'We'll have to wait to see what quickly transpires': Stovall on U.S. response to Canada-China deal

Key Concepts

• US-Canada-China Trade Relations: Shifting dynamics and potential implications of trade agreements, particularly regarding Electric Vehicles (EVs) and agricultural exports.
• Intel & Semiconductor Industry: Intel’s position in the market, competition with Taiwan Semiconductor Manufacturing Company (TSMC), and advancements in Artificial Intelligence (AI) processors.
• Market Trends & Historical Data: January market performance as an indicator for the year, performance during midterm election years, and the role of gold as a safe-haven asset.
• Geopolitical & Economic Concerns: Impact of geopolitical tensions, currency debasement, and central bank policies on investment strategies.

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Trade Dynamics: Canada, US, and China

The discussion centers on a preliminary trade agreement between Canada and the US, specifically concerning tariffs on Electric Vehicles (EVs) and Canadian agricultural exports to China. Canada has agreed to a tariff of just over 6% on EVs, a move that deviates from the US stance. A key concern raised is whether Canada will attract EV assembly rather than full-scale manufacturing plants, a point of contention highlighted by President Trump’s emphasis on US job creation ("…so long as they're willing to build plants, hire American workers. Then he said, he's open to it.").

The analyst, Sam Stovall, notes the potential for frustration within the White House if Canada doesn’t present a unified front to China on this issue. He points out that Canada is turning to China as a trade partner after experiencing difficulties with the Trump administration, who previously stated, “We don’t need cars made in Canada.” This shift is framed as a natural consequence of a strained relationship with its primary trade partner. Stovall also mentions the US attempt to create a buffer against China and Russia by acquiring Greenland, ironically suggesting China could be geographically closer ("…we could find out is that the Chinese are right at the, you know, the 49th parallel.").

Intel and the Semiconductor Landscape

The conversation shifts to Intel’s current position in the semiconductor industry. Stovall ranks Intel as a “Hold,” noting it’s no longer the market leader it once was. The expansion of Taiwan Semiconductor Manufacturing Company (TSMC) into the US, establishing its own foundry business, is identified as a negative for Intel, as it introduces direct competition for companies seeking to purchase chips.

Intel is making minor inroads into AI, with its Core Ultra series three processors representing its first AI PC platform built in the US. However, its AI capabilities are currently limited.

Market Performance and Historical Trends

The discussion highlights the historically positive correlation between January market performance and full-year gains. Since World War II, a positive January has resulted in an average S&P gain of over 16% and a positive year 86% of the time. A specific rule is cited: “If the first quarter low did not undercut the prior December low, then the S&P was higher for the full year 100% of the time.”

However, midterm election years are cautioned as being particularly volatile. Stovall describes them as “the worst performing year in terms of average annual performance, up only 3.8% since World War Two, rising just 55% of the time,” with the highest average annual drawdown at 18%.

Gold as a Safe Haven & Economic Concerns

The recent surge in gold prices is interpreted as a sign of investor concern regarding potential debasement of the US currency and broader geopolitical tensions. Stovall explains that central bankers are considering gold as a safer alternative to US Treasuries, particularly given the declining value of the dollar. Gold’s pricing in dollars also makes it more affordable for overseas investors, reinforcing its role as a store of value during times of uncertainty.

Logical Connections & Synthesis

The conversation flows logically from trade relations to specific company analysis (Intel) and then to broader market trends. The discussion consistently links geopolitical events and economic policies to investment strategies. The analysis of gold prices serves as a concluding point, highlighting the underlying anxieties driving market behavior.

The central takeaway is that the global economic landscape is increasingly complex and uncertain. Shifting trade dynamics, technological competition, and geopolitical tensions are creating a volatile environment for investors. Historical market data provides some guidance, but caution is warranted, particularly during midterm election years.