The Open for Friday, Feb. 27, 2026

Key Concepts

• Canadian Economic Performance: Canada experienced a GDP contraction in Q4 2025 but has demonstrated resilience since the pandemic, outpacing most G7 nations in overall growth. However, per capita GDP growth lags due to immigration.
• Market Divergence: While the S&P 500 nears record highs, gains are concentrated in a few mega-cap stocks, masking underlying strength in other sectors as indicated by the performance of an Equal Weight S&P 500 index.
• Software Sector Correction: The software sector is undergoing a valuation correction as earnings growth hasn’t kept pace with stock price increases, exemplified by NVIDIA’s situation.
• AI Impact & Valuation: The market is currently pricing in known earnings for AI-driven companies like NVIDIA, limiting further gains until substantial new growth emerges.
• Trade Policy Uncertainty: A recent Supreme Court ruling regarding tariffs under IEEPA has created uncertainty in US trade policy, potentially impacting businesses.

Economic Overview & Canadian Market (Part 1)

Canada’s GDP contracted by 0.6% in Q4 2025, resulting in annual growth of 1.7%, the slowest since 2020. A preliminary estimate suggests GDP remained unchanged in January. This decline was primarily driven by a decrease in business inventories, partially offset by increased household spending, exports, and government spending. Despite this contraction, Canada has outperformed all other G7 nations except the US in terms of overall GDP growth since the beginning of the pandemic, with a 10.9% increase in real GDP compared to Q4 2019. However, per capita GDP growth is less impressive, partially attributed to a surge in immigration.

A trade deal was reached between Canada and China, halting tariffs on Canadian canola, peas, lobster, and crab in exchange for Canada reducing levies on Chinese electric vehicles, following Prime Minister Carney’s visit to China. Endeavour Silver reported a Q4 loss of over $23 million despite record revenue of over $465 million for 2025, attributing 2025 as a transformative period due to the commissioning of Terranora and the acquisition of copper mines.

Global Market Performance & Initial Conditions (Part 1)

US futures were down due to higher-than-expected producer price inflation. The TSX ended at a record high yesterday. Oil prices initially weakened due to fears of a potential US attack on Iran but rebounded, reaching a multi-month high near $68/barrel. Gold prices rose as a safe-haven asset amid geopolitical uncertainty. The Canadian dollar held steady above $0.73 USD. Bitcoin was down slightly, trading just above $66,000 USD. Global markets have significantly outperformed the US market in the past year, with a 44% increase compared to the US’s 18%. Karl Shimada, Chief Market Strategist at Kaup, noted the Canadian economy’s resilience and the positive implications of the inventory drawdown.

US Market Analysis & Sector Rotation (Part 2)

The S&P 500 is near record highs, but gains are concentrated in a few mega-cap stocks (the “Mag Seven” plus Taiwan Semiconductor and Broadcom). An Equal Weight S&P 500 index, which distributes weight equally across sectors, hit a new all-time high, indicating strength in sectors like energy, financials, and industrials. This suggests the market’s breadth is narrowing. The software sector is experiencing a correction, diverging from the broader market trend, as earnings growth hasn’t kept pace with stock price increases.

Valuation & AI’s Influence (Part 2)

The segment emphasized that stock gains are greatest when market participants are estimating future earnings, not when earnings are already well understood. NVIDIA was used as a case study, with its P/E ratio decreasing from near 70 to the 40s as its earnings growth became more predictable. Mark Sebastian highlighted that NVIDIA’s price has remained relatively stable over the past six months despite significant earnings growth. The impact of AI was acknowledged as complex, with potential opportunities in specific companies.

Investment Opportunities & Stock Picks (Part 2)

Mark Sebastian highlighted Microsoft (below $400), Reddit (volatile but with high potential based on Meta’s success with Facebook/Instagram), and IBM as potential investment opportunities. He framed his investment in Reddit as a long-term play with a willingness to accept high volatility. Seth Goldstein recommended Corteva, Mosaic, and Eastman Chemical, citing Eastman’s good balance sheet, free cash flow, and dividend yield of approximately 4.5%. GameStop was mentioned as an example of the power of the Reddit community to influence market movements.

Trade Policy & USMCA (Part 2)

Discussion centered on the US-Mexico-Canada Agreement (USMCA) and a recent Supreme Court ruling against some of President Trump’s tariffs. The ruling has created uncertainty in trade policy. The USMCA agreement has strengthened regional trade, growing to $1.9 trillion since its inception, a $400 billion increase in four years. Approximately $170 billion in tariffs were collected unconstitutionally.

Conclusion

The market presents a complex picture. While headline indices like the S&P 500 are near record highs, this is largely driven by a small number of mega-cap stocks. Underlying strength exists in other sectors, as evidenced by the performance of the Equal Weight S&P 500. The software sector is undergoing a correction, and valuations are becoming increasingly important. Trade policy uncertainty adds another layer of complexity. Successful investment strategies require a nuanced understanding of these dynamics and a focus on identifying companies with strong fundamentals and future growth potential, while acknowledging the evolving impact of factors like AI and geopolitical events.