Market Factors: New TSX highs come with a caveat

Globe and Mail

6 hours ago

In this edition of Market Factors, I'll detail the dominance of precious metals stocks in the rally from the 2025 lows and also how the real estate services sector is about to be automated. The diversion is Bezos-related and as always we'll look ahead to the important data releases for the next week.
It's obviously a good thing when the S&P/TSX Composite Index hits a new high but there's a caveat for this one: performance has been driven by a sector that has little to nothing to do with the domestic economy or innovation.
Scotiabank strategist Simon Fitzgerald-Carrier wrote that gold and silver stocks, up 47 per cent and 41 per cent respectively year to date, account for exactly half of the TSX's 2025 return.
The impressive dominance of precious metals stocks in driving benchmark returns is even more apparent if we look at the recovery from the 2025 low on April 8. The benchmark's top performer was Novagold Resources Inc., up 85.2 per cent.
Seven of the top 12 performing stocks for the April 8 to present period were precious metals stocks (this includes the highly precious metals-focused Sprott Inc.). Uranium stocks were also clearly visible in the top 12 – Cameco Corp. (up 80.9 per cent), Energy Fuels Inc. (63.8 per cent) and Nexgen Energy Ltd. (62.9 per cent) were all there – but let's not get distracted.
Mr. Fitzgerald-Carrier attributes precious metals price momentum to uncertainty regarding U.S. tariffs. I also think gold is benefiting from the leadership-related lunatic discount the market is applying to the U.S. dollar.
The Scotiabank strategist believes precious metals stocks can continue to outperform. A survey of central banks by the World Gold Council released Tuesday found that 95 per cent of respondents (73 central banks were surveyed) expected central bank gold reserves to increase over the next 12 months.
Mr. Fitzgerald-Carrier also expects that rising U.S. inflation will cut into real Treasury yields, putting further downward pressure on the greenback that will push bullion prices higher.
Precious metals are a problematic topic in financial theory. Personally I respect the role of precious metals in history and certainly respect the gains recently made by investors in the sector. On the other hand I lean more towards Warren Buffett's view that he'd rather own farmland, which generates annual income.
One thing that's certain is that the recent gold-driven highs in the TSX are more proof that global investors are skeptical about the U.S. and aren't assuming that everything's rosy in the domestic economy and corporate world.
Morgan Stanley real estate analyst Ron Kamden covers the U.S. but his belief, that AI will soon automate big swathes of public REIT and commercial real estate (CRE) services occupations, will likely have cross-border financial effects.
Mr. Kamden believes that 37 per cent of all public REIT and CRE services jobs can be automated by AI. He estimates the cost savings at US$34-billion, or 16 per cent of operating cash flow in the sector.
Management, accounting for 17 per cent of occupations, is the most at risk for automation followed by sales (14 per cent), administrative support (13 per cent) and installation maintenance repairs (12 per cent). I'm not sure how AI is going to repair the plumbing but these categories combine for 56 per cent of all jobs in REITs/CRE services jobs.
AI applications that replace all these expensive humans, if they come to pass in the U.S., will soon drift across the border. Domestic REIT services CEOs would be negligent not to do so because their operations would become much, much more profitable for owners or shareholders.
A lot of people hate Jeff Bezos but I like getting my packages delivered the next day. Mr. Bezos defends his outsize wealth by saying it represents 14 per cent of a company he built, and he helped the rest of the shareholders get wealthy too. He is, objectively, a tremendous executive, so much so that Warren Buffett called him the best business person he's ever seen.
It's getting harder to defend Mr. Bezos though. I am a full-on capitalist but not sure that anyone in a healthy society should be rich enough to fund their own space program, for one. He built a massive yacht, which is fair enough, but he also commissioned a US$100-million support yacht called the Abeona for it. That seems a bit obnoxious to me.
More recently, Gizmodo reported on an island off Florida nicknamed Billionaire Bunker on which Mr. Bezos owns a house. The island is connected to the mainland by a bridge guarded by dudes with guns to keep the riffraff out but it doesn't have its own water treatment facilities. It turns out that Billionaire Bunker residents are mad because the mainland won't take its sewage without a big fee.
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The domestic calendar of economic data releases and major earnings reports remains light for the coming week. It starts with retail sales results for April, which are out Friday. Economists forecast a 0.4 per cent headline gain month over month but a 0.2 per cent drop for the ex-autos reading.
CPI numbers for May will be issued next Tuesday but economist guesses at the result are not available. For earnings, Alimentation Couche-Tard reports next Wednesday and analysts predict US$4.88 per share in profits.
U.S. data starts with industrial production results for May. An exactly flat month-over-month reading is expected. The Federal Reserve announced no change in interest rates on Wednesday, as widely expected.
Carnival Corp. (US$0.239 per share expected) and FedEx (US$5.887) release earnings on Tuesday.
See the full earnings and economic calendar here