. The unemployment rate will be reported the same day and 6.6 per cent is expected.

It’s also a big week for bank earnings. Bank of Nova Scotia kicks things off Tuesday and the consensus analyst forecast is for C$1.598 per share. Royal Bank (C$3.027) and National Bank (C$2.568) follow on Wednesday.

On Thursday, CIBC (C$1.788), TD Bank (C$1.833) and BMO (C$2.385) report.

The U.S. ISM Manufacturing survey results were out Monday and the contractionary (below 50) 48.4 reading was above the expected 47.5. ISM Services results will be released Wednesday (55.6 expected), along with a final durable goods report for October.

The U.S. jobs market for November will get a report card on Friday with the change in nonfarm payrolls released. Economists expect 200,000 new jobs. Average hourly earnings is also reported with a year-over-year change of 3.9 per cent forecast.

The one U.S. earnings report worth noting is actually a Canadian-ish company – Lululemon. where profits of US$2.710 per share is forecast.

See our full economic and earnings calendar here (You can bookmark the page – it gets updated weekly)

In this edition I’ll cover the most bullish outlook report I’ve read so far for 2025. Also: a BMO economist thinks Canadians are too pessimistic about the domestic economy and two of the most problematic trends in the modern economy are joining forces.

Outlook 2025

Nine reasons to be bullish

BofA Securities equity and quant strategist Savita Subramanian sees nine reasons that the S&P 500 will complete the journey from the 2009 low of 666 to 6666 in 2025. This is 10.7 per cent higher than current levels, so yeah, BofA is bullish.

The Republican sweep of the White House and both chambers of Congress is the first bullish sign according to Ms. Subramanian. She sees deregulation and tax cuts combining with a cyclical upswing to boost growth.

Expected Federal Reserve rate cuts are reason number two.

The strategist believes that cyclical strength combined with tax cuts, deregulation and lower rates will see profit growth not only rise but continue to accelerate through the year, providing bullish reason number three.

Donald Trump’s fortress America policies are expected to reinforce the trend towards onshoring – the return of manufacturing from the emerging world back into the U.S. – and the necessary investment required should benefit U.S. businesses. That’s reason four.

Ms. Subramanian believes the U.S. economy is entering a new productivity cycle similar to the 1980s. This features the implementation of new technological tools (including AI) throughout the economy, improving profit margins for both old and new economy businesses. Reason five.

The AI “arms race” is reason six. The mad scramble by enormously wealthy tech megacaps to expand AI capacity has increased investing not only on tech equipment for data centers, but also real estate, construction and other infrastructure.

Reason seven, municipal investment, surprised me the most and will be hardest to track. The strategist believes cities will invest in infrastructure to attract either new businesses or reshoring manufacturing facilities. Reason eight, tight capacity, is related. The lack of investment in U.S. infrastructure creates pricing power for sectors like railways.

The last reason concerns fund manager positioning. Ms. Subramanian notes that fund managers are underweight cyclical sectors by the biggest amount since the financial crisis. An early cycle environment would see managers adding weight to cyclicals, driving their stock prices higher.

This is the most bullish equity market outlook I’ve seen so far. I have significant faith in Ms. Subramanian, particularly where earnings forecasts are concerned, but that doesn’t mean I’ll be blindly following her advice to buy U.S. financials, materials, real estate, utilities and consumer discretionary stocks. But, if the first earnings season next year has many more companies beating profit estimates than normal, I will have more faith in a rally because I’ve read this report.

Sentiment

Canadians too pessimistic?

BMO senior economist Robert Kavcic questioned whether Canadians are being too bearish about the domestic growth outlook in a research report this week.

Mr. Kavcic began by poking holes in the theory that lower immigration levels will be disastrous for the economy. He notes that temporary residents are not big spenders on average and inflation pressure could ease as immigration normalizes.

The economist then emphasized that the new U.S. president’s pro-growth policies might benefit domestic growth even with tariffs. Canadians might also be too worried about mortgage renewals at higher rates. He notes that renewable rates are manageable by the vast majority of mortgage holders because of previous stress tests.

The aggressive rate cuts by the Bank of Canada in 2024 should pay off with a growthy, early cycle economic backdrop in early 2025. Expected future cuts should also lead to a recovery in rate-sensitive sectors like autos and real estate.

Diversions

AI helping re-write human genome

AI worries me but CRISPR scares me. Wired magazine reports that these two (potentially) villainous forces are set to work together.

Nobody who’s seen the Terminator movies or The Matrix needs me to go over the risks of AI and the seeming inevitability that it becomes self-aware. CRISPR, a technology that can rewrite the human genome, is a different story. It is a remarkable tool with the potential to ease suffering for millions with genetically transmitted diseases.

The Wired story focuses on this happy element. Author Jennifer Doudna writes, “We have recently seen the approval of the first CRISPR-based therapy for sickle cell disease, and there are around 7,000 other genetic diseases that are waiting for a similar therapy. AI can help accelerate the process of development by predicting the best editing targets, maximizing CRISPR’s precision and efficiency.”

On the other hand, CRISPR in the wrong experimental hands is a terrifying prospect. I’d be surprised, for instance, if the U.S. and Chinese military didn’t own CRISPR machines because the prospect of genetic super soldiers is just sitting there. Longevity-focused billionaires buying them doesn’t worry me as much but I’m sure it’s happening.

The essentials

Looking for our updates on market movers, analyst actions, stock technicals, insider trades and other daily, weekly and monthly insight? Click here to visit our Inside the Market page.

Globe Investor highlights

The latest Reuters survey finds out what 21 portfolio managers and strategists are predicting for the TSX next year.

Turns out, the favourite exchange-traded funds in the asset allocation category are all-stock portfolios.

What’s the U.S. investor appetite these days for new Chinese firms? We’re about to find out.

Investors are clinging to crash protection despite the sizzling U.S. stock market rally.

What’s up next

The GDP report on Friday is still the big economic report on the calendar domestically. Economists expect 1.6 per cent year-over-year growth for September, and 1.1 per cent annualized expansion for the third quarter. Next Monday we’ll get the S&P Global Canadian manufacturing PMI report.

Bank earnings season starts on Monday with Bank of Nova Scotia, where profits of C$1.598 per share are expected. National Bank (C$2.568) and Royal Bank (C$3.027) follow on Tuesday. Dollarama also reports Tuesday (C$0.979).

In the U.S., third quarter GDP and personal spending for October were out Wednesday morning. Annualized GDP growth for Q3 came in as expected at 2.8 per cent and personal consumption was higher by 3.5 per cent versus 3.7 per cent expected.

ISM Manufacturing PMI will be released Monday. Economists forecast a contractionary 48 reading but I don’t know what to do with this number anymore. Historically it has been among the best indicators for U.S. corporate profits but it has been depressed for a while now while earnings surprise to the upside.

ISM Services will be reported on Dec. 4 with 55.4 expected. For earnings, only Salesforce Inc. on Dec. 3 is of broader interest.

See our full economic and earnings calendar here (You can bookmark the page – it gets updated weekly)