Based on my recent conversations with one of the investment managers we use at Right Direction Financial, AGF Investments, I wanted to share some of their current thinking on markets and what they are watching closely.

If you have been watching the headlines lately, you would be forgiven for thinking markets should be far more volatile than they are. Geopolitical tensions from Iran to Venezuela to Greenland, questions about U.S. debt, and constant political noise have made for a busy news cycle. And yet, markets have been surprisingly steady.

One of the biggest places this uncertainty has shown up is in the U.S. dollar, which has been weaker since last year. That matters, because a softer U.S. dollar tends to support international markets and hard assets like commodities and gold, and that is exactly what we have been seeing.

A weaker dollar and stronger global markets

Over the past year, international markets have outperformed the U.S., helped by a weaker U.S. dollar, a global wave of interest rate cuts, and large fiscal spending programs in places like Germany, Japan, and the U.S. We are also seeing improving conditions in parts of emerging markets.

Gold surged last year, copper prices have risen, and commodity producing countries are seeing renewed interest, partly due to demand from AI, data centres, and electrification.

This is a reminder that diversification outside the U.S. really matters, especially when currencies and global growth cycles start to shift.

Earnings still drive markets

One simple but powerful stat from AGF is that equity markets have about a 0.96 correlation with earnings. In plain English, over time, markets mostly follow company profits.

Right now, earnings expectations are still healthy. S & P 500 earnings growth is expected to be around 15 percent this year. Mid cap earnings growth is expected to be about 19%. Small cap earnings growth is expected to rebound strongly.

 About three quarters of companies are beating earnings and sales expectations.

That is a big reason why, despite all the noise, markets have remained resilient.

A broader market, not just tech

For the past few years, returns were dominated by a small group of mega cap tech stocks, the so called Magnificent Seven. The view from AGF is that we are now in a phase of market broadening and rotation.

In other words, returns are starting to come from more places. Areas like materials, especially copper and mining related companies, energy and infrastructure, financials, select industrials and defense, and parts of the global market such as Japan, South Korea, and Latin America.

This is healthy. Markets that depend on just a handful of stocks are fragile. Markets where leadership is spreading out tend to be more durable.

The reflation backdrop

AGF describes the current environment as reflationary. That means growth is improving, inflation is not disappearing, and investment and capital spending are picking up.

Historically, this kind of environment tends to favour materials, energy, financials, and select industrial and semiconductor companies. We are already seeing early cycle areas like transports, housing, regional banks, and small caps start to participate more.

What about risks

A few are worth watching. U.S. debt and deficits could push yields higher over time. Geopolitical flare ups, especially involving Iran, could temporarily increase volatility and energy prices. Big tech may go through a period of digestion as massive spending on AI infrastructure has reduced free cash flow and buyback capacity for some of the largest companies.

That said, the view from AGF is that markets are still being driven primarily by earnings and fundamentals, not just headlines.

Gold, crypto, and real assets

One interesting shift is that while crypto was once seen as a hedge against currency debasement, gold has been the real beneficiary recently. Central banks have been increasing their gold allocations, and investor flows have favoured real assets in this phase of uncertainty.

What this means for you

Markets will always give us something new to worry about. Headlines change, narratives shift, and there is never a shortage of reasons to feel uneasy. What matters much more is having a plan that is built to handle different environments and sticking with it through the noise.

Conversations like these with managers such as AGF are part of how we stay thoughtful and disciplined about your portfolio. We are not trying to guess the next headline or jump in and out of markets. We are focused on building portfolios that are diversified, resilient, and aligned with your goals, whether markets are calm or choppy.

Periods like this, when leadership in the market is broadening and opportunities are showing up in more places, are exactly when good diversification and good planning quietly do their job.

If you ever have questions about how your portfolio is positioned or how this kind of market environment fits into your longer term plan, that is a conversation I am always happy to have.

Source: https://www.agf.com/ca/