FidelityConnects: Third-quarter capital markets playbook

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Hello, happy Monday, and welcome to Fidelity Connects.

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I'm Pamela Ritchie.

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Three and a half weeks from now, September 17th, is a very

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live Fed decision day.

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At the Jackson Hole Symposium last week U.S.

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Federal Reserve Chair Jay Powell opened the door wide to

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a rate cut at that meeting.

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However, a marked and somewhat expected shift in tone

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to the labour side of the Fed's dual mandate was present.

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The word curious was used to describe labour market

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traits at this time.

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Discussion of a cut in September lit equity markets on

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fire through Friday's trade, a bit flatter here today, but

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what, ultimately, do moves in the long bond space tell us,

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some of the other asset classes?

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Our next guest says with all of the moving pieces in today's

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marketplace the best strategy might be to stick with what you

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have deployed and not make any sudden moves.

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Joining us today to help put the macro themes, including

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massive earnings releases later this week, into perspective

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for you and your clients is Fidelity Director of

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ETFs, Andrei Bruno.

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Welcome Andrei, great to see you.

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Always great to be here. Thank you for having me.

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Happy Monday to you. Well, that was quite ...

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there were some fireworks out of the discussion on Friday out

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of the Jackson Hole  meeting.

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Let's have you kind of give us your take initially

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on that. He did swing to the labour side.

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I was a little surprised by it, to be perfectly honest,

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because we roll back to the last FOMC meeting and he

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took a very hawkish tone during that meeting.

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Not long ago, July.

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Not long ago at all.

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There was reference to the labour market being decent.

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There was a little bit more focus on those particular notes

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from Jay Powell surrounding inflation still running a

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little hot and PCE still running around the 2.7

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range right now, which is their preferred measure for

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inflation. It's what the Fed looks at in terms of

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effectuating their monetary policy.

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There was, as you mentioned, a big shift over to the labour

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market. If we take a look at the labour market, nothing's

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screaming. If you take a look at the headline unemployment

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number it's still fairly reasonable, within very

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good numbers, good numbers, actually.

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If you take look at U-6 number,

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it's called the underemployment number so...

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It's a more equitable look at the...

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It includes a few more people, it includes discouraged

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workers, folks working part-time who wish they could be

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working full-time and stuff under the hood there.

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That's also a fairly reasonable number.

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We haven't seen large upticks in that either.

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If you take a look at the jobs numbers, the ADP numbers,

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or the non-farm payrolls which is a big number that the

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market looks at, we haven't been adding a tom of

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jobs to the labour market but we also haven't be seeing a lot

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 of people losing their jobs either so it's in this kind of...

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 The revisions didn't look so good and that was a real...

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 The revisions weren't great, agreed.

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 If you take a look at some JOLTS numbers, some job

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 opening numbers, as mentioned, those are not moving up so

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 we're not seeing new jobs.

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 It's in this interesting spot where the main numbers are

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 looking okay. Some stuff under the hood doesn't look super

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 rosy but doesn't look bad either.

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 Just as a reminder though, employment is a lagging indicator

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 so when we start seeing signs in the labour market

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 things have already gone bad.

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 What we also have to appreciate is, I think Chairman

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 Powell has some access to some data that perhaps the rest of

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 the market hasn't seen so...

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 Do you think he might be able to see something that we can't

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 see?

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 Not to put my tinfoil hat on but maybe he's seen some stuff

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 that we haven't seen under the hood.

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 It was interesting seeing that shift.

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 To be honest, I wouldn't have expected it.

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 It certainly does bring September well into

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 play. The market was already pricing in but we've seen

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 those expectations, the market pricing expectations of a cut

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 edge up to 85% probability now for September.

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 The other question at hand is, if we're going to get that

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 one cut are we going to get another cut this year?

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 The market is pricing it in so we'll see.

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 If you go back to this time last year, we didn't

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 know it at the time, but a 50 basis point cut was around the

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 corner, which was a big one.

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 How different is ...

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 I mean, there are different people in charge of the world

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 today also but how different is the

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 cutting, the environment to cut into at this stage?

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 Well, we hit some all-time highs not long ago,

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 maybe a couple of weeks ago or a week ago, on equity markets.

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 The labour market is okay.

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 Inflation is a little bit hotter.

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 I think there's going to be a lot of questions around

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 should we be cutting interest rates when the

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 core inflation metrics is 70 basis points above the target

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 rate. We have had some Fed speakers come out

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 in Jackson Hole who had more of a hawkish tilt saying

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 our inflation is still running hot, we don't necessarily

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 need to be cutting interest rates right now.

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 Obviously, they have to pass the vote.

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 Will there be enough

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 members voting what Chairman Powell ...

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 sounds like Chairman Powell might be voting in favour of an

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 interest rate cut in September. It'll be interesting to see

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 the rest of the committee. We do have some speakers this

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 week, two non-voting members and one voting member, so it'll

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 be really interesting to see what they have to say coming out

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 of Jackson Hole. Then we can have a better idea of where

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 we might land in September.

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 Obviously, we have to overlay the political pressure here.

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 Well, some commentators have said that

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 the shift in his tone was due to being a bit

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 sat upon and to find a reason to cut but, I

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 mean, that doesn't necessarily mean it's true, it's just

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 another argument.

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 It, obviously, brings in a question, the independence

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 of the Fed if they're kowtowing to political

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 pressure here.

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 It'll be interesting to

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 see if we do get the cut.

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 It sounds like the market's pricing in, sounds like Jay

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 Powell is signalling it.

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 I don't know if I would want to bet against it at this point.

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 That's interesting.

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 It will be interesting to see the wording around the

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 meeting and see what they have to say, whether it's a one and

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 done or whether it's opening up the door for another

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 cut in December. It will interesting to

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 read the details there.

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 You spent the same amount of your career up until now,

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 or before now, sitting at a bond desk, having lots

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 of conversations with bond traders.

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 You were a bond trader, what are the conversations at

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 bond desks right now like?

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 You still spend a fair amount of time chatting to people.

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 I think rates is a big story now because we have so many

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 bogies in terms of the rate market.

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 What's the Fed going to do?

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 Tariffs is, obviously, a massive overhang on the bond market

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 in terms of what's it going to do

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 to inflation, what it's going to do to growth.

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 If we think about the long end of the yield curve there's

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 probably three main themes that move the long end.

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 It's long-term inflation expectations, long-term growth

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 expectations and you see a lot of interest in

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 the long end when there's flight to safety, obviously, people

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 buy long bonds, sell risk assets and buy long bonds.

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 We've seen kind of the belly and the long end move quite a

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 bit this year up and down.

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 It moved up and then it's moved back down and now we're

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 seeing it move a little bit higher since Friday.

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 There's been a lot of rates volatility.

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 Even over the last five or so years

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 since COVID there's been tremendous amount of rates

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 volatility which prior to that,

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 post '08, rates volatility was probably

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 non-existent.

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 The market dynamics have shifted there with a lot of focus on

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 interest rate volatility. I'm sure all the rates traders on

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 all the desks are keeping busy in these times.

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 I'm sure they are.

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 Overlay the geopolitical discussion.

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 Actually, there's a fair amount of resiliency in the bond

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 market to geopolitical, or some pricing in

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 already. That said, would the

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 long bond story still come into play if

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 there were some serious geopolitical stories to react to?

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 I think, ultimately, we saw a lot of that around

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 kind of the Ukraine invasion when it happened.

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 We saw a a lot a movement.

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 At the end of the day, creates a lot uncertainty,

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 people don't know what to do, they start buying the long end.

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 I think in terms of those risks now I don't

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 think the bond market is kind of looking at any contagion at

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 this point, I think we're past that.

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 Obviously, the risk is always there

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 but right now that risk, I don't think is in the forefront

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 for rates traders right now.

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 That's really interesting, just sort of what is the

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 discussion. Let's get to just a couple

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 of different data points that are well telegraphed, everyone

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 knows they're coming out. PCE, you've got, actually, some

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 massive earnings coming in this week on the AI front, but

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 also CPI, another jobs report, all this happens before

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 September 17th.

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 Those are really interesting and, obviously, pivotal for

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 the Fed's decisions.

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 What else do you look at? I'm sort of interested in the data

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 story right now, it seems to be one that is changing,

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 actually, people are creating a bigger basket to

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 collect data.

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 I always like to keep a close eye on the consumer.

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 At the end of the day, Canada and the U.S., developed

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 economies so a large chunk of our GDP is

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 that consumption, that C number.

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 If you think back to our ECOM 101, consumption, investment,

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 government spending, and net exports, consumption is the

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 number one indicator to look at there.

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 For me, I like to look, what's the state of the consumer?

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 Number one, obviously, the labour market's important for the

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 state of the consumer.

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 The other things I like to look at are as kind of, not

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 canaries in coal mines but stuff that gives us some

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 indication towards the health of consumers.

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 What are delinquency rates on auto loans and credit cards?

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 In Canada or everywhere?

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 Canada and the U.S.

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 is primarily what I look at.

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 The reason I like to look at those metrics, if we think about

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 mortgages, mortgage is the last thing folks default on,

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 typically, historically.

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 People need a roof over their head.

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 Those credit cards and those auto loans, you start to see

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 those move first. If we look at the United States and we look

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 at Canada it's been a similar trend.

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 We've started to see those tick higher over the year.

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 Why do I care about that?

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 Ultimately, if folks aren't paying their loan, suggests

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 to me they have less for consumption as well.

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 The next thing I like to look at is retail sales which is

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 where you'll see the consumption behaviour.

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 Which we just got.

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 Canada, it's been a little not great.

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 The headline number has been okay.

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 You take the ex-auto figure and it's been negative, I think,

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 two or three times this year on a month-over-month basis, so

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 suggests some consumption slowing down here.

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 Could we be in a recession right now, Canada?

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 We could be. I mean, ultimately, we get the GDP numbers

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 months later.

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 We do need two consecutive negative quarters.

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 If you take a look at an economic activity perspective

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 there could be a case to be made that we're kind of already

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 in a recessionary period.

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 The U.S., I would probably say no.

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 I think for the U.S. we're probably more kind of the late

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 stage in terms of the economic cycle.

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 In Canada, it's very possible.

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 The other thing I want to overlay as well to the consumer,

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 particularly in Canada as our mortgage market structure, we

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 do have a lot of renewals coming up this year and next year.

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 And banks are expected not to put as much aside for

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 provisions for credit losses.

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 What do you take from that?

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 That's good news. I think that

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 started shifting when we started to see cuts from the BoC.

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 I know last year there was a lot put aside,

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 loan loss provisions were put aside from the banks.

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 We're seeing a bit of a reversal of that to

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 some degree. Again, I don't think you're going to see a

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 wave of mortgage defaults, isn't what I'm suggesting, but it

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 could hit consumption.

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 Ultimately, the cuts are going to help but I think you're

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 still going to see a good chunk of folks that are seeing an

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 increase in their month-over-month mortgage costs.

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 Where's that coming from, it's coming from consumption.

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 Hello, investors. We'll be back to the show in just a moment.

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 else you get your podcasts. Now back to today's show.

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 There's more to say on some of these macro pieces.

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 Arguably, AI earnings, or companies that are AI companies

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 related to it, are pretty macro as well,

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 depending on how much they are worth.

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 Nvidia is coming out with earnings this week.

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 It's really the commentary of

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 have we overspent, has everyone overspent or overinvested in

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 the AI trade. What say you to this?

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 There's lots of different thoughts on this.

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 I think long term, I think the AI trend is

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 alive and well.

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 Is it THE trend?

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 I'm biassed to say yes.

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 I'm very much in the AI camp.

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 I think if you had to pin me down on a timeframe, I don't know if

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 it's the next three years, five years.

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 I talk to my friends in tech and they say it's moving at

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 light speed pace, it's coming tomorrow.

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 Then you talk to other folks that say, ah, it's going to take

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 longer.

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 I'm not certain on the timeframe but I think it is going

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 to revolutionize kind of industry.

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 We're not just thinking the tech names, I think it's going to

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 have implications downstream for all areas of

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 the economy. I also think that's a great opportunity as well.

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 Right now we can very much think about the software

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 developers of AI, the downstream hardware developers

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 to support AI but I think what the next trend in thinking

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 about is who is it going to affect in the broader economy

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 and how are companies going to be affected.

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 If you think about it, you'd expect we should see some

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 productivity gains.

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 I also think that's a big opportunity for Canada as

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 well. Our productivity growth's been a little bit sluggish.

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 We always lagged the United States but I think it's been a

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 little bit sluggisher so I think it's a really big

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 opportunity for Canada as well.

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 Like almost as a leapfrog?

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 I just think it's a way ...

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 we think about manufacturing in Canada, we haven't got a lot

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 of productivity gains, have probably lost some since

14:03.000 --> 14:04.960

 NAFTA years and on.

14:05.000 --> 14:07.040

 Manufacturing activity has been going down and down in

14:07.040 --> 14:10.280

 Canada. I think for us it's

14:10.320 --> 14:12.280

 a big opportunity. We have a very large knowledge based

14:12.320 --> 14:14.760

 economy here in Canada and I think there's a lot of

14:14.760 --> 14:16.440

 productivity gains to be had there.

14:16.480 --> 14:19.520

 I think, hopefully, we're in good shape to take advantage of

14:19.520 --> 14:20.680

 that long term.

14:20.680 --> 14:23.720

 There's a great discussion about whether we

14:23.760 --> 14:26.880

 have enough to power that, and how we will

14:26.880 --> 14:27.880

 power that.

14:28.720 --> 14:30.800

 Actually, oil doesn't seem to be part of that conversation at

14:30.840 --> 14:33.320

 all, really, but lots of other types of energy do.

14:33.320 --> 14:36.280

 Do we have enough power at this moment, do you think, to do

14:36.320 --> 14:38.560

 this build-out?

14:38.560 --> 14:42.760

 Current infrastructure is probably not sufficient to meet those

14:42.760 --> 14:46.160

 needs without a commensurate increase in prices.

14:46.160 --> 14:49.120

 I think long term, and what a lot of folks are talking about

14:49.160 --> 14:50.160

 now, is nuclear.

14:50.960 --> 14:53.960

 The only problem with nuclear, takes some time, quite some

14:53.960 --> 14:54.080

 time.

14:54.080 --> 14:54.760

 It's not going to be ready for a while.

14:54.760 --> 14:58.480

 It's not going to happen overnight. I think, depending

14:58.480 --> 15:01.040

 on the jurisdiction, 10 to 20 years to get a new reactor

15:01.040 --> 15:02.400

 online.

15:02.400 --> 15:04.360

 China's moving very quickly on that, actually.

15:04.360 --> 15:06.880

 They've had some reactors in development for quite some time.

15:08.040 --> 15:11.720

 They do have a lot of coal power

15:11.720 --> 15:14.880

 in China as well, which isn't particularly great for the

15:14.880 --> 15:17.120

 environment. It isn't great for health either.

15:17.120 --> 15:19.640

 Obviously, having a lot of smog up in the atmosphere isn't

15:19.640 --> 15:21.440

 great for the general population either.

15:22.720 --> 15:25.320

 That's also another reason why I don't think we can rely on

15:25.320 --> 15:28.480

 just fossil fuels to power the energy needs.

15:29.920 --> 15:32.120

 Some renewables will chip in here and there.

15:32.120 --> 15:34.200

 There's some base load issues with renewable, whether it's

15:34.200 --> 15:37.280

 wind or solar. Obviously, you get a cloudy

15:37.320 --> 15:41.040

 day or wind isn't blowing, it's challenging for

15:41.080 --> 15:43.600

 base needs to rely solely on renewables.

15:45.000 --> 15:46.800

 Whether it's renewables or nuclear, I think they're both

15:46.800 --> 15:50.320

 going to have a role in kind of powering the AI

15:50.320 --> 15:50.640

 future.

15:50.680 --> 15:54.000

 It's exciting. It's really an exciting piece of the market.

15:54.000 --> 15:57.280

 With all of these different pieces that you're viewing right

15:57.280 --> 16:00.440

 now, some trends and so on, ultimately, how are

16:00.440 --> 16:03.920

 you seeing investors, the flow story, how are ETFs

16:03.920 --> 16:06.600

 doing? I mean, they're actually in blast-off mode too.

16:06.600 --> 16:09.040

 ETFs was seeing tremendous growth this year.

16:09.040 --> 16:12.120

 I think it might be — well, a year's not

16:12.120 --> 16:15.000

 over yet but we're trending to be one of the best years for

16:15.000 --> 16:16.720

 ETF growth on record.

16:16.720 --> 16:17.560

 In Canada?

16:17.560 --> 16:20.000

 In Canada here. I think its similar in the United States as

16:20.000 --> 16:22.040

 well but I don't know those numbers quite as intimately.

16:23.080 --> 16:25.520

 Now, if we get down into kind of the nuts and bolts and where

16:25.520 --> 16:27.840

 money's been going, it's been an equity-driven story this

16:27.840 --> 16:28.840

 year in terms of flows.

16:29.960 --> 16:33.000

 When we kind of drill down onto

16:33.040 --> 16:36.360

 the equity flows it's been an international story this

16:36.400 --> 16:37.400

 year.

16:37.760 --> 16:40.320

 It's been moderating a little bit in the past couple of

16:40.360 --> 16:42.920

 months. If we think back to the tariff tantrum, we

16:44.080 --> 16:46.520

 saw a lot of folks flocking away from the United States.

16:46.560 --> 16:48.040

 There was a lot of uncertainty.

16:49.120 --> 16:51.000

 That's moderating a little right now because if we take a

16:51.040 --> 16:53.680

 look at equity market returns as well, year-to-date

16:53.720 --> 16:56.920

 international, Europe's still outpacing,

16:56.960 --> 16:58.800

 even Canada's outpacing the U.S.

16:58.800 --> 17:01.760

 If we look at the last three months, the NASDAQ and the S&P

17:01.760 --> 17:04.840

 have been the number one performance in

17:04.840 --> 17:07.360

 terms of indices returns there.

17:07.360 --> 17:10.240

 We're seeing folks focus a little bit more on the U.S.

17:10.240 --> 17:11.960

 now but it's still international. If we take a look at July

17:11.960 --> 17:14.600

 flow numbers it was still international equity.

17:14.600 --> 17:15.360

 Now, there might be...

17:15.360 --> 17:18.480

 It's interesting, still in July that that was still going on.

17:20.840 --> 17:23.120

 We keep hearing that money's flowing pretty quickly back into

17:23.120 --> 17:24.560

 the U.S. You're seeing both, essentially.

17:24.560 --> 17:26.760

 We are seeing both.

17:26.760 --> 17:28.160

 I think there's a few things at play there.

17:28.160 --> 17:31.320

 I think early on in the year, obviously, the tariff tantrum

17:31.320 --> 17:32.680

 had a lot to do with it.

17:32.680 --> 17:34.840

 I think valuations come into play as well.

17:34.840 --> 17:37.680

 I don't think the United States is super expensive.

17:37.680 --> 17:40.680

 If you take a look at price-to- earnings we are above

17:40.680 --> 17:44.680

 historic averages but we're not in tech

17:44.680 --> 17:46.920

 wreck type valuation levels.

17:46.920 --> 17:48.480

 If you look at the Magnificent Seven, valuations

17:50.600 --> 17:53.240

 are expensive but they're not crazy expensive.

17:53.240 --> 17:56.080

 If we take a look at Europe or EM markets or international

17:56.080 --> 17:59.520

 markets broadly, they're a little bit more in line with

17:59.520 --> 18:02.000

 historical average. They are cheaper from a valuation

18:02.000 --> 18:03.000

 perspective.

18:04.280 --> 18:06.440

 Layer in some of the factors themselves.

18:06.440 --> 18:09.280

 You mentioned late stage, the market's been performing as if

18:09.320 --> 18:12.160

 it's in late stage so we'll call it late stage The factors

18:12.200 --> 18:15.400

 that work, their momentum, certainly, actually, has been

18:15.440 --> 18:17.120

 one of the names of the games.

18:17.160 --> 18:20.000

 Historically speaking, in late stage the factors focused on

18:20.000 --> 18:23.400

 in the U.S. have been momentum as well

18:23.400 --> 18:27.160

 as quality

18:27.200 --> 18:28.720

 in there as well.

18:28.760 --> 18:30.640

 If you take a look at year-to-date

18:32.200 --> 18:34.800

 I think value might be just outpacing it a bit.

18:34.800 --> 18:38.040

 If we think about that

18:38.040 --> 18:40.680

 tariff tantrum that's when kind of value was shining a little

18:40.680 --> 18:41.120

 bit there.

18:41.120 --> 18:43.640

 People came out of that into value.

18:43.640 --> 18:45.960

 Exactly, but if we look at the last three months

18:47.040 --> 18:48.360

 the textbook stuff has been working.

18:50.640 --> 18:53.680

 Is that something that we also see, or is there

18:53.680 --> 18:55.880

 a way to capture it in Europe?

18:55.880 --> 18:57.560

 You just mentioned that the first half of this year,

18:57.560 --> 19:00.960

 everything that's gone on has been quite an international

19:00.960 --> 19:04.120

 trade. Do you see some of those factors at play with

19:04.120 --> 19:05.840

 ... do we apply those to European trades?

19:05.840 --> 19:08.760

 We certainly can.

19:08.760 --> 19:12.080

 We just have to do the analysis of where is Europe right now.

19:12.080 --> 19:15.280

 Arguably, Europe's a little bit ahead of

19:15.280 --> 19:17.440

 North America in terms of where they are in their cycle.

19:17.440 --> 19:20.680

 They're probably coming up and out of their slowdown

19:20.680 --> 19:23.960

 period so different things would work in

19:23.960 --> 19:27.040

 the early stages to recessionary stages, I

19:27.040 --> 19:28.040

 would say.

19:29.000 --> 19:31.080

 They've had a lot of cuts, actually, when you look at their

19:31.080 --> 19:32.080

 central banks.

19:33.200 --> 19:35.600

 Christine Lagarde, the head of the ECB there, had mentioned

19:35.640 --> 19:38.640

 recently ... she was indicating that they seem to be done

19:38.680 --> 19:42.440

 on the cut front so maybe there's a little comfort there.

19:42.440 --> 19:45.000

 If you take a look at the economic data underpinning Europe

19:45.000 --> 19:47.080

 as well it is looking a little bit better as well so it might

19:48.080 --> 19:50.360

 become a little more of an interesting area to take a Look

19:50.360 --> 19:50.920

 at.

19:50.960 --> 19:53.920

 It's so interesting how this is coming through.

19:53.920 --> 19:56.360

 Give us a sense of, I mean, we can go into the different

19:56.400 --> 19:59.440

 products themselves. You helped create these at

19:59.440 --> 20:02.680

 Fidelity. This is an area that you're intimately

20:02.720 --> 20:05.080

 involved in in making sure they get off the ground.

20:05.080 --> 20:07.640

 Without asking you specifically is there a new launch coming,

20:07.640 --> 20:10.920

 is there a launch coming, you're working on some things?

20:10.920 --> 20:13.520

 What I'll say broadly is what we've been seeing ...

20:13.520 --> 20:16.440

 we've seen a lot of the flows over the last two, three years,

20:16.440 --> 20:19.600

 we've seen the

20:19.600 --> 20:22.680

 active, so actively managed mandates,

20:22.680 --> 20:25.160

 growing at a very rapid pace.

20:26.520 --> 20:29.560

 What we're seeing is a lot more products come to

20:29.560 --> 20:31.800

 market that are actively managed.

20:31.800 --> 20:35.000

 If we rewind back 20, 30 years it was an index passive

20:35.000 --> 20:36.280

 market.

20:36.280 --> 20:37.320

 That's what an ETF was.

20:37.360 --> 20:40.440

 That's very much changing. We're seeing a

20:40.440 --> 20:42.520

 lot of interesting bespoke products that are utilizing

20:42.560 --> 20:45.920

 derivatives, we're starting to see a lot more active products

20:45.920 --> 20:49.200

 come to market. Personally, we've launched quite a few active

20:49.200 --> 20:52.440

 products. Fidelity, we pride ourselves

20:52.440 --> 20:55.560

 on being an active shop, or an alpha shop, I should say

20:57.320 --> 21:00.680

 so we've certainly taken part in that trend and we're

21:00.720 --> 21:03.280

 continuing to see that space grow tremendously.

21:03.280 --> 21:06.000

 Come back to kind of the U.S.

21:06.040 --> 21:09.160

 exceptionalism story there and how that, ultimately, is

21:09.200 --> 21:11.320

 being expressed in terms of ...

21:11.320 --> 21:13.880

 actually, give us a sense of how much money is being made in

21:13.880 --> 21:16.560

 this market right now in terms of the ETF market, how much is

21:16.560 --> 21:17.560

 it growing?

21:18.800 --> 21:22.200

 I don't know the exact growth rate but it's

21:22.200 --> 21:24.240

 growing rapidly.

21:24.240 --> 21:26.960

 One thing I'm thinking about right now as well, and a lot of

21:26.960 --> 21:30.040

 questions clients ask us is, what should we

21:30.040 --> 21:32.360

 do right now? What should we change?

21:32.360 --> 21:35.440

 For me right now, I'd be adverse to doing

21:35.440 --> 21:38.200

 any massive changes within the portfolio.

21:38.200 --> 21:39.560

 So no huge conviction.

21:39.600 --> 21:42.560

 I don't have any ...

21:42.560 --> 21:43.920

 things I want to look at is what can break.

21:46.560 --> 21:49.960

 One of the things being in FX and

21:50.000 --> 21:52.200

 foreign exchange is you're always thinking about what can

21:52.240 --> 21:55.560

 break. You're kind of always a permabear, what can go wrong?

21:55.600 --> 21:58.880

 That's one thing I always try to look at is what could break.

21:58.920 --> 22:00.320

 One thing that I like to look at, obviously, is credit

22:00.360 --> 22:02.960

 markets, what is the credit market telling us?

22:03.000 --> 22:05.240

 You'll often see cracks in the credit market long before you

22:05.280 --> 22:07.240

 see cracks in the equity market.

22:07.240 --> 22:10.360

 We take a look at credit, talking about

22:10.360 --> 22:12.360

 corporate credit where you're looking at leveraged loans,

22:12.360 --> 22:15.520

 high yield credit or investment grade credit, spreads

22:15.520 --> 22:18.040

 are extremely tight whether you're looking at Canada or the

22:18.040 --> 22:21.120

 United States. We're not seeing any stress

22:21.120 --> 22:23.720

 as of yet in the credit markets there.

22:23.760 --> 22:26.400

 But just the fact that they're so tight, what does that mean?

22:27.480 --> 22:30.120

 Your risk there when they're so tight is that maybe they can

22:30.120 --> 22:32.120

 only go in one direction. There's certainly still more room

22:32.120 --> 22:35.120

 to run, they can get a little bit tighter, but when you think

22:35.120 --> 22:37.040

 about your risk-reward it, certainly, comes into the

22:37.040 --> 22:38.440

 calculation.

22:38.440 --> 22:41.360

 If we do start seeing cracks, whether it's in the economy, at

22:41.360 --> 22:43.200

 the end of the day whether there's going to be defaults or

22:43.200 --> 22:45.520

 not folks are going to be funding, either

22:47.080 --> 22:48.320

 raising cash to buy either money

22:50.120 --> 22:53.240

 markets or Treasuries, that funding typically

22:53.280 --> 22:56.440

 comes from high yield bonds or leveraged loans

22:56.480 --> 22:59.760

 and certain areas of the market that hold more credit risk.

22:59.760 --> 23:01.800

 There's always that risk there.

23:01.800 --> 23:04.400

 That is always kind of something that's there.

23:04.400 --> 23:07.840

 It's interesting to look at the equity markets right

23:07.840 --> 23:10.360

 now also in terms of ...

23:10.360 --> 23:12.640

 we'll come back to earnings this week ...

23:12.640 --> 23:15.760

 but the idea of equal-weighted market and then also if you

23:15.760 --> 23:19.600

 look at companies that make the most and they're

23:19.600 --> 23:21.680

 cap-weighted in that particular ...

23:21.680 --> 23:23.000

 where are the opportunities going forward?

23:23.000 --> 23:26.320

 You've said AI is sort of THE theme so

23:26.320 --> 23:28.600

 one would think you might stick with the cap-weighted but

23:28.600 --> 23:31.640

 what about the 490, or 93 other stocks?

23:32.800 --> 23:34.640

 What's interesting there, too, is if you take a look at the

23:34.640 --> 23:37.480

 P/Es, the P/Es of the cap-weighted versus the P/Es of the

23:37.480 --> 23:39.360

 equal-weighted is much different.

23:39.360 --> 23:42.680

 The P/E of the equal-weighted is, actually, around historical

23:42.680 --> 23:43.680

 averages.

23:44.440 --> 23:47.480

 Certainly, from a valuation perspective the other 493 names

23:47.480 --> 23:50.120

 are cheaper relative to those

23:51.760 --> 23:55.120

 Mag Sevens. Now, I don't know if I would say right

23:55.160 --> 23:58.560

 now the trend is quite favourable on the momentum train,

23:58.560 --> 24:01.680

 and by proxy the Mag Seven, it's been working.

24:02.840 --> 24:06.160

 I think what would give me pause for a reassessment

24:06.200 --> 24:07.440

 is really these Nvidia earnings.

24:08.520 --> 24:11.960

 One way or the other, is that sort of the idea or...?

24:11.960 --> 24:15.000

 Exactly. The question is, do we think the market's

24:15.000 --> 24:16.440

 going to broaden out a little bit?

24:16.440 --> 24:18.720

 Are there opportunities elsewhere? In fact, though, if you

24:18.720 --> 24:21.160

 take a look at year-to-date industrials have been doing

24:21.160 --> 24:24.360

 decently well from a GICS sector perspective in the United

24:24.360 --> 24:25.360

 States as well.

24:26.000 --> 24:28.400

 There's a little of widening out, or broadening out, in the

24:28.400 --> 24:31.520

 market but right now the theme still seems to be kind

24:31.520 --> 24:33.800

 of with the momentum.

24:33.800 --> 24:36.920

 On the bond side of one's portfolio, if

24:36.920 --> 24:40.840

 we want to call it that, or even just a multi-asset

24:40.840 --> 24:44.080

 approach to things, within the bond market what would

24:44.080 --> 24:46.120

 you do, what would the moves be if there were?

24:46.120 --> 24:48.440

 You're kind of saying, actually, don't make a lot of moves in

24:48.440 --> 24:51.120

 terms of conviction but what would want to make sure you're

24:51.120 --> 24:52.640

 covering off?

24:52.640 --> 24:54.880

 I'll tie it back to flows as well in terms of the ETF market.

24:54.880 --> 24:58.080

 We're seeing all the fixed income flows, not all the

24:58.080 --> 24:59.840

 fixed flows but a lion's share of the fixed income flows

24:59.840 --> 25:02.080

 going into just broad market diversified.

25:02.120 --> 25:02.800

 That's interesting.

25:02.800 --> 25:06.200

 So diversified within sectors, whether that's

25:06.200 --> 25:09.440

 investment grade, high yield, Treasuries, but also within

25:09.440 --> 25:11.160

 geography as well.

25:11.160 --> 25:13.400

 We've also been seeing a lot of money flow into Canadian

25:13.400 --> 25:16.600

 fixed income as well, would probably be the second largest

25:16.600 --> 25:17.160

 category there.

25:17.160 --> 25:18.400

 Why is that? Less indebted?

25:20.560 --> 25:22.960

 I think we're kind of through ...

25:22.960 --> 25:25.560

 we've got our cuts out of the way, I think, so maybe there's

25:25.600 --> 25:28.200

 just less worry that we're going to continue to see some

25:28.240 --> 25:29.320

 pressure on the yield curve.

25:31.200 --> 25:34.160

 Actually, that would be the opposite in the U.S., you'd

25:34.160 --> 25:36.760

 think, because you'd want to pile into it but the long end of

25:36.760 --> 25:38.840

 the curve has not been moving favourably in the U.S.

25:40.160 --> 25:43.480

 What I will say, though, about the broadening

25:43.480 --> 25:45.280

 out is interest rates in the U.S.

25:45.280 --> 25:48.160

 are still high so you're still clipping a decent yield over

25:48.160 --> 25:51.240

 there, but there is a lot of uncertainty around where are

25:51.240 --> 25:54.200

 yield's going to be in the U.S.

25:54.200 --> 25:57.000

 Credit spreads are super tight as well so there's obviously

25:57.000 --> 26:00.040

 that risk that we could see a widening out in credit

26:00.040 --> 26:02.800

 spread there. Just being diversified, you get your nice yield

26:02.800 --> 26:05.480

 in the U.S. but you can diversify away some of that potential

26:05.480 --> 26:08.640

 credit risk, some of that noise in the rates with regards

26:08.640 --> 26:11.000

 to the U.S. Treasury yield curve as well.

26:11.000 --> 26:14.240

 Really interesting. If investors are deployed

26:14.240 --> 26:16.560

 in a certain way, they have their strategy,

26:18.120 --> 26:20.200

 the discussion right now seems to be, even though there are

26:20.200 --> 26:22.520

 all of these moving parts and, potentially, all these

26:22.520 --> 26:25.040

 different opportunities, is to kind of stay put.

26:25.040 --> 26:27.200

 Is that part of what we're hearing?

26:27.200 --> 26:30.320

 Yeah. For me, personally, I'd like to see some sort of

26:30.320 --> 26:33.400

 catalyst to change, some sort of risk to make

26:33.400 --> 26:36.520

 me reassess. Right now I don't see any

26:36.520 --> 26:38.320

 big catalysts at this moment.

26:39.520 --> 26:43.040

 Personally, obviously, do your due diligence,

26:43.040 --> 26:44.840

 obviously, stay focused out there.

26:44.840 --> 26:46.560

 We've got a lot of data this month.

26:46.560 --> 26:48.920

 We've got, obviously, the Fed in September so there's a lot

26:48.920 --> 26:51.560

 moving parts right now. Obviously, tariffs remain to be an

26:51.560 --> 26:54.920

 overhanging risk here. It seems every day there's new

26:54.920 --> 26:58.120

 headlines about this deal moving forward, this deal breaking

26:58.160 --> 27:00.880

 down. There's, obviously, still a lot of risks surrounding

27:00.920 --> 27:02.520

 kind of the global economy.

27:03.560 --> 27:06.640

 As of now, for me, I personally

27:06.640 --> 27:08.440

 like a little bit of a holding pattern.

27:08.480 --> 27:10.760

 That's very comforting. I think you've just put a lot of

27:10.760 --> 27:13.880

 people at ease and it's wonderful to have this week

27:13.920 --> 27:15.720

 kicking off with much of your wisdom.

27:15.760 --> 27:16.680

 Thanks for joining us, Audrei Bruno.

27:16.680 --> 27:17.920

 Thank you so much for having me.

27:18.960 --> 27:22.880

 Thanks for watching or listening to the Fidelity Connects

27:22.880 --> 27:27.040

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 We'll end today's show with a short disclaimer.

27:55.800 --> 27:59.600

 The views and opinions expressed on this podcast are those of the participants,

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 and do not necessarily reflect those of Fidelity Investments Canada ULC or

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 its affiliates. This podcast is for informational purposes only, and should not

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 be construed as investment, tax, or legal advice.

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 It is not an offer to sell or buy.

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 Or an endorsement, recommendation, or sponsorship of any entity or securities

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 cited. Read a fund's prospectus before investing, funds are not guaranteed.

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 Their values change frequently, and past performance may not be repeated.

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Fees, expenses, and commissions are all associated

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with fund investments.

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Thanks again. We'll see you next time.