Veteran investor Jeremy Grantham is another well-known skeptic of the strength in stocks.  He points out that the artificial intelligence boom has pushed the U.S. stock market to its most expensive level ever and could eventually lead to a historic decline.  “Based on the value of the stock market compared to GDP, with modifications, this is the most expensive market in American history.”  The market capitalization-to-GDP ratio referenced by Grantham is estimated at 235%, according to Longtermtrends.com. It means the total stock market value is more than twice the size of the U.S. economy.  Legendary investor Warren Buffett used this indicator, saying years ago that when it “approaches 200% — as it did in 1999 and a part of 2000 — you are playing with fire.”  Grantham said that, while the timing was terribly uncertain, markets could be at a peak.  Grantham is a famed investor known for his history of calling bear markets and has issued similar dire warnings in the past.  What makes such a scenario even more risky is that investors are more invested in stocks than they have been in history, meaning that any selling could quickly turn into an avalanche if investors suddenly lose their nerve, rather than the traditional behaviour of the last few years which has been to ‘buy the dip.’  Putting all this bullish sentiment and aggressive investing behaviour into one picture is seen below, which shows the share of U.S. household equity holdings as a share of their total financial assets.  It reached close to this level before the tech bust in 2000 and then dipped almost all the way down to almost 50% after the Financial Crisis in 2008 and has been slowly climbing back up since that time to reach today’s record level of over 73%.  Same conclusion; everyone seems to be participating in the market at a time when valuations and sentiment are at record highs.  This just underlines our case for some defensive positioning in investment portfolios.

The IPO boom is alive and well again.  The coming AI-related issuance wave suggests the market is becoming attractive for issuers, not just investors.  After years when scarcity and buybacks supported mega-cap Tech valuations, giant IPOs and equity-linked financings could shift the market regime from a rally supported by scarcity premium and buybacks to one increasingly shaped by chasing scarce capital to fund a ballooning capex bill.  Or, put more simply, will we suddenly have sellers outnumbering the buyers in the market?  Companies tend to sell stock when valuations are generous, investor enthusiasm is strong, and the market is willing to fund long-duration growth stories with limited cash-flow discipline. The coming wave of AI-related share supply is therefore more than a funding event. It might be a market signal as well. When the equity market becomes attractive for issuers as well as investors, valuations may already have moved ahead of the economic promise being sold.  Unlike the late-1990s Tech boom, when the U.S. IT sector expanded its equity base by roughly +40%, the sector has shrunk its equity base by about -4% over the past four years, while the Mag-7 companies bought back roughly $230 billion of stock in 2025.  That support now looks less secure. The AI buildout is shifting away from a cash-rich, buyback-heavy era and into a more capital-intensive funding cycle. Alphabet recently launched a record $85 billion equity-linked financing, upsized by +$5 billion after strong demand. Meta is reportedly considering a stock sale worth tens of billions of dollars as its AI-related capex could reach $145 billion this year and rise further in 2027. At the same time, both Meta and Alphabet have paused buybacks, removing an important source of supply absorption.  The IPO calendar points in the same direction. Taken together, OpenAI, Anthropic, and SpaceX could come to market at valuations approaching $4 trillion and seek to raise more than $200 billion. That will dwarf prior IPO waves and point to a shift in market regime: from a rally supported by scarcity premium and buybacks to one increasingly shaped by chasing scarce capital to fund a ballooning capex bill.

Navigating through the mega new issue market it pays to wait!  Too much focus with IPOs about the first day trading and not enough about the longer-term prospects.   The SpaceX IPO was the biggest thing to hit markets in a long time, but investors need to realize that allocations at the issue price are always going to almost irrelevant to most investors’ portfolios.  The bigger decision is whether to go into the after-market at elevated prices.  The VWAPs (volume weighted average price) over their first two weeks of trading for SpaceX and Cerebras were $181 and $259, respectively. meaning that the average investor who bought either stock in the after-market in the first two weeks post the IPO is DOWN over 20% at current prices.  The most successful long-term IPOs of the past 25 years included Meta (then Facebook) and Alphabet (then Google).  Both stocks had longer term growth stories in place in new businesses such as mobile advertising that were not contemplated when the IPOs happened.  This is what investors need to look for rather than worrying about whether they can get an allocation of a ‘hot deal.’  The only recent IPO we participated in was Apotex (APTX) in Canada.  Hearing the road show made up see this business was much more profitable than we realized, has growth potential in generic biologics and was priced at a reasonable valuation.  While we got an almost irrelevant allocation at the offering price of $24, we bought immediately in the after-market between $26-27 and have watched the stock move above $30.   

Investment Strategy.  For all the reasons described above we have become even more cautious and defensive in our outlook for stocks given the strength over the past few months, the exceptionally ebullient investor sentiment and positioning as well as elevated valuations.  The earnings yield of the stock market overall is the same as the ‘essentially risk free’ return on 2-year Treasuries, suggesting that investors are receiving no premium for taking on risk from stocks.  The bullish outlook is supported by exceptional profit growth in the first quarter of 2026, but this has been almost entirely driven by the ongoing capex underlying the buildout of AI capacity.  Another economic support has been the ongoing deficit-financed fiscal spending, which has its limits as government debt levels reach record levels.  The wealth effect from strong capital markets has also sustained consumer spending but contrasts with all-time low readings in consumer confidence, suggesting that the strength is coming from a smaller part of the population and is less sustainable than an expansion driven by business spending and employment gains.  Summing it all up, given we are more focused on protecting gains from the past few years while still participating to some degree to any continuation of this bull market.  This means an investment strategy focused on sectors that have more limited downside due to valuation support or high dividend yields.  This includes energy infrastructure, telecom, power utilities, gold and, in tech, a higher weight in software stocks with AI agentic solutions.  We are underweight financials, tech hardware, consumer stocks and retail.  

There’s a new sheriff in town!  It is ironic that Alan Greenspan passed away last week at age 100 a week after Kevin Warsh had his first meeting as the head of the U.S. Federal Reserve Bank and is most closely resembling the Greenspan era at the Fed than the subsequent periods of the Bernanke, Yellen and Powell.  Alan Greenspan is remembered as the Fed chairman who presided, in the 1990s, over the longest stretch of uninterrupted economic growth then on record. Much of the credit for that stemmed from his recognition of the role of information technology that permitted the economy to grow without generating inflation, which allowed the Fed to forgo interest-rate increases.  Kevin Warsh would like to emulate that path but faces a truly daunting task in the short term.  The new chairman of the Federal Reserve must avoid provoking a president he had to charm to get the job. He needs to repair relations with the Fed’s other policymakers, many of whom he recently criticized — not least, former Chair Jerome Powell, who remains on the central bank’s board for now.  While contending with all that, he must also affirm the Fed’s commitment to get inflation back down to 2%, which means that interest rates may have to go higher in the short term, given that core inflation is still running well above 3%.   We expect that over time he will need to convince the other governors that interest rates can be brought down due to productivity gains, much in the same way as Greenspan did in the 1990s.  At his first meeting he was more opaque than any Fed chief had been since the Greenspan era, not giving any guidance as to the future direction of interest rates and even abstaining his own contribution to the well know ‘dot plots’ that Fed members release at periodic meetings, which show their forecasts for economic growth, inflation and the path of short-term interest rates over the next few years.  On about a dozen occasions, Warsh used the term “price stability.” For a chairman who had opined often about cutting rates, it was surprisingly hawkish talk about his and the committee’s “unambiguous and unanimous” resolve to get inflation under control after seeing it run above their 2% target for the last five years.  Warsh has been promising to shake things up at the Fed, and his first steps in doing so came through the announced formation of five ‘task forces’. They are charged with studying communication, the Fed’s balance sheet, the data sources on which it relies, productivity and jobs, the impact of artificial intelligence and other transformative technologies, and the central bank’s inflation approach.  The end game here is that he is probably setting the stage for cutting interest rates by saying that the current benchmarks for measuring inflation are inaccurate and miss many of the key impacts of AI and long-term deflationary trends.   Warsh also promised to revamp communications, and the first visible step was a dramatically abridged post-meeting statement. Prior to the new chairman’s arrival, the statements generally ran more than 300 words, consisting of boiler plate language that investors parsed through closely. This time: The statement ran just 130 words, short and sweet with little ambiguity.

While the story in the tech stocks was all about theThe oil market has remained soft, with prices below $100 a barrel, despite the war in Iran causing a massive oil shock.  But there have been some mitigating circumstances that have helped prices move lower, most of which are not sustainable.  Going into the Hormuz crisis, the world had plenty of oil. Major importers in Europe and Asia were well-stocked with strategic reserves, and commercial inventories were healthy after a run-up in 2025. That gave many big economies a cushion to ride out the shock with only limited disruption.  Fears that the Hormuz crisis would propel oil to $150 or even $200 a barrel haven’t been realized. Middle Eastern energy producers found ways around the closure of the strait faster than many energy experts predicted, while other producers—including the U.S.—stepped up production and exports to plug some of the gap.  Exports from Saudi Arabia’s Red Sea port of Yanbu have jumped to around four million barrels a day from less than one million before the war, according to commodities and shipping data.  The United Arab Emirates has also turned to pipeline exports, sending crude from Abu Dhabi to the port of Fujairah on the Gulf of Oman.  Several other factors are contributing to the lower prices, including China’s reduced oil imports.  Last month, China imported 6.7 million barrels a day of crude via tanker, down nearly 40% from the 2025 average.  That drop of 4 million barrels a day is roughly equivalent to the consumption of Germany and France combined.  The amount of oil refineries are processing into fuel and petrochemicals has fallen by about 5 million barrels a day. Either consumers are cutting back significantly, or refineries are running down their inventories. Likely, both factors are at play.

The war has overshadowed a crucial fact: The oil market was massively oversupplied on Feb. 27, before the conflict started. By how much?  Probably 3 million to 4 million barrels a day during the seasonally low-demand period between the end of the winter and the beginning of spring. That oversupply, built on the impact of the U.S. shale revolution and OPEC+ output hikes during the preceding year, has provided an invaluable cushion.  When Iraq invaded Kuwait in 1990, rich nations didn’t tap their strategic petroleum reserves until six months later. This time, the U.S. pushed its allies in the International Energy Agency to tap reserves during the first two weeks of the war. On March 11, the 32 members of the Paris-based IEA announced they would release 400 million barrels over the following months — the largest release in organization’s history.  Still, it took time for those barrels to hit the market, only gathering speed in late April. Now, the oil is flowing at a rate of about 2.5 million barrels a day. But with the US reserve, a major contributor, already at its lowest level in 40 years, it won’t go forever.  The situation is uncertain and could change quickly, with the ceasefire between the US and Iran fragile and the global oil market complex and influenced by many factors.  But to assume that all the upside risks to oil are in the past and that prices will drop back to ‘pre-invasion’ levels could be naïve.  Storage levels will have to be rebuilt and supply remains uncertain.  Oil stocks are reflecting very little chance of a rise in prices, let alone stability at even current levels.  That, in our view, presents a buying opportunity.  Top oil-levered names in Canada remain Canadian Natural Resources, Cenovus and Whitecap Resources.  Hedging that with a natural gas leader such at Tourmaline Oil also makes sense.

Gold and gold stocks have also lagged the overall market since the beginning of the war as the strength in the U.S. dollar has been a headwind for parts of the commodity sector.  But stock valuations in the sector are exceptionally low and, while the ‘hot money’ has left the gold trade for now, the longer-term buyers remain in place and have kept buying as prices have fallen.  The 2026 Central Bank Gold Reserves Survey shows that central banks are as enthusiastic as ever towards gold, with a record high 45% reporting that they plan to increase their gold reserves in the coming 12 months.  Despite strong price performance and significant gold accumulation in recent years, central bank sentiment towards gold continues to be undiminished.  Gold’s performance during crises, its ability to preserve value, and its diversification benefits continue to be leading reasons for central banks to hold gold reserves.

Our top holdings in the sector are concentrated in miners that have production in geo-politically safe regions, some production growth, low costs and reasonable valuations.  That includes Barrick Mining, Agnico-Eagle Mines and Torex Gold.  We added to all three names in some of the weakness seen in the sector in the second quarter.  The potential for rising interest rates in the U.S. and more ‘safe haven’ buying of the U.S. dollar may keep a lid on the sector for now, valuations are extremely attractive and we still see a higher likelihood that gold prices eventually recover back to over US$5,000 per ounce.  

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