Good morning, everyone. Welcome to our latest market update webcast. With me, our analysts, Henry Kwok, Pulkit Sabharwal, and Wai Tong. And I'm David Pett, editor of the AGF Perspectives blog, and your moderator for today's discussion. Before we begin, as always, I need to cover off a few administrative items related to our virtual event platform. Today's presentation will last no longer than 60 minutes. Those joining us live can submit questions any time during the presentation by opening the Q&A icon found along the side of the presentation screen. Questions will be addressed near the end of the webcast. Additional resources for this session can be accessed in your attendee hub at the top of the page, under the Resources tab. Finally, please note, CE credits may be available for members of our Canadian audience. Okay, so as advertised, the focus of today's webcast is cyclical stocks, of which each of you are familiar in your own unique way. Henry, for instance, you cover the consumer discretionary sector, Pulkit, you're all over the energy sector, and Wai, you're on the industrials beat, so to speak. So, let's start with some general impressions on how each of your sectors have performed in relation to the broader markets. As many in the audience know, the S&P 500, for instance, has rallied in kind of epic fashion, if you will. It's up around, I don't know, 35% since late October, and almost 20% since the start of this year. So again, let's talk about each of your sectors in perspective of that broader market. Henry, maybe we'll start with you, and then I'll go down the line to Pulkit and Wai. Sure, sounds good. Thanks for having me. So I cover consumer discretionary. My name is Henry Kwok. It's good to be here. So for the sector of consumer discretionary, generally, the return, if we look at MSCI All Country World Index in U.S. dollar, discretionaries performed kind of in the middle of the pack among the 11 sectors. They are up about 8%, both on three months and year-to-date basis, and behind the broader market by several hundred basis point, though, however. And if you look at the performance from the low point of the market in late October last year, it actually went up about 25%, although it was still 700 basis point behind the 32% return from the MSCI World Index. So on the other hand, I would say that over the past month, my sector is actually making a comeback. It's up about 5.1%, making it the third best performing sector, closely behind real estate and financials. Okay, thanks for that, Henry. That's a great overview. And, Pulkit, I'll go to you next, and maybe you can just kind of go through your sector for us on that performance front. Yeah, absolutely. Hi, everybody. Good to be back on here. I'm Pulkit, I cover the energy space. In the energy sector, it has been, to be honest, the perfect word would be a little bit choppy. You know, crude pricing, as we saw, geopolitics come in, as well as all the, the headlines around OPEC. That has influenced how the energy sector has done. From a producer standpoint or from a energy price producer standpoint, it's not too bad, because Brent is still sitting at a very healthy $85 mark, and, given, what OPEC has been trying to do, which is manage the market on the supply side to make sure that price stays in a stable range, and that's exactly the result you're seeing today. It has been trading around a band. You saw more and more geopolitics come into the view last October with the tensions breaking out in Israel, Gaza, as well as April of this year, where it looked like the war was gonna escalate, and that drove a bit of a risk premium in the price. But since then, that has come down, and now it's more or less being dictated by the fundamentals. So I would say overall, it hasn't been too, too bad. I think producers would be happy at this price, but from an equity standpoint, it has been a little bit choppy. Okay, thank you for that, Pulkit. Wai, over to you, and, maybe just a rundown on the industrial sector for us. Sure. I'm Wai Tong. I'm an industrial analyst here at AGF. Since October lows, I mean, S&P was up about 37%, while the industrial is up 26%. But the returns, you know, peaked in about April and has been coming down since then, as interest rate cuts are getting discounted out of the market. People were expecting 6-7 cuts this year, now we're down to probably 1.5-2. Recently, in the last week, it's starting to pick up a little bit again, seeing that we had some weak macro numbers. So, you know, some of the industrial companies are starting to factor in some rate cuts, more rate cuts this year. If you want to look at, you know, look at something like a Russell year to date, Russell 2000, which has a lot of industrials in it, it was flat until a week ago, and it's up 12% in the last seven days. So therefore, it looks like it's starting to finally pick up a little bit. So, I wanna get into kind of what's next for each of your sectors, but maybe before we do that, I wanna unpack each of your sectors a little bit and talk about, you know, what's going on under the hood, if you will. So Henry, I'm gonna start with you. And I kind of wanna get into the consumer, who that consumer is, that average consumer, and how they're being affected by the current environment. So things like higher inflation, higher interest rates, how is that manifesting when you think of the consumer, and how that might impact some of the stocks that are in your coverage area? Yes, thank you. That's a good start. So for consumer, certainly all these macro factors play an important role in how they feel, how they spend. For example, on inflation topic, even though right now inflation, it has moderated quite a bit compared to the past couple of years, consumers still face the fact that the prices that have been increasing over the past several years during the pandemic, so far, a lot of them have not been coming back down. So therefore, even though you could say that the pace of inflation has slowed down, the actual price they're paying is still quite a bit of a premium over what they used to pay before the pandemic. So many of the sub-industries in my space that get impacted, for example, would be restaurant. Pricing for going to restaurant generally were up, like, between teens to over 20% compared to before pandemic. So that certainly put a lot of weight on, you know, how much the consumers want to spend and where they want to spend the money when they go out to eat. Another category would be the hotel. The RevPAR, or revenue per available room for hotel, actually were up about teens compared to 2019, and that based on two factors. Occupancy is a few hundred basis points below 2019. On the other hand, the hotel rates actually were up more than 20% compared to 2019. So, with the constrained supply coming into the pipeline for new hotel rooms, it's inevitable that consumer will have to pay a higher price. Although the ability for the hotel companies to handle that is a bit different in that the mid-scale and the economy hotel actually seeing pull back a bit on the RevPAR. On the other hand, the higher end, upscale, the luxury, et cetera, were doing quite well. Another kind of high level topic for my space in terms of inflationary impact would be on anything that's big ticket, whether it's auto, whether it's home, whether it's like buying a lawnmower. Anything that's big ticket certainly would see the impact lingering for the high inflation as well. So in terms of the day-to-day spend for consumer, we also see that the total basket for consumption seems to have come down, generally because of consumer buying lower average unit per basket. Meaning that, for example, before the pandemic, they may be going to a shopping trip, they may be buying four or five items on the trip, but nowadays it's more like, "Okay, I want this particular running shoes, I want this particular dress, so I'm just going to focus on, picking the right item for that, that one or two purchase," rather than saying, "Oh, maybe I can pick up some, some other things along the way in the store." Like, they're doing less and less of that. Other area where we are seeing a pullback as a result of inflation, has been on the auto parts, purchase and repair or maintenance. We've been hearing in the channel checks that some of the consumers are now being more selective. So if a garage technician were recommending some service, if it's not absolutely required, they're actually going to delay that. So we're gonna see that having an impact as well. Another aspect that impact my sector from the inflation indirectly, would be consumer trading down from high price point products to lower price point product. And another I would say less favorable factor that's been impacting some of my retail companies, has been the increase in shrink as a result of things getting too expensive. Unfortunately, some consumers just can't afford it, and they go the wrong way to try to acquire the product. So we've been hearing quite a number of my retailers complaining that organized retail crime has been a thing that's impacting their numbers as well. Another macro level situation, of course, is the job. I would say for the job, it's actually not that bad. Most companies no longer need to actually pay up to keep the staffing levels, so demand for new employees have slowed, but nonetheless, I've not heard massive layoffs in my space. So consumers generally are still, basically having the job, you know, for the most part. High interest rate would be another area that impact my sector quite a lot. In the housing market, for example, certainly the U.S. existing home sales, the months' supply is actually trailing below four months now, which is 3.7 in May. Which... Then the existing home sales seasonal adjusted annual rate was at 4.1 million in May, which is down from more than five million before the pandemic, and six million at the beginning of the pandemic, when a lot of consumers are trying to sell their home. So these limited supply certainly is, as a result of the inflation and the high interest rate, making the turnover a lot slower, which indirectly hurt many other categories that rely on home turnover to generate sales. Auto is another thing that also impacted by the high interest rate. For example, in the U.S. right now, the light vehicle seasonal annual rate is just about 15 million in June. Fundamentally, it's supposed to go up, back up to, like, 17 million, but we are just at 15 right now as a result of all these impact from the high interest rates. Okay, that's a great, very thorough answer, Henry. Just to pick up on that a little bit, obviously, you, you've described a pretty challenging environment with lots of moving parts for the consumer and the consumer discretionary sector. We've talked in the past, and you just put out a video a couple of weeks ago that talked a little bit about. And that was related to travel stocks, but this idea of your space tends to be an alpha-generating space, in that there are always winners and losers, and so part of your job is to figure out who the winners and losers are gonna be. Just a quick question, I'll ask this of Wai and Pulkit, too, later on, but what is sort of the makeup of consumer discretionary companies that do well in this environment? What are you looking for from an analyst's perspective, when you're, you're choosing between one or another, if you will, within a particular sector? Mm-hmm. If that makes sense. Yeah. There's certainly a lot of choices for my sector in terms of choosing the different characteristics of the industries, because in my space, we have some industries that are more sensitive to interest rate, home builders being one of them, and then home furnishing is another one. And then we have some that were actually more driven by innovations, for example, consumer electronics. And then lastly, we also have some that were more driven by replenishment or replacement cycle, which is something like houseware or these kind of category. They are all under household durables, but on the other hand, there are different characteristics in them. So in terms of where I want to put the money now, certainly we are now on the verge of finally seeing rate cuts in the U.S. market. So therefore, we actually see that many of the rate-sensitive sub-industries, like the home builders, the home furnishing, and home improvement retail, are getting a better performance in more recent quarters. Although, I have to say that the actual result probably won't start turning positive until maybe another quarter or two later. Because first of all, we haven't even start having the rate cut, and secondly, even with the start of a rate cut, we're not gonna see the immediate impact on the consumer. It will take more than just a 25 or 50 basis point before the consumer will actually feel the benefit of that. In the meantime, though, many of the companies are already trying to help along that line. For example, many of the home builders have been buying down rates for consumers, so that instead of paying a 7% and about mortgage rate, they, the company buy down to just below 6. So they have a five handle on the mortgage rate, and that actually allow many of the consumer who really need to move out or or move to a new home, to be able to start doing the purchase even before the rate cut have started. Other category would be more depending on where consumer consumer want to spend the money. For example, in places like restaurants, we certainly would prefer something, some names that would offer a more value for money kind of menu, rather than something that is high-end and expensive. And then there would be other categories where we do expect that they are coming from a low cycle back to potentially more innovation-driven, but that may actually take a little bit longer to happen. And that included, for example, the consumer electronics, toy category, the power sports; all these actually would take... Innovation will eventually come back, but at the right, at the moment, we're not really there yet. Okay, that's great, Henry. As I said, very thorough. I'll let you take a break for a little bit. Grab yourself a little bit of water, and then I'm gonna go to Wai next, and we're gonna get into the industrial sector a bit, Wai, and talk about some of the opportunities, risks that are involved in that particular sector. I'll start by just saying, and this isn't news to anybody, but the global manufacturing supply chain was pretty disrupted during the COVID outbreak. Are we back to normal on this front, Wai? What's your sense of that? Most part, we are. I mean, industrial is very diversified, so includes transports, aerospace, defense, machinery. For the most part, I mean, the only place that's still gummed up a little bit, I think, is probably commercial aerospace. You know, you see Boeing can't get enough, you know, parts in that they'll go take over one of the suppliers. But for the most part, especially on the machinery side, arguably, there's too much capacity. One of the data points I saw was global, global construction equipment, used, inventory of construction equipments, the highest since financial crisis. New equipments piling up, highest since financial crisis. Prices in Europe and also South America, for equipment, is starting to come down, turn negative. I'm assuming it's still positive in the U.S., but I'm assuming that's gonna turn negative the second half of the year as well. So that's gonna put, you know, put some margin pressure on a lot of these companies. So- The other sort of fallout, if you will, from COVID and the supply chain, is this concept of reshoring manufacturing away from China and sort of back home, if you will, or nearshoring to a neighbor, or I think there's a term, friendshoring that- [rosstalk] Friendshoring... to an ally of a company's home country. How has that developed, and can you give us some flavor on kind of how you see that trend developing? I think, you know, people have been talking, because of the supply chain issues during COVID, people are talking about de-globalization, but the evidence doesn't seem to show that. I mean, sure, there's tariffs, there's supply chain issues, so there's more with the supply chain normalizing, a lot of the stuff, you know, is back to on, importing. But that being said, I mean, with the tariffs that's coming through, and potentially more tariffs coming if Trump wins, that's gonna push, you know, capacity out of China, but not necessarily back to the US. It'll be to Vietnam, to Mexico, to Southeast Asia. They're higher cost than China, but at least with the tariffs, it might be a lower cost to import it from those countries. That being said, I mean, all the reshoring, the only thing that's been reshoring is the ones that have been subsidized by the government. You're talking about semis, you're talking about EV batteries, biotech. I mean, look at the data. I think there's $200 billion going onto reshoring. Only about 5% of that is going in heavy industrials. The rest is all going into these niche areas that will benefit from government subsidies. So with that, I mean, reshoring, I think, is gonna be a tough sell. The fact that you got 4% unemployment rate, so you lack labor in the U.S., wages are high in the U.S., energy costs are going up because all the AI transition. So all these AI companies are gobbling up as much capacity and power, which makes energy more expensive to reshore for the industrial companies. I mean, in Europe, a lot of those European companies, countries don't want data centers, because after the initial production, building the data center, it has very few employees going forward. Whereas in the meantime, sucks up all the power that prevents any other industrial companies, like a car industry or steel industry, from coming in because they can't compete. So actually, net-net, it's a net negative once the construction's finished. Okay, that's really an interesting point on AI. On AI, and if anybody has questions about what Henry's talked about or what Wai's talking about, please do ask those, and we'll get to those at the end of the call. Wai, maybe just two more questions for you, and then I'll get to you, Pulkit. I'm curious to know whether your space, the industrial space and the manufacturing space, is impacted and how it might be impacted by what Henry was talking about in terms of that consumer having to make these choices over the last little bit. Has that impacted what's being manufactured to a certain extent? Or how does that kind of work its way through? What's the connection there between the consumer and the manufacturing side of things? The consumer, I mean, I cover trucking as well, and trucking is starting to really struggle. I mean, one of the trucking companies reported last night, and they missed across the board, and the stock is down. I mean, that just shows the demand from the consumer is starting to weaken. Some other companies within the space had to pre-announce, because even with the high-end consumer, they're starting to struggle making decisions as far as spending on pools, spending or choosing to take vacation, all that. So even the high-end consumer are starting to struggle, so it's impacting some of the manufacturing companies. So demand, demand for, you know, for lawn equipment, demand at Home Depot, all these areas are all starting to weaken, right? Even though you've got still some decent growth, but going forward, I think that's gonna have some impact on these people. I mentioned about energy earlier, too. Energy prices have started to really go up. Some of the companies that cover engineering companies, they're seeing delays on projects because that spike in energy demand from all these AI demands is having to make the utilities go back to the drawing board and redesign the energy production forecast, because the current demand is way higher than they expected. Okay, with that in mind, Wai, and you've kind of, you mentioned some of the, some of the areas that might be struggling. When you look at the backdrop today, same question that I asked kinda Henry: Is there, is there a way for you to differentiate the good from the bad? And, and, and I don't know if that's a company-specific question or whether it's more within the Industrials, you know, we like these, these sub-sectors seem to be well-positioned compared to others. So maybe just some color on that for people. I mentioned earlier about, I like aerospace, the supply chain is still gummed up, so those guys still have pricing power. Once the supply chain normalizes, you know, there is very few companies, especially industrials, that have pricing power. They never did before COVID. They got the illusion that they did during COVID, and I think they're gonna come to the realization they still don't once the supply chain ungums up. But that being said, I mean, we talked about a lot of what's driven the stock market, with the MAX Sevens and whatnot. Industrials doing okay with a lot of multinationals, and S&P is mostly multinationals. So you look at S&P, the industrials make up about 8% of S&P, but on the Russell 2000, industrials make up over 11%. So the delta of that 30% difference is mostly small industrial companies that are mostly domiciled in the U.S. So if Trump wins, he's putting up tariffs, these domiciled in U.S. companies will actually benefit because you got higher tariffs against imports. Number two, as ideally, interest rates start coming down later this year, early next year. These smaller companies don't have the ability to tap the bond market like the, you know, GEs of the world. So they gonna have to borrow at the banks or whatnot. So I think, you know, you see that in recently. You look at the last week, I mentioned earlier the fact that Russell 2000, it was flat, zero returns to January -- July 9th. In the last week, last seven days, it's up 12%. As people start to see rate cuts because of the weak jobs data, weak macro data, and potentially tariffs. But I think that's the area we should look at. And there's a lot of these companies that are niche-specific, small cap companies with 100% of their sales in the U.S. that will benefit from low interest rates and also higher import tariffs. Okay, thanks for that, Wai. What I said to Henry, you can take a little break, and we'll get back to you at the end. Pulkit, you're up next. So let's talk a little bit, a little bit more in-depth on energy. So maybe just the first question for you: Are there certain aspects of the current environment that will influence energy prices more than others? So you talked a little bit about geopolitics in your opener, but I'm just curious, you know, what are those bigger themes that are gonna impact energy within this environment that we're living in today? Yeah, absolutely. I think the conversation of energy really has shifted from geopolitics and all these external factors to good old, supply and demand equation. And I think the fundamentals today are really driving where the pricing is at. And, when I say fundamentals and supply, I am really including the OPEC policy here. So for those that, that, might not be aware or might not have followed this space for a while, OPEC+, that is OPEC, as well as Russia and a few other, entities involved there, they decided that they're gonna, make sure that the price stays at a certain level. What they're chasing, essentially, is anywhere between 70 to 90, and mostly around the $80 mark. So $85 Brent today is what they got. They were doing this by essentially taking 2 million barrels off of the market, 2 million barrels per day. So that, I think, is gonna be the governing factor going forward. With the recent revision in OPEC policy, they talked about how, you know, they're gonna look to bring these, the cut production slowly back into the market over the course of the next year, but that is really gonna be predicated on how the market is shaping up in terms of prices. If it's too low, obviously, it doesn't make sense to bring back more production into the market. If it's too high, they can look at it. So I think that's gonna be the driving factor going forward. But that said, we cannot ignore geopolitics and the role it plays, right? You saw around April as well as October, and then the Ukraine-Russia conflict before that, anytime you introduce geopolitics into this mix, especially in an area that might impact physical barrels, and the Middle East obviously has a lot of production there, Saudi Arabia, Iran, Iraq, and a lot of players, you introduce a certain element of risk. So in April, it looked like the war was gonna escalate and start touching physical barrels, and that's when you saw the price drive up. But now, obviously, that has come down quite a bit. So I think these are gonna be the factors going forward, when you're looking at it. And then longer term, you could argue energy transition, but how exactly that shapes up is—it's gonna be, I guess, a million-dollar question or a trillion-dollar question in some cases, going forward. Okay, perfect. And then, maybe I'll... Wai and Henry provided a bit of color as to if we do get a turn in the cycle, and we seem to be there, although, as mentioned, the U.S. hasn't quite started their cutting cycle. We have in Canada. Given that shift, you know, in—when you look at the energy complex as a whole, are there certain sub-sectors that you expect to benefit more or less than others? Yeah, I would say so, that there are certain sectors that do benefit from this environment. I mean, when you're looking at a very stable, high oil price, the upstream producers tend to benefit the most from it, 'cause they can take the lion's share of the production... Oh, sorry, the lion's share of the value chain, in that sense, right? Because they have a fixed cost, and because of the previous decade, where pricing was not very supportive, they decided they wanted to delever and cut back on making sure that, you know, they're very profitable. And that, obviously, is coming home to roost today, because now you're at a situation where you have driven a lot of the cost out of each barrel that you're producing, as well as there's hardly any debt on the balance sheet. So these guys will obviously make a lot of money. The other thematic that I think to be aware of in this case would be gas. Natural gas, the pricing today does not look very good, but I would really be looking at this space, because what's happening is that there is a demand-defining moment that goes on. So LNG capacity, LNG export capacity in North America is set to increase by 85%-90% over the next 5 years. That's gonna drive a lot of the gas that we have in North America that we're gonna try and ship overseas. So this is gonna be a defining sector as well, right? So all these natural gas producers are gonna see a huge tailwind in the pricing they get for gas, just because there's so much more demand for it. Aside from that, though, I would really say it's a stock picker's market. In a stable price environment, I think the stories are starting to become more and more divergent. You see good companies and good management execute on their plans a lot better, and I think those are the companies you wanna own, as opposed to just trying to own broad sectors. And on that front, Pulkit, maybe not everyone might understand, but when you're analyzing energy companies, what are your kind of—what are your go-to metrics? Like, what are you looking for from a company? Is it a cash flow kind of metric? Or like, how do you do that, Pulkit? Yeah, I would say certain attributes to a company, whether it is a low price environment or high price environment, hasn't really changed. So in a commodity-like business, like ours, you're really looking at companies that have a very good resource base, first of all. Lower prices that they can produce at a lower netback, that we would call, is much better. I mean, if you can break even at $30 a barrel, you're gonna succeed in any environment versus $60 a barrel, right? So there's companies that have been able to do that. And then the other thing, you're looking at companies that are able to acquire assets at a decent multiple during decent cycles, and then do the exact same thing again. So you would acquire a company and acquire a resource at X, and then you're able to produce Y out of it, that always benefits you. So what you're looking for, obviously, is a very good resource base, a decent amount of cash flow coming out of that resource base that gives you a lot of optionality, a very nice balance sheet, a lower leverage, the better. And then finally, a management that actually has a track record of being able to acquire, as well as execute and make sure that they're keeping production stable at a very low cost. Thanks for that, Pulkit. And maybe Wai and Henry, maybe we'll just bring you back into the conversation. I'm just curious, given what Pulkit said, as, you know, kind of what he looks for, is it any different for you guys in terms of... I imagine it's slightly, slightly varied, but obviously, you want good balance sheets and, and strong managements. But are, are there other things that you guys look for from a, from a company profile, fundamentally?... Wai? Maybe I'll start with you, and Henry. I can go. I mean, I remember one of the things that my strategy prof said at university, is that, "A good management team and a crappy industry goes in a, you know, go into the room, is usually the crappy ma-, the crappy industry that comes out of the room with its reputation back." So you look at, you know, airlines and those things, we saw that. So for me, I mean, you know, valuation and balance sheet is great. I also look at market structure, especially industrials. You know, there's market structure, how many players are in it? How much... That determine how much pricing power you have. I mean, that's why I was talking about some of the small cap companies, going through some of them. There, there's companies that are completely dominant, like 80% market share in the industry, so in domesticated in the US. So those guys will have much more pricing power than... You talk about something like a Caterpillar. Globally, it has 10% market share, so they have no pricing power, right? The, the global competitors could easily bring prices down. Whereas if you got something like a, you know, commercial aerospace for those guys, they have, you know, a lot of those companies are sole sourced, like only buys parts from only one company. So those guys have pricing power. So I prefer market dynamic, valuation, obviously, if it's cheaper, the better. Good, good management team would be great as well. You know, if you can find some of those combined, those make good, good companies. Low valuation, good balance sheet, market dominance, and ideally, a good management team that you can trust. Okay, great. And then, Henry, maybe just some color on that from you. Agree with what, Pulkit and Wai have been saying in terms of the balance sheet, in terms of the execution of the management. And I think for my space, in particular, because of how diverse it is, for example, just within the restaurant space, you could be looking at fine dining restaurant, you could be looking at what we call the fast casual, or you could be looking at the fast food, right? So these actually would have different use case or use location for consumer when they want to dine out. So in terms of, or you can put into the mix, for example, some of the topics that we've been talking a lot recently, has been the GLP-1. So over time, which category is probably gonna be impacted more by, you know, the use of the diet drug, versus those that would be impacted by less or actually benefiting from that situation, would make a difference in terms of the longer term investment. But in the shorter term, I would say for now, value for money category was still likely to be winning out. Like, something that I've mentioned recently in a video, the cruise line industry, for example, would be perceived as a good value for money. Off-price retail among all the apparel retailers, also would be perceived as a good price or value for money. And then you would say that experience versus goods is still a pretty important factor to consider for consumer, where they want to put their money. So even though you could say that, okay, during the pandemic, consumer are not able to spend on experience, and once we reopen, there's a revert to spending on a lot of things related to travel, related to experience, going to concert, et cetera. That actually is not just a matter of the short-term reversal. There's actually a more sustainable factor in terms of consumer changing their priorities, even when things are more or less normalized. So that's something that we definitely need to consider as well. Innovation is another factor that I put a lot of emphasis on for my companies, especially those on the consumer durable goods, like the sportswear, the power sports, even the auto, which, you know, there's a lot of chatter about EV, PHEV. All these kind of discussion is important in terms of what actually are the company able to innovate and what they are offering for the company, for the price that they're charging. And then lastly, of course, for industry that actually have a favorable demand versus supply situation, similar to the energy space and focus space. In my space, there's also categories where supply has been above demand, but sometimes because of the affordability issue, consumer are not able to buy as much as they want, mainly being the housing market and the auto space. Even right now, demand is actually higher than supply, but because of the affordability issue, the demand is not as strong as we would have expected. But over time, when things come back, for example, in terms of the, the incentive that the dealers are offering to the consumer, back to more normalized level, and then interest rates start to come down, then certainly the demand would be able to, be coming back a little bit stronger than what it has been. These will be the factors that I would consider in terms of where to put the money as well. Just because my sector is so diverse, there's a lot of options for me. Sure. Okay. Great, thanks, guys. Really appreciate you letting me get inside your heads a little bit. I think it's kind of fascinating how you guys look at your sectors in the same way, but also just a little differently, given the different types of businesses that you're covering. One last question from me, and then I'll get to some questions that have been rolling in. When you look at the second half of the year, we are kind of at that mid-year mark right now. Simple question, are you more bullish about your space going forward, or are you still a little bit bearish on the space? So just maybe a thought on that, given everything we've talked about, where we are in the cycle. Pulkit, I'll start with you, and then I'll go to Wai, and then Henry. ... Yeah, absolutely. So I'm about neutral to slightly bearish on the space, just because right now we're going through the summer period. Summer period is obviously the summer driving season, which is really beneficial for gasoline demand and therefore for crude demand. So you're gonna see some nice supportive pricing. But I think post that, you're probably gonna see a little bit of a decline, just because you get into a seasonal decline, and as well as the fundamental equation, where you have demand seemingly slowing down in the U.S. You know, macro policy is certainly looking at being able to cut rates just so you can, I mean, Henry and Wai both touched upon these factors. So, in the event that the US economy does slow down, you're gonna see demand for crude obviously decline a little bit, and that's what gives me a little bit of a pause, and that's why I'm more neutral on it. But, that said, I think the OPEC supply management has been working well, so you still should see crude trade in a band that they'd be trying to get to. Okay, great. Thank you, Pulkit. And then, Wai, I'll go to you next. I guess I'm a little more negative for the reasons I mentioned before, the fact the inventory is starting to pile up. You know, they overproduced, they have so much overpriced in the last couple of years. Now, they're, you know, have to probably give some of that pricing back for some of my companies. That being said, I mean, I mentioned about the small caps, there are opportunities in that area, especially you look at the valuation of the S&P 500 versus the Russell 2000 is at historical, S&P is trading at a historical multiple premium to the Russell 2000. So there's gonna be opportunities in that area. So I would focus in that area. But that being said, I mean, you know, my view is if there are rate cuts, it's usually because the economy has thrown down. You're not rate cutting just because you went from, you know, 8% down to 2%-3%. It's because unemployment is starting to pick up. And the Fed will never say this, but I think the Fed, the only way to keep inflation down, you're gonna increase on it, you need high unemployment. They won't give you a target on that, but 4.1, I think is too low still. I think you probably start with a 5. So I think they're gonna wait, holding off on the rate cuts until we start getting some real pain in the market. Okay, thanks. And then, Henry, quick thought from you. A little bit more bullish going forward than maybe you, you were at the start of the year, or, or the reverse? I would say, my sector is probably going to be performing slightly above the median, primarily because a lot of the sub-industry are actually interest rate sensitive, but with a high demand, just like what I mentioned just now, in terms of the, the home building sector, the, the auto space, and like, home improvement, et cetera. These are all heavily driven by the interest rate environment, and at the same time, it's not a matter that the consumer don't want to spend money, but it's just that, from them, it's just, the, the cost for putting money into these kind of categories, it's just a little bit too prohibitive at the moment with the high interest rate. So, when the rate cuts start to kicking in, because of the need that these consumers need to spend in these categories, I do believe that the sales from these companies should continue to trend out. And in fact, you could say that, for example, the home builders, they have been actually doing well, since early last year, not even starting this year, primarily because even though we are way before we are talking about rate cuts, primarily because the private home builders have been able to pick up shares from the fact that many of the existing homeowners are not putting up their house for sale, because they don't want to flip to a much higher mortgage rate. Therefore, the new builds become primarily a much bigger source of home turnover or new home purchase than what it used to be. It used to be they were like teens in terms of the market share, but they've been increasing to like more than 30% in more recent periods. Those factors certainly will come in, and I do believe that when rate cut starts, many of these categories will benefit. Then on the flip side, geopolitics, which I haven't talked about on my space, is also going to be an important factor in terms of where you're sourcing your products from. Many of the consumer goods actually were made in Asia, and with China used to be a pretty big factor. But since 2018 and 2019, when last Trump was the president of the U.S., with all these tariff talks, there has been a lot of transition from China to many other region, whether it's Latin America, Mexico, or the rest of Asia, like Vietnam, Cambodia, et cetera. So that migration has already been ongoing for several years now, and... But still, there are quite a number of companies that were stuck with a certain percentage of their production coming from China, because China still represent the best way and the most cost-effective ways to make those goods. So, we have to really look at, for example, if some of the suppliers, say, for sportswear, they may have, say, 25% of their production still coming from China, but if their sales to the Chinese consumer economy overall is similar, then that means they are really going for, making China for the Chinese kind of strategy. Then in that case, you would say, "Okay, even though their quarter or the production is coming from China, they would be safe." Because most of the Chinese main product would be targeting the Chinese market, but on the other hand, they would have the Vietnam, they would have the India, for example, that would be goods coming from those market, supplied to the region where tariff could be a concern, like, for example, in the US. And then, on the other hand, there would be some category made in China is kind of unavoidable. Many of those would be like the, something similar to the dollar store, something similar to, many of the value discounter store. Vast majority of the products actually are made in China, so and it's unlikely that these will actually get changed. So inevitably, when there's gonna be tariff in those categories, the price will be passed on to consumers. And then there are yet another category, say, for example, the auto parts, where a good chunk of them also were made in China, including many of the private label. And because the wholesale category is basically sourcing from those market in certain particular type of components, and because it is seen as a necessity, the retailer, for example, basically have no reason to try to change the source, because everybody's gonna be under the same pressure when it comes. So, they can try to negotiate with the government, maybe, to try to exempt some of the products from tariff. That's a possibility. But in other words, those categories, I don't expect a lot to change. But nonetheless, at a high level, geopolitics coming into November with the election will be a big factor for many of my companies. Okay. Thanks very much, Henry. And, going back to one of your comments about, consumers deferring some of the things they're purchasing, I don't feel so bad about not putting my, summer tires on my car. I still have my winter tires on. So now I feel like I'm not just on my own on that front. Okay, let's get to, see a couple of questions from the, the folks, listening to you guys. Here's one. So I'll, I'll give this to Wai, 'cause it relates to a lot that you talked about, about small caps. Sure. Wai, so, obviously we've seen a bit of a resurgence in small cap stocks' performance over the last little bit. I guess the question here is, you know, given that choice between small cap and large cap, would you err a little bit on the small cap side of things going forward? And does that maybe help broaden out this bull market a bit? 'Cause as we all know, it's been driven by primarily a handful of big tech companies to date. Sure. For example, when we talked valuation, I mentioned earlier, is that, like, say, for the last 20 years, S&P trades at 18 times, and Russell trades at, you know, say 15 times. I'm just making these numbers up, just as illustration. Right now, S&P is trading at 20 times, and the Russell's trading maybe at 14, 13 times. So we're talking the valuation gap on average, on average earnings, right? Yeah, I think we look at the small caps, because in the last year, basically, you get, you know, anywhere from 25%-45% return without looking at anything. You just buy NASDAQ. Why bother, right? So but I think the diversification is starting to come in. You see the last couple of days, you know, the Russell's gone up, I mentioned, 12% in the last week. But in the meantime, the NASDAQ is actually down on a couple of those days. So just, you see the rotation of selling out of the mega caps and moving into the smaller caps. And I mentioned earlier, I mean, there's really great small companies in there. I mean, we're talking, for example, I won't name the company, but we got companies in there that has special niches, that have 80% market share, trades at, like, 9-10 times earnings, as you know, 9-10% free cash flow yield and a great balance sheet. But those guys got no love in the last year or so because the mega caps are just driving the entire market. Now, if the mega caps are no longer driving the market, you're gonna start looking at some of these niche-y companies that are undervalued, that should trade probably double the price that they're trading at now. So I think, that's what I'm gonna be focusing on in the second half of this year. Okay, and then, so thanks for that, Wai. And then, this is just a general question for you guys. If we do get this broadening out that in the market, I'm guessing that's good news for each of your sectors that you're covering, right? Absolutely. Maybe that's a no-brainer question. You can just nod your heads, but- Yeah. I guess you're all looking for that, for that time where we get there, and, and maybe we are on the cusp of that, based on what you've just talked about, Wai. I've got one last question here, and this is for you, Pulkit. And it's about the geopolitical environment, and the impact on oil, and it's kind of two-tiered. So the first part is, are you at all surprised that what's been going on in Ukraine and what's been going on in the Middle East hasn't had a more profound impact on oil prices? And then the second part is, is there one event in those two that you maybe worry a little bit more about being a bigger risk going forward? So, so- Mm-hmm. the two parts to that one. Yeah, absolutely. I would not say I'm that surprised, just because with Russia-Ukraine, I'll start there. What you saw was that there was an imminent threat that Russia, being a big producer, I mean, they produce around 9 million barrels a day. That's a significant chunk of the market. So there was a threat that, you know, all of a sudden, that production is gonna get sanctioned because of the war, and it's gonna go away. But Russia was able to get their production and their barrels back on the market in a very efficient manner, despite the sanctions around them. That's why you saw that threat disappear. Same thing in the Middle East, even though Israel and Palestine directly, there's no production there, what the issue was, that if the conflict broadens and Iran, which produces around 3-4 million barrels a day, gets involved, you might start endangering that production, the physical production. So every time you have this trend where physical barrels might come into danger, you start seeing the spike in the price of oil. So that's what it was. I'm not surprised that, you know, that that tension dying down has also led to oil price coming off as well.... But I would say between the two, it's the Middle East that concerns me more, just because, you know, a potential Trump presidency. President Trump was obviously quite harsh in terms of implementing sanctions. Well, I guess harsh wouldn't be the right term, but, he implemented sanctions on, Iran, and he was quick to bring that, that sanction implementation back in. So in a scenario where President Trump comes back in and he says that, "You know what? In this war, I'm gonna take one side or the other, but I'm gonna bring sanctions back on Iran," all of a sudden, you're looking at production from Iran, which is a major oil-producing country, come down. So for me, that is a bigger risk than, say, Russia, Ukraine, where the situation, despite the war still ongoing, at least from an oil perspective, looks like oil flows have resumed, to a large degree. Okay, I know I said that was the last question, but I have one more. It's just maybe a little bit of a perspective on Canada versus U.S. in terms of your sectors. Henry, you know, the discretionary sector in the U.S. is much more fulsome than I would think in Canada. But maybe just a perspective on: Are you dealing with the same types of sort of challenges, opportunities in Canada as you are in the U.S.? For me, the Canadian companies in my space actually were pretty unique, I would say. Some of them certainly primarily address the Canadian market or in some, you know, exception would be. I would say the coverage of these company, many of the Canadian company in my space actually are global company. For example, some of the power sports company, we have a leader in Canada here. Some company that actually make underwears, they were also a global company. Another company that actually make some of the apparel products on the athletic side or otherwise on the winter outerwear. These companies also are global companies. So, when I look at these company, I look at them from a global perspective, rather than primarily on the Canadian perspective. The ones that are more Canadian-focused will be more on the, something like, retailer that sells sleeping products, for example. Those are primarily focused on the, the Canadian market only. And then other would be, the doll store that everybody knows, that's also primarily Canadian-focused, but with some, more important, potential growth driver coming from the Latin American market, but they're not in the U.S. market. So, but most of the other names, whether we're talking about the restaurant name, the auto parts, these are all actually global names, so I would look at them on an equal foot basis compared to the U.S. company when I select them. Okay, and then, Wai, just to maybe a perspective on that dynamic between, in your space, Canada versus the US. Is there any major differences in terms of, you know, what you're seeing out there? Well, on the macro side, I mean, I think Canada is in a much worse position than the U.S., just because how indebted the average Canadian consumer is. I mean, you know, I think the number I saw was a hundred net debt to disposable income is 181% disposable income, which is higher than before the financial crisis in the U.S. So I think we're gonna struggle a lot more than the U.S. On industrials in particular, the U.S. is much more fulsome. Canada, my space is about maybe 10% of the benchmark, but 6%, 60% of that is CNCP, right? So everything else in, that being said, the Canada economy slowing down will impact the other smaller domestic industrial companies. But even, you know, potentially Canada going into a recession, I think, next year, that's gonna impact CN CP because a big chunk of their business is in Canada. Okay, great. And then, Pulkit, obviously, energy is a big, big part of Canada's concentration on the market. So, is there anything unique in terms of that dynamic between maybe Canadian companies that you're looking at, or U.S. companies, or even global companies? Yeah, I would say so. I think, you've seen the U.S. historically trade at a premium. I don't really see that changing entirely versus Canada, just because, you know, a much more well-capitalized market, a bigger market, and so forth. Those factors are still there. But I think with the Canadians, what you've seen, though, is that there was a very significant event that happened over the past few months, which is that there was a brand-new pipeline that is now shipping crude oil from Edmonton all the way down to the West Coast. That means there's more capacity for Canadian oil to leave the markets and go globally, and that's exactly what's happening. You're seeing more and more shipments to Asia, India, and China, in particular, South Korea as well. So I think that is a factor that has really helped the Canadian market in general. And over time, I would anticipate that heavy oil is gonna be more and more valuable versus the light oil that you see in the shale basin. And this, I'm talking as a multi-decade kind of thing, or I guess over the next 10 years, depending on where you stand on the oil cycle peaking. So in general, I do see opportunities in both markets, but I think Canada had more of a basin-defining moment as opposed to the U.S. Okay, that's a wrap. Great job, gentlemen. As always, thanks to everyone tuning in today. On behalf of Henry, Pulkit and Wai, we appreciate your time and support, and look forward to sharing our insights with you again next month. Before you go, please make sure to click the Add Session button in your Attendee Hub to register for our upcoming market update events, including our next installment, taking place on August twenty-first. To complete your CE credits today, please complete the survey available to the right of your screen or at the top of the homepage in your Attendee Hub. And please note, you may only submit answers for your survey once. However, you may have the opportunity to go back and edit responses if needed. Have a great day, everybody. We'll see you next time. Bye, guys. Thank you.