Link: Earnings are the main driver of the equity markets right now

Key Concepts

• US-Canada Trade Negotiations: President's threat to terminate negotiations with Canada.
• Market Volatility: Potential for market sell-offs due to trade tensions.
• Earnings Season: Primary driver of equity market performance.
• Verd (VERDF): Company with strong earnings but a stock price decline post-earnings.
• IBM: Another company that experienced a stock price drop despite good earnings.
• Data Center Buildout: Key growth theme for companies like Verd.
• Consumer Price Index (CPI): Upcoming economic data release.
• Interest Rate Cuts: Market expectation of Federal Reserve rate cuts.

US-Canada Trade Negotiations and Market Impact

The transcript begins by addressing President Trump's threat to terminate negotiations with Canada, communicated via social media. While acknowledging this is not a positive development, the speaker suggests that given the ongoing nature of these negotiations, the situation is likely to calm down eventually. The speaker views Canada as a top trade partner for the US.

Focus on Earnings as a Market Driver

The primary driver of equity markets, according to the speaker, is earnings. Earnings have been strong, with a reported increase of 13% and revenues up 8%, exceeding expectations. Margin expansion is also noted. The speaker advocates for using any market volatility as an opportunity to buy into favored positions, especially given the positive earnings backdrop.

Reactions to Strong Earnings Reports: The Case of Verd and IBM

A key point of discussion is the market's reaction to strong earnings reports, where some companies have been "punished" despite positive results. Verd (VERDF) is highlighted as an example, a company the speaker owns and considers their "pick of the day." Verd reported strong earnings, but its stock declined after comments about weakness in Europe and other factors. A similar reaction was observed with IBM.

The speaker explains their strategy of adding to positions in both Verd and IBM following these reactions. They characterize the market's behavior during earnings season as "sell first and then ask questions later." The speaker emphasizes that they have "done the homework" and believe the fundamentals for both companies are improving.

Verd's Fundamentals and Growth Prospects

Verd is presented as a "great story" for the remainder of the current year and into 2026, primarily due to its position in the "data center buildout" theme. Specific positive fundamental indicators for Verd are detailed:

• Total revenues up 28%.
• Operating margins beat expectations by 200 basis points.
• Orders up 60%.
• Sequential order growth of 20%.
• Book-to-bill ratio of 1.4 times.
• Backlog up 30% year-over-year.

The speaker views a stock price decline in the face of such strong fundamentals as a "recipe for me to be buying."

CPI and Market Implications

The discussion shifts to the upcoming Consumer Price Index (CPI) data release. The speaker believes that interest rate cuts are "baked in" by the market, with a potential cut in December also being considered. Therefore, any volatility associated with the CPI release is seen as an opportunity to buy. The speaker does not anticipate the CPI number to be significantly high.