The Street for Friday, May 22, 2026

Key Concepts

• Earnings-Driven Bull Market: The current market rally is supported by strong corporate earnings growth, particularly among the "Magnificent Seven," rather than just speculative momentum.
• K-Shaped Economy: A divergence where high-net-worth individuals (the "1%") continue to spend on premium services, while the broader population faces economic pressure.
• TINA (There Is No Alternative): The concept that despite high interest rates, equities remain the preferred investment vehicle compared to fixed income.
• Compounders: High-quality, predictable businesses that generate consistent free cash flow and shareholder returns over the long term.
• AI Infrastructure: The distinction between "hyperscalers" (cloud providers) and "derivative" companies (hardware/infrastructure providers) that may face cyclical risks.

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1. Market Outlook and Macro Environment

Barry Schwartz, President and CIO at Baskin Wealth Management, argues that while the macro environment is challenging—characterized by high interest rates (10-year U.S. Treasury at 4.5–4.6%), stubborn inflation, and geopolitical tensions (Straits of Hormuz)—the market is currently driven by the strongest earnings growth since 2021.

• Key Argument: Investors should focus on interest rates, inflation, and earnings growth. Despite "noise" regarding geopolitical risks, earnings remain the primary driver of long-term value.
• Valuation Concerns: Schwartz warns that some AI-adjacent companies (e.g., industrial/cyclical firms) are trading at high multiples (35x earnings) that may be unsustainable if demand slows. He prefers "hyperscalers" whose free cash flow is expected to explode once their heavy AI capital expenditure (CapEx) phase concludes.

2. Canadian Banking Sector

Canadian banks are trading near record-high valuations, which Schwartz attributes to their transformation into fee-based, wealth-management-heavy businesses.

• Key Drivers: Wealth management provides recurring revenue that is less sensitive to market volatility than traditional lending.
• Strategic View: Schwartz holds National Bank and Royal Bank as the best-run institutions but advises caution for new investors due to high price-to-book ratios and dividend yields hovering around 3%. He notes that international expansion has largely been replaced by a disciplined focus on domestic fee revenue and share buybacks.

3. Stock Analysis and "On the Radar" Picks

Schwartz highlights specific companies that fit his "compounder" investment philosophy:

• TMX Group: Viewed as "AI-proof" because it provides the essential "stamp of approval" and regulatory trust in an era of AI-generated misinformation. It is a consistent double-digit grower with a high percentage of recurring fee-based revenue.
• CCL Industries: A global leader in labels and adhesives. The company is a serial acquirer that benefits from the necessity of labeling in consumer goods. Schwartz notes that as private equity competition cools, CCL is well-positioned for aggressive, value-accretive acquisitions.
• NVIDIA: While acknowledging the stock is "gobs-smacking," Schwartz notes that NVIDIA is diversifying beyond hardware into recurring revenue models. He suggests it is difficult to ignore despite its high valuation.
• TFI International: A strong operator in the trucking sector. Its recent success is tied to a robust U.S. economy and a structural shortage of drivers.

4. Economic Data: Retail Sales

Charles St-Arnaud, Chief Economist at Service, provided analysis on March retail sales:

• Data: Retail sales rose 0.9% nominally, but this was driven almost entirely by higher gasoline prices.
• Volume: In real volume terms, retail sales actually decreased by 0.7%.
• Outlook: High energy costs act as a "tax" on consumers, squeezing purchasing power. St-Arnaud warns that if energy prices remain high due to the closure of the Straits of Hormuz, it will become a significant headwind for the Bank of Canada, potentially shifting the narrative from rate cuts to rate hikes.

5. The SpaceX IPO Perspective

Schwartz expresses skepticism regarding the current "nonsense" valuation environment where companies like SpaceX are expected to command massive CapEx.

• Key Risk: SpaceX is currently burning cash ($5 billion loss in the most recent year) and carries high debt.
• Governance: Elon Musk’s 85% voting control presents a unique risk profile.
• Conclusion: While he acknowledges the "Musk factor" and the success of Starlink, he refuses to take speculative "flyers" with client money, preferring companies with proven earnings.

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Synthesis/Conclusion

The overarching theme of the discussion is a call for sensible caution. While the market is currently enjoying a bull run fueled by AI and strong earnings, investors are warned against getting caught in bubbles. The "K-shaped" economy suggests that premium brands (like American Express) and high-quality compounders (like TMX and CCL) are safer bets than speculative, high-multiple cyclical stocks. Investors are encouraged to prioritize companies with predictable, recurring revenue streams and to remain wary of the inflationary pressures caused by energy supply chain disruptions.