Market Resilience, Gold Rally, and Canada’s Outperformance

Interviewer:
And joining us now to talk markets is Kim Inglis, a senior portfolio manager at Raymond James. Well, Kim, the U.S. equity markets have been remarkably resilient and keep grinding higher this year. What's been fueling that strength, do you think? 

Kim Inglis:
Yeah, I would definitely say that one of the primary reasons would be just all the overall enthusiasm around AI. That's definitely been a driver there. Generally as well, corporate earnings have been pretty decent. I would say interest rate cuts, that certainly helps. There's an expectation that we'll probably see two more this year in the U.S. So that's been a bit of a driver. The economy as well has been pretty resilient. We've seen stronger growth than expected, even though labor markets have been softening a bit. So that's been a good thing. Consumers are out there spending and when consumers represent 70% of U.S. GDP and they're out there spending their hard-earned dollars, that's generally a good thing. And then I would also say tariffs, although there's certainly been no lack of headlines there. The one good thing is that the U.S. has granted some exemptions and so the effect of impact of those tariffs on growth and inflation and that sort of thing haven't been quite as bad as feared. So I think that's been helping things as well. 

Interviewer:
Turning to the government, with the U.S. government shutdown now underway, how much of a drag could that be on the markets or investors largely looking past this? 

Kim Inglis:
Yeah, so I mean, generally speaking, with government shutdowns, they tend to be more noise than news. The markets have been shrugging a lot of them off pretty much. That could of course change if the shutdown ends up being considerably longer or if it starts to delay some economic data coming out. Generally though, from a historic standpoint, government shutdowns haven't had much of a long-term impact on the markets. Typically leading up to a shutdown, there's a bit of volatility, but then afterwards the markets have tended to rebound quite quickly. The longest shutdown in more recent history was actually one in President Trump's first term where the shutdown was around 35 days or so and leading up to it was the S&P500 was down 2%, but then coming out of it 20 days out, the market was up 9%. So overall on average, government shutdowns have been pretty much a non-issue for markets. 

Interviewer:
Canadian markets have actually been outperforming the U.S. lately, Kim, what 's behind that shift? 

Kim Inglis:
Yeah, the Canadian markets have been great. They've been also really strong despite the fact that we have had some weaker economic data, higher unemployment. Canadian markets haven't cared much. What's been the biggest driver behind that has definitely been the material sector, especially gold. Energy and financials have also done well. They've been beneficiaries of interest rate cuts here and we've also seen some good earnings in that space. With regards to interest rates, Canada's enthusiasm around that would be the same as the U.S., and that's just generally that interest rate cuts when they happen tend to be a good thing for the market, so Canadian investors have been excited about that and we are expecting another rate cut here this year. I would say, though, with the Canadian markets, it'll be important to watch these earnings to see how tariffs have been impacting Canadian companies and their profitability, so watch for that and see how that goes.

Interviewer:
Finally, gold's been on a tear this year. What's been driving this rally and do you think it has more room to run from here, Kim? 

Kim Inglis:
Yeah, so gold has definitely been on a tear. In fact, it's been one of its best years in a century, and definitely the best since 1979 since the global inflation and energy crisis. This generally makes sense, though. Typically, gold is viewed as a safe haven asset and given all of the extreme global uncertainty that were geopolitical uncertainty that we're experiencing these days, it's not surprising to see investors piling into that. The U.S. dollar has been a little bit weaker as well, and that's helped gold because typically gold rises when the dollar is weaker. In terms of whether it can continue or not, as the saying goes, strength begets strength, but also I would add that all of the geopolitical uncertainty, there doesn't seem to be any end in sight to that, so that certainly helps gold, but there's also a lot of other positive factors at play. As an example, a lot of central banks have still been buying gold at these record levels, like China, Poland, Turkey. They've been still out there buying, so that's a positive. Also, if we go through a larger bout of volatility, typically when the S&P 500 goes, crocs 10% or more, gold and gold companies tend to be the outperformers there. There's still a number of positives at play there. 

Interviewer:
To quickly follow up on your point about gold as a safe haven asset, is it normal to see gold rallying this much while we're seeing risk assets like equity is also moving much higher? 

Kim Inglis:
Yeah. I think for gold, it really has to do with the geopolitical uncertainty. Anytime people are worried about the state of affairs in the world or worried about the safe haven status of the U.S. dollar, you do tend to see people getting into gold. 

Interviewer:
Kim, thanks so much for joining us today. 

Kim Inglis:
Thanks for having me. 

Interviewer:
Thank you for watching. Once again, that was Kim Inglis, Senior Portfolio Manager at Raymond James. I'm your host Jenna Dagenhart with Asset TV.