Morning Markets for Monday, Nov. 24, 2025

Key Concepts

Investment Strategy & Market Risk: Narrowing market leadership, rotation into less followed sectors, focus on inflation-resistant assets, value vs. growth investing.
Federal Reserve Policy: Potential for further interest rate cuts, impact of inflation on monetary policy, market reaction to Fed signals.
Artificial Intelligence (AI): AI bubble concerns, AI monetization, capital expenditure in AI, winners and losers in the AI space.
Global Markets: Canadian market focus, international investment opportunities (Europe, Japan, Latin America, UK, South Africa), US market performance.
Commodities & Mining: Copper supply and demand, mining company mergers and acquisitions (BHP, Anglo American, Teck Resources), gold mining, energy sector performance.
Corporate News: Scotiabank's divestment, Novo Nordisk's drug trial results, Barrick Gold's dispute resolution, Canadian Natural Resources downgrade, Oklo's microreactor development.
Geopolitics & Trade: Canada-India trade relations, G20 summit, US tariffs, Russia-Ukraine conflict, defense spending.
Economic Data: Consumer sentiment, inflation components, factory sales, manufacturing shipments.

Investment Strategy and Market Outlook

Narrowing Market Leadership and Rotation

David Burrows of Barometer Capital Management observes a narrowing market leadership, indicating that fewer stocks are driving overall market gains. This suggests a potential increase in market risk, as a healthy market typically sees broader participation in rallies. Burrows notes a rotation out of crowded sectors into less followed areas, with a particular focus on Canada and international markets. His firm is also concentrating on assets that perform better in an inflationary environment.

Inflation as a Key Risk

A central theme discussed is the risk of inflation resurgence. Burrows highlights that historically, inflation can moderate and then surge again. This perspective influences investment strategy, favoring sectors that tend to perform better in inflationary periods, such as financials, energy, materials, and industrials. Conversely, defensive sectors that act like bonds have been underperforming. The strength of gold is cited as evidence of investors seeking certainty in an uncertain market.

Impact of Interest Rates on Growth Stocks

The relationship between long-term interest rates and growth stock valuations is a critical point. When the Federal Reserve cuts rates, long-term rates have paradoxically risen in the past, as bond investors discount the risk of persistent inflation. This makes it challenging for higher multiple growth stocks, as future cash flows are discounted at a higher rate. Consequently, value has been outperforming growth over the last five months, with value sectors often being less owned and more inflation-leaning. Burrows believes inflation poses a greater risk to investors than deflation.

Portfolio Strategy: Cash, Cash Flow, and Dividends

Barometer Capital Management maintains a slightly higher cash position due to market breadth concerns. They have reduced their tech exposure, focusing instead on companies that:

Generate significant cash flow and return it to shareholders via dividends and buybacks, making them less sensitive to financing costs.
Exhibit dividend growth, which helps offset the rising cost of living for investors.
Possess very long backlogs, ensuring predictable future business even in an economic slowdown.

US Market Outlook and AI Concerns

Brad Bernstein of UBS Private Wealth Management maintains a bullish outlook for the US market, projecting the S&P 500 to reach 7300 by June and 7700 by year-end. This optimism is driven by:

Further Fed rate cuts: Two cuts are anticipated by the end of the first quarter.
Continued strong earnings: Earnings growth is expected across the board, not just in big tech.
The AI growth story: While concerns about an "AI bubble" exist, Bernstein emphasizes the increasing capital expenditure and, more importantly, the clear evidence of AI monetization through enterprise software, consumer applications, and cloud platforms. He stresses the critical next phase of AI growth is the cash flow positive story.

Global Investment Opportunities

Bernstein also highlights opportunities outside the US:

Europe: Upgraded to attractive, with Germany's significant spending on infrastructure and defense (20% of GDP) being a key catalyst.
Japan: Liked for its market dynamics and the impact of its monetary policy on global markets.
US Domestic: Financials, healthcare, and utilities are also favored.

Sector-Specific Insights

Barrick Mining: Received an upgrade from Bank of America, with analysts seeing it as more fairly valued after recent declines. The resolution of disputes in Mali and the potential for growth from the Four Mile project are positive factors.
Canadian Natural Resources: Downgraded by Desjardins due to concerns about leverage from acquiring Athabasca oil projects and expected softer oil prices.
Oklo: Designing and developing advanced nuclear microreactors, Oklo has had a strong year. Citi raised its price target, citing diversification into radioisotopes as a new financial opportunity with expected 20% unlevered returns and an operation start by mid-2026. This is seen as a faster revenue stream compared to small modular reactors.
US Healthcare: After underperforming for three consecutive years, the sector is showing signs of life, with strong performance in the last two months. Eli Lilly's $1 trillion valuation, driven by obesity and diabetes drugs, is a notable example. The sector is seen as having room for further appreciation, with attractive yields and reasonable valuations in some companies like Bristol-Myers.

Economic Data and Consumer Sentiment

Kyle Taylor of Tri-Delta Private Wealth points to a divergence between investor sentiment and consumer sentiment, with US consumer sentiment being worse than during the 2008-2009 financial crisis. He notes that while higher income cohorts continue spending, lower income segments are influenced by retailers like Walmart and Dollarama. Upcoming economic data on consumer behavior is crucial for market direction.

Active Investing and International Diversification

Taylor advocates for active investing over simply buying the index, arguing that passive investing can jeopardize portfolios in volatile markets. He also emphasizes the need for international diversification beyond North America, as many global equity funds have a significant US weighting. Europe, with its increasing fiscal spending (e.g., Germany's infrastructure plans), presents opportunities. He specifically recommends NL, an Italian utility, for its attractive valuation (13x earnings compared to low 20s in North America) and a yield of over 5%, driven by electrification needs for data centers and AI.

Morningstar's 2026 Outlook

Morningstar's Philip Strahl discusses themes for 2026:

Tariff Uncertainty: A potential Supreme Court decision on tariffs could create volatility, though a significant downside risk is not expected.
Geopolitics: A Russia-Ukraine peace deal would impact energy prices and potentially put downward pressure on defense stocks.
AI Valuations: Elevated expectations for AI stocks may lead to further pullbacks. Investors are advised to diversify away from large-cap AI names and consider higher-quality healthcare and consumer businesses.
International Markets: Non-US stocks are favored due to valuations. Latin America (e.g., Brazil at 11x earnings) and the UK (access to high-quality global businesses at attractive valuations) are highlighted. South Africa is considered a "hidden gem" within emerging markets, particularly from a commodity cycle standpoint.

Government and Corporate Actions

Industry Minister Mélanie Joly's South Korea and Japan Visit

Industry Minister Mélanie Joly is traveling to South Korea to meet with major Asian companies to attract investments into Canada's defense sectors. She will also engage with a Korean business conglomerate and proceed to Tokyo for discussions on the automotive industry, battery manufacturing, shipbuilding, and mining. These meetings include talks with bidders for Canada's major procurement projects.

Scotiabank's Divestment in Latin America

Scotiabank has received regulatory approval to transfer its banking operations in Colombia, Costa Rica, and Panama to Colombian bank Davivienda. The combined operations will form a new holding company, and Scotiabank will retain a 20% ownership stake in these businesses.

Novo Nordisk's Alzheimer's Trial Failure

Shares of Novo Nordisk are declining after the pill version of its weight-loss drug, Ozempic, failed to slow Alzheimer's disease in patients in two large studies. The company acknowledged that using the drug for Alzheimer's was a "long shot." This comes as Novo Nordisk faces increased competition in the obesity market from Eli Lilly.

BHP Group's Takeover Attempts of Anglo American

BHP Group has made a second unsuccessful takeover attempt of Anglo American. The initial attempt in early 2020 was rejected, and BHP stated it had moved on. The recent offer, a mix of cash and stock, was also denied by Anglo American after preliminary discussions. BHP is focusing on its own copper production. This situation is occurring amidst a backdrop of intense pressure in the copper industry due to supply shortages and rising future demand, particularly from AI data centers and electric vehicles. BHP's focus was on Anglo's copper division, specifically three major mines in Chile and Peru. A successful takeover would have created a dominant copper producer, raising concerns for countries like China and Europe regarding regulatory issues.

Teck Resources and Anglo American Merger

Canadian company Teck Resources and Anglo American are proceeding with a $60 billion merger, with shareholders expected to vote on December 9th. While most shareholders are anticipated to vote in favor, the federal government's approval is required. Industry Minister Mélanie Joly has expressed dissatisfaction with some of Anglo American's pledges, suggesting they are insufficient. The merger is projected to save $1.4 billion USD annually, with the two largest mines located in Chile, approximately 15 km apart, making consolidation strategically advantageous.

Barrick Gold's Resolution in Mali

Barrick Gold has announced a resolution to its disputes with the government of Mali concerning two gold mines. Charges by the government have been dropped, and steps are being taken to release four detained Barrick employees. Operational control of the mines will be returned to Barrick.

Canadian Factory Sales Decline

Canadian factory sales fell by over 1% in October, partially reversing a 3% rise in September. The largest decreases were in the chemical and forest product sectors. Manufacturing shipments also declined by 1%, attributed to uncertainty from the trade war with the US. These are early estimates from StatCan.

Canada-India Trade Relations Renewal

Prime Minister Justin Trudeau and Indian Prime Minister Narendra Modi have agreed to renew trade negotiations between Canada and India. This follows a breakdown in talks in 2023 due to allegations of Indian government involvement in the assassination of a Canadian civic leader. India is the world's fourth-largest economy, projected to be third by 2028, yet it is Canada's 10th largest trading partner with $5 billion in exports last year. Canada aims to double total trade with India to $70 billion by 2030. The agreement includes a trilateral initiative with India and Australia focused on tech and innovation. Trudeau is expected to visit India early next year, potentially for an AI summit. The government is also working on a foreign agent registry to address concerns about transnational repression and foreign interference.

Market Performance and Data

Market Rally Despite AI Bubble Concerns

Markets are rallying despite concerns about a potential AI bubble. The TSX is up over 1% (326 points), and the NASDAQ is up 2% (444 points), with Alphabet leading the gains. This rebound follows volatility seen in the previous week.

US Thanksgiving Week Trading

The current week is shortened due to American Thanksgiving on Thursday, with a shortened trading day on Friday.

Inflation Components

72% of components in the Consumer Price Index (CPI) were above the Federal Reserve's target of 2%.

Long-Term Bond Yields and Growth Stocks

Last year, when the Fed cut rates in September for the first time in 40 years, long-term rates went higher, not lower. This impacts higher multiple growth stocks by increasing the discount rate applied to future cash flows.

Oklo's Diversification and Revenue Streams

Oklo's diversification into radioisotopes is expected to provide new financial opportunities, with this segment projected to see about 20% unlevered returns and begin operations by mid-2026. This is significantly sooner than some small modular reactors.

European Infrastructure and Defense Spending

Germany plans to spend approximately 20% of its GDP on infrastructure and defense spending, a significant catalyst for the European market.

Barrick Mining Upgrade and Resolution

Barrick Mining received an upgrade to "buy" at Bank of America, with analysts citing fair valuation after recent declines and opportunities from the Nevada Gold Mine project. The company also announced a resolution in Mali, regaining operational control of its gold mines there.

Canadian Natural Resources Downgrade

Canadian Natural Resources was downgraded at Desjardins due to concerns about leverage from its acquisition of Athabasca oil projects and expected softer oil prices next year.

US Healthcare Sector Performance

The US healthcare sector has been one of the best-performing sectors in the last two months, up 14% last week and approximately 11% year-to-date.

Consumer Sentiment Data

The University of Michigan Consumer Sentiment Survey is reporting consumer sentiment worse than during the depths of 2008-2009.

Fed Rate Cut Probability

Traders are banking on a potential Fed rate cut in December, with probabilities now up to around 80%.

Global Equity Fund Holdings

Many global equity funds have a 50-60% weighting in US names, highlighting the need for more international exposure outside North America.

European Data Center Power Demand

The expected power needs of data centers planned in Europe over the next ten years are almost equivalent to current power demand in all of Europe.

UK Market Valuation

The UK market offers access to high-quality global businesses at attractive valuations.

South Africa as a "Hidden Gem"

South Africa is favored for its commodity cycle potential and attractive valuations within emerging markets.

Canada-India Trade Target

Canada aims to double total trade with India to $70 billion by 2030.

Conclusion and Key Takeaways

The market is currently navigating a complex landscape characterized by narrowing leadership, potential inflation resurgence, and the evolving AI narrative. Investors are advised to rotate into less crowded and inflation-resistant sectors, with a focus on companies generating strong cash flow and dividends. While AI remains a dominant theme, the emphasis is shifting towards monetization and cash flow generation rather than just capital expenditure. Global diversification is crucial, with opportunities identified in Europe, Japan, Latin America, the UK, and South Africa. Geopolitical events and central bank policies, particularly the Federal Reserve's interest rate decisions, will continue to be significant drivers of market sentiment. The mining sector is experiencing consolidation and strategic maneuvers, while specific companies like Barrick Gold are resolving disputes and Oklo is advancing its microreactor technology. Ultimately, an active investment approach and a focus on quality and value are recommended to navigate the current market environment.