'We do believe that both companies ultimately are going to combine': Belski on SpaceX and Tesla

Key Concepts

• Earnings-Driven Markets: Markets where stock performance is primarily dictated by corporate earnings growth rather than macro-liquidity.
• Secular vs. Cyclical Growth: The distinction between companies with long-term structural growth (secular) versus those tied to economic cycles (cyclical).
• Inflation Dynamics: The transition from commodity-driven inflation to the unwinding of excess money supply from 2020–2021.
• Market Broadening: The expectation that earnings growth will shift from tech-heavy sectors to financials, healthcare, and industrials.

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1. Economic Outlook and Inflation

Brian Belski, CEO of Humalist Investment Strategies, argues that investors are being overly simplistic regarding inflation. He posits that the current inflationary environment is a lingering effect of the massive money supply expansion in 2020 and 2021, rather than just commodity-driven pressures.

• Oil Prices: Belski predicts oil prices could drop another $10–$15 due to increased market supply and the unwinding of speculative positions.
• Federal Reserve: He suggests that as these inflationary pressures subside, the market's anxiety regarding Federal Reserve policy will diminish.

2. Semiconductor and Tech Sector Analysis

Belski emphasizes a fundamental approach over headline-chasing, particularly in the semiconductor space.

• Intel: While Intel gained attention due to news regarding chip design deals with Apple, Belski remains skeptical. He notes that Intel’s product competitiveness lags behind peers and warns against "momentum" trading based on political headlines.
• Secular Winners: He prefers companies with established secular growth in AI, specifically naming Nvidia, AMD, and Broadcom, over cyclical players like Micron.
• Accenture: Belski expresses caution regarding IT consulting firms like Accenture, citing inherent risks and a lack of earnings power as AI shifts the demand landscape for traditional consulting services.

3. Earnings Per Share (EPS) Growth

While S&P 500 EPS growth reached 27% in Q1, Belski acknowledges a high probability that growth has peaked for the year.

• The "Second Derivative" Fear: He notes that investors are currently worried about the "second derivative" (the rate of change slowing down). However, he argues that even if growth slows to 10–15%, the market remains fundamentally healthy.
• Strategy: He advocates for a "broadening out" of portfolios, moving away from pure tech-momentum plays toward sectors like financials, healthcare, and industrials.

4. Investment Strategy and IPOs

• IPO Policy: Belski maintains a strict rule of avoiding IPOs until they have at least two quarters of public financial data.
• SpaceX/Tesla: Regarding SpaceX, Belski suggests that the most effective way for investors to gain exposure is through Tesla, predicting a future consolidation of the two companies that could create one of the world's largest entities.

5. Defensive Picks: The Waste Sector

Belski highlights the "garbage sector" as a defensive, high-quality investment opportunity, specifically recommending Waste Connections (WCN).

• Rationale: He describes it as a "Steady Eddie" stock that provides consistent earnings and dividends regardless of economic cycles.
• Market Insight: He notes that 80% of Waste Connections' revenue is generated in the U.S., and he encourages Canadian investors to look beyond traditional domestic staples like banks, gold, and oil to diversify into this sector.

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Synthesis and Conclusion

The core takeaway from Belski’s analysis is a shift in focus from high-volatility, headline-driven tech stocks to companies with sustainable, secular earnings growth. While he acknowledges that the peak of EPS growth may have passed, he remains bullish on the market's ability to perform in a double-digit growth environment. His strategy emphasizes fundamental valuation, a move toward defensive sectors like waste management, and a disciplined avoidance of speculative momentum plays.