Market Call: Brendan Caldwell's market outlook on North American large caps

Key Concepts

• Market Resilience: Despite global crises (wars, pandemics, political upheaval), markets have demonstrated surprising strength.
• Interest Rate Impact: Interest rates are identified as a more significant long-term market driver than political events.
• Sector Rotation: A shift from concentrated sector performance (Financials, Materials, Communications Technology) towards broader market participation is anticipated.
• Commodity Strength: Expectation of continued strength in commodity prices, particularly energy and gold.
• AI & Technology: Discussion of AI’s impact on various sectors, including defense, e-commerce, and technology patents.
• Value Investing: Emphasis on identifying undervalued companies and long-term investment strategies.
• Canadian Market Dynamics: Specific insights into the Canadian market, including population trends and banking sector dominance.

Market Outlook & Key Themes (2026)

Brendan Caldwell anticipates continued market growth in 2026, contingent on further interest rate reductions. He emphasizes that despite a turbulent past quarter-century marked by significant global events (wars, pandemics, political shifts like the Trump presidencies), markets have consistently shown resilience. He argues that long-term market performance is more heavily influenced by interest rates than by political factors.

A key observation is the narrow sector performance in 2025, with only three sectors (Communications Technology, Financials, and Materials/Gold Producers in Canada) significantly outperforming. Caldwell expects a broadening of this performance in 2026, driven by lower interest rates. He notes a peculiar dynamic where rate cuts are aimed at boosting markets rather than solely stimulating the economy, citing potential future policy under a potentially more “dovish” US Federal Reserve chair. He points out that low interest rates haven’t historically translated into CPI increases until recently.

Sector Specific Analysis

• Financials: The Canadian banking sector is described as dominant, with Royal Bank identified as the leading performer (“the 800-gorilla”). While other banks like BMO have had periods of outperformance, Royal Bank’s influence, particularly through the Canadian Bankers Association, is considered significant.
• Materials/Gold: The materials sector, particularly gold producers, is expected to continue performing well, benefiting from a strong economy and lower interest rates.
• Technology: Caldwell highlights the importance of companies involved in the infrastructure supporting AI, specifically mentioning Comfort Systems (cooling systems for data centers). He acknowledges the potential for overextension in the private equity sector.
• Energy: He remains cautiously optimistic about the energy sector, noting the shift from coal to natural gas and the ongoing demand for energy despite the transition to renewables. He favors companies like Cenovus, Tourmaline, Athabasca Oil, Spartan Delta, and Enerflex.
• Defense: Caldwell sees potential in defense companies like CAC International, driven by increasing global instability and the need for advanced technologies like anti-drone systems and cybersecurity.
• E-commerce: He identifies eBay as a potential comeback story, particularly due to its niche in automotive parts and its potential to leverage AI for targeted marketing.

Individual Stock Picks & Rationale

• CAC International: Beneficiary of increased defense spending and a leader in drone technology and cybersecurity.
• InterDigital: Holds a vast portfolio of patents related to 3G, 4G, 5G, and future communication technologies, generating revenue through licensing agreements. Potential upside from litigation with Disney regarding streaming technology patents.
• eBay: Undervalued e-commerce platform with a strong position in specific categories (automotive, refurbished goods) and potential to leverage AI.
• Meta Platforms: Despite past volatility, Meta’s massive user base (3 billion monthly active users) and potential in AI make it a worthwhile investment.
• Comfort Systems: Beneficiary of the growing demand for cooling systems to support data centers powering AI.
• McKesson: A key player in the US healthcare sector, benefiting from the growth of specialized drugs and a strong position in drug distribution.
• Manulife: A non-bank financial services company that benefits from lower interest rates and a growing stock market.
• Royal Bank: Consistently outperforms other Canadian banks due to its size and influence.
• Agnico Eagle: A Canadian gold producer that is expected to benefit from the continued strength of gold prices.

Notable Quotes

• “It’s madness, Lindsey. It’s not just the last day of the year and the last day of the half decade, but it’s the last day of the first quarter century of this, of this century of the 21st.” – Caldwell on the unusual market strength despite global turmoil.
• “Politics are interesting to talk about, but long term they don't have the impact on markets that interest rates do.” – Caldwell emphasizing the primacy of monetary policy.
• “The Canadian Bankers Association is the single most effective lobby in in Canada.” – Caldwell highlighting the influence of the banking sector.
• “90% of success is just showing up.” – Caldwell, referencing a Woody Allen quote, in relation to holding onto a stock even if it hasn’t performed optimally.

Technical Terms & Concepts

• Roll-up Strategy: A business strategy involving acquiring and consolidating smaller companies in a fragmented industry.
• Accretive: An acquisition or investment that increases earnings per share.
• Dovish: A monetary policy stance favoring lower interest rates and increased money supply.
• CPI (Consumer Price Index): A measure of the average change over time in the prices paid by urban consumers for a basket of consumer goods and services.
• Settlement Date vs. Trade Date: Differences in how transactions are recorded for tax purposes in Canada (settlement date) and the US (trade date).

Logical Connections & Flow

The conversation flows from a broad overview of market performance and key themes (resilience, interest rates) to a more granular analysis of specific sectors and individual stocks. The discussion seamlessly transitions between macro-economic factors and micro-level investment opportunities. The phone-in segment allows for addressing specific investor concerns and providing tailored advice. The final segment, reviewing past picks, provides a retrospective assessment of Caldwell’s investment strategy.

Data & Statistics

• Market Performance: The Canadian market nearly doubled the performance of the US market in the past year.
• Sector Performance: In both Canada and the US, only three sectors (Communications Technology, Financials, and Materials) outperformed the overall market.
• Meta User Base: Meta has 3 billion monthly active users.
• McKesson: The automotive parts resale market is a $10 billion industry.
• InterDigital: Holds approximately 30,000 patents.

Conclusion

Brendan Caldwell presents a cautiously optimistic outlook for 2026, emphasizing the importance of monitoring interest rate trends and identifying undervalued companies with strong fundamentals. He advocates for a diversified portfolio with exposure to sectors poised for growth, including technology, energy, defense, and healthcare. His analysis highlights the enduring resilience of markets and the potential for long-term gains despite ongoing global uncertainties. He stresses the importance of understanding the underlying drivers of market performance and focusing on companies with sustainable competitive advantages.