Money is just a tool. It's something that supports your life!

Portfolio Management Comment

The following is from Brett Joyce, CFA, Chief Investment Strategist

Good Vibrations

“If it bleeds, it leads.”

– Journalism adage that describes the media’s tendency to prioritize sensational, gory or violent content to capture audience attention.

 

August’s heatwave extended to global equity markets. Good news outweighed bad and even negatives were spun into positives.
 

However, if we are counting headlines, negatives dominated the month: a sour U.S. employment reading and mixed results on inflation; weak Canadian GDP on the back of damaged exports; the U.S. president engaging world leaders over ongoing conflicts; turmoil at the U.S. Federal Reserve; questions about the reliability of economic data (and subsequent firings); deployment of troops to U.S. cities and the South Caribbean; unconventional government stakes in private businesses and profit streams that look more like shakedowns than industrial policy; and, of course, more tariff rhetoric (furniture, EU deal maybe not done yet, tariffs on India as a foreign policy tool).
 

It’s understandably confusing in the face of all this to see equity markets soar. As usual, equity markets largely ignored the discouraging events because they had no clear and immediate impact on the fundamentals of economic growth, corporate earnings growth, and interest rates. In contrast, beyond the headlines, a positive story of brightening global growth, solid corporate earnings, and the prospect of lower borrowing costs is playing out.

Bond investors also celebrated – just less boisterously than equity investors. The FTSE Canada Universe Bond Index eked out a 0.4% gain for the month.

Global growth

Recession fears are fading in the rear view mirror. In fact, the slowdown may have already bottomed out back in Q1. Although the trade shocks disrupted forward momentum, most global economies have delivered better-than-expected economic growth for the first half of 2025. Weakness in headline numbers primarily stemmed from fluctuations in trade and inventory, which masked solid underlying domestic demand. Canada is a prime example. It was front-page news that, on an annualized basis, Canada’s economy contracted 1.6% in Q2, deeper than expected. But a closer look revealed household spending jumped 4.5% and residential investment rose 6.3%. Final domestic demand climbed a healthy 3.5%. Economic activity was better than expected in the U.S., the U.K., Japan, France, and Spain, while Germany and Italy underperformed.
 

The labour market brought capital market volatility in early August following weaker-than-expected U.S. jobs numbers and heavy downward revisions for prior months. Investors spun the negative news into gold, believing the data will motivate the U.S. Federal Reserve to resume cutting the Fed funds rate. Labour markets are currently undergoing a transition. While job growth is slowing, this is a two-sided issue – demand for labour and supply of labour. In the U.S. and Canada, both are shrinking. Immigration changes, aging populations, slimmed-down government payrolls (private sector employment is more important to capital markets), and productivity may mean that fewer new jobs will be needed to keep unemployment balanced and hence consumers healthy.
 

Rounding out the positive economic news, business investment is humming (thanks to AI and the associated electricity and data storage needs) and governments are poised to boost economic growth using fiscal stimulus.
 

Trimming public sector employment (the pace of expansion was frenetic over the past few years) creates a fiscal drag. However, governments are still poised to spend copious amounts of money. Historically, more government spending meant a fatter public service. Today, there is little appetite (both societal and political) for swelling government payrolls. More of the government’s spending will flow to the private sector – send in the capitalists.

As an aside, it appears that the U.S. government wants to be a capitalist too, making moves to take stakes in private companies. Actions like these aren’t new; the 19th century featured a plethora of state and federal ownership in private enterprises. As the economy has evolved and modernized, these practices fortunately fell out of favour, at the same time washing away the waste, corruption, misallocation of capital, and conflicts of interest that accompanied them.
 

Earnings growth

Corporations are churning out earnings growth. By pushing to new all-time highs, markets are weighing in on a key question: if earnings can remain strong through all the uncertainty, how much better might things get if the headwinds dissipate? What if the quarters ahead bring better growth, less tariff uncertainty and less geopolitical insecurity? Equity markets aren’t cheap, but earnings growth is delivering. Consider that forward price-to-earnings multiples for the S&P 500, S&P/TSX Composite, EuroStoxx 600, and MSCI Emerging Markets Index are currently below their earlier-year highs.

For the S&P 500, August brought a 1.9% rise. Q2 aggregate earnings growth came in at 12%, marking the third straight quarter of double-digit growth. For those worried that a handful of big names are driving this momentum, more than 100 companies delivered earnings growth of over 20%, and 81% of companies beat analyst estimates.
 

Canada’s S&P/TSX Composite was the top developed market in August, returning a bumper 4.8% and remains among the best markets year to date. The S&P/TSX has enjoyed a notable valuation catch-up with the U.S. and is also delivering the goods. Second-quarter earnings growth was 9%, led by strength from gold miners (materials sector earnings growth was 50%). Financials (the index’s largest sector) crushed expectations and delivered 12% earnings growth – double the expected.
 

Rate cuts are coming

The media are spilling a lot of ink on the drama unfolding at the U.S. Federal Reserve – resignations, firings (maybe), and subsequent new appointments. Investors left these details to the academics and simply cut to the chase: they believe rate cuts are likely after Fed Chair Jerome Powell’s statements left little doubt that policy easing will resume in September. Along with rate cuts will come lower borrowing costs and liquidity plus the economic benefits these bring.
 

What about Fed independence?

The reasons for cutting interest rates matter. Conspiracy theorists argue that political pressure is motivating rate cuts, which would potentially jeopardize the Fed’s independence and might lead to higher inflation.
 

For stocks, the potential downside is higher interest rates and bond yields. Yet, that’s the point – a politically beholden central bank is going to let inflation run hot and keep interest rates low. Equities are an excellent inflation hedge; therefore, on that basis, the stock market can ignore a mildly higher inflation regime. In fact, it may even welcome higher inflation, which can increase pricing power for businesses. Investing in stocks is a logical response if this is the scenario. We like stocks for the long term for many reasons; this reason is on the list.
 

Aside from higher inflation (to be clear, we are talking about inflation rates above 2%, but still a number that starts with a three, not the 8% spike of 2022), there could be longer-term consequences of compromised Fed independence. The U.S. dollar could weaken over time and long-term bond yields may rise.
 

The U.S. Dollar Index is little changed from late April; 10-year government bond yields fell in August, while 30-year yields remained flat. Thus, there is no evidence that negative consequences are percolating in the here and now; equity investors took this as a win and focused on the Fed’s easing.
 

Time to cut – do they see weakness?

Doomsayers can insist rates are coming down because the economy is weak, so that should be bad. Fed policy is currently restrictive because inflation remains somewhat sticky. But inflation is a lagging indicator, and evidence suggests tariff impacts will be less than feared. Add to this the deflationary offsets of lower oil prices and moderating shelter costs and wage growth. Overall, the balance of risks suggests that if and when the Fed lowers the policy rate from restrictive levels, it will be for justifiable reasons, not bad ones.
 

To sum it all up, a better growth outlook, a strong earnings season, and easing financial conditions on the horizon prompted global stock markets to soar higher.
 

The last word – Things aren’t always what they seem

“How can my investments be doing so well this year?” is a frequent question we get. In the past, we have reminded folks that keeping emotions out of investment decisions is an ongoing challenge. This year has brought a great deal of uncertainty; parsing short-term noise from long-term fundamental change is difficult at the best of times. It’s especially challenging when the sheer enormity of potential change reaches the levels global investors have faced in 2025.
 

Keep in mind that what the media choose to put in focus isn’t necessarily the focus of capital markets. And what passes for news these days isn’t exactly a Walter-Cronkite level of unbiased reporting. The media are not in business to help you achieve your financial goals. Their objective is to make money (and it is a disrupted and threatened business in many ways). To achieve their objective, they must attract attention (eyeballs and clicks). “If it bleeds, it leads” is an old formula whose roots date back to the yellow journalism of the 1890s. All manner of traditional and non-traditional media and social media cater to our fears and perpetuate polarization. Eye-catching headlines and sensationalized exaggerations can make it difficult to form opinions conducive to rational and objective investment decisions. At BMO, we recognize that bias is pervasive. To counter that, our resources include a diverse range of data sources and insights. We vigorously debate views and opinions and are proud to have some of the brightest global minds shaping our market outlook and providing insights that guide our investment decisions.
 

“Don’t believe everything you hear” is an adage that pre-dates “if it bleeds, it leads.”

Our Portfolio Management Approach

We hope you have a chance to listen to our Podcasts!

We are fundamental investors that use technical analysis to manage short-term market risks. We believe that risk management is not a choice, but a necessity. While we cannot control how much downside the market provides during a correction, we can control how much of the downside your account receives. We aim to avoid 60% or more of the decline in any significant downturn. Without our process, there is a good chance you will experience 100% of the downside from the market. We will help you navigate the risks and rewards of the market so that you can stop worrying about your money and start living your life.

Transactions

The following is a chronological list of our trades:

Sold PEMBINA PIPE to decrease our oil and gas exposure:

We moved those proceeds into Franco Nevada:

We trimmed our positions in National Bank, Royal Bank and Travellers:

Bought a full positions in GLD - Gold Bullion EFT on breakout of recent consolidation:

Returns on our 60/40, 70/30 & 80/20 Portfolios, before fees:

Below shows our Asset Allocations in the 80/20 portfolio for 2025:

Interesting Charts

Technical Comments

E-mini Bull Microchannel | Brooks Trading Course

Market Overview: S&P 500 E-mini Futures

The market formed a 5-bar S&P 500 E-mini bull microchannel on the monthly chart. The bulls want the broad bull channel to resume and expect at least a small second leg sideways to up after any pullback. The bears want a reversal from a higher high major trend reversal and a double top (Dec 6 and Aug 28).

S&P500 E-mini futures

The Monthly E-mini chart

• The August monthly E-mini candlestick was a bull bar closing in its upper half with prominent tails.
• Last month, we said traders would see if the bears could create strong bear bars to show they are back in control, or if the pullback would lack follow-through selling, forming a long tail or a bull body in August instead.
• The market gapped down and traded lower early in the month but lacked follow-through selling. The E-mini then traded sideways to up for the month.
• The bulls created a breakout above the prior all-time high (Dec 6) in July with follow-through buying in August.
• They want the broad bull channel to resume.
• The move up (from Apr 7 low) is in the form of a 5-bar bull microchannel. That means persistent buying.
• The bulls expect at least a small second leg sideways to up after any pullback.
• The bears see the current move as a buy vacuum retest of the prior all-time high (Dec 6).
• They want a reversal from a higher high major trend reversal and a double top (Dec 6 and Aug 28).
• They want a failed breakout above the December 6 high.
• The bears must create strong bear bars to show they are back in control.
• So far, the move up from the April 7 low is strong, in the form of a 5-bar bull microchannel and consecutive bull bars closing near their highs.
• The market is Always In Long.
• The move covered over 33% from low to high (Apr 7 to Aug 28) in 5 months without any significant pullback.
• While the move is strong, it is slightly climactic and overbought. The market may need to form a pullback to alleviate the overbought condition before the trend resumes.
• Traders will only be willing to sell aggressively when they see that the bears can create strong bear bars with sustained follow-through selling.
• The 5-bar bull microchannel increases the odds that the first pullback may be minor, followed by a retest of the recent leg extreme high (now Aug 28).
• For now, traders will see if the bull can create more follow-through buying.
• Or will the bears be able to create some decent selling pressure (bear bars), something they haven’t been able to do since the April low, instead?

Millennial Minute

Age is just a number.

There is no age limitation when it comes to scams, and with students heading back to school it can mean ‘open season’ for Fraudsters to take advantage.

This month’s article goes over some of the most common scams for students, and what to watch out for. If you’ve never shared these to your school aged and post-secondary aged kids, this is one you should pass along.

 

Click here to read this month's article!

Planning Article

Putting off Estate Planning can cause issues for your loved ones down the road. We all think we can 'put off planning until later', but sometimes the later never comes and before we know it, we're gone and have left a laundry list of unchecked assets others to deal with.

This month's article covers how to stress test your existing estate plan, and could provide tips and information for those who may not have started their own.

We have a wonderful extended team of professionals who would be happy to look over an existing estate plan, or work with you directly to build a new plan catered to your wishes.

 

Click here to read!

 

DISCLAIMER:

The opinions, estimates and projections contained herein are those of the author as of the date hereof and are subject to change without notice and may not reflect those of BMO Nesbitt Burns Inc. (\"BMO NBI\"). Every effort has been made to ensure that the contents have been compiled or derived from sources believed to be reliable and contain information and opinions that are accurate and complete. Information may be available to BMO NBI or its affiliates that is not reflected herein. However, neither the author nor BMO NBI makes any representation or warranty, express or implied, in respect thereof, takes any responsibility for any errors or omissions which may be contained herein or accepts any liability whatsoever for any loss arising from any use of or reliance on this report or its contents. This report is not to be construed as an offer to sell or a solicitation for or an offer to buy any securities. BMO NBI, its affiliates and/or their respective officers, directors or employees may from time to time acquire, hold or sell securities mentioned herein as principal or agent. BMO NBI -will buy from or sell to customers securities of issuers mentioned herein on a principal basis. BMO NBI, its affiliates, officers, directors or employees may have a long or short position in the securities discussed herein, related securities or in options, futures or other derivative instruments based thereon. BMO NBI or its affiliates may act as financial advisor and/or underwriter for the issuers mentioned herein and may receive remuneration for same. A significant lending relationship may exist between Bank of Montreal, or its affiliates, and certain of the issuers mentioned herein. BMO NBI is a wholly owned subsidiary of Bank of Montreal. Any U.S. person wishing to effect transactions in any security discussed herein should do so through BMO Nesbitt Burns Corp. Member-Canadian Investor Protection Fund.

BMO (M-bar roundel symbol)” is a registered trademark of Bank of Montreal, used under licence.