This edition of Market Factors begins with two ways that markets are looking 2000-like and goes on to explain why I don\u2019t think U.S. copper tariffs are going to happen. The diversion covers a really interesting experiment turning carbon dioxide into methanol and as always we look ahead to the important data releases for the coming week. <\/p>\n
Open this photo in gallery:<\/a><\/p>\n Traders work on the floor of the New York Stock Exchange (NYSE) at the opening bell on June 2, 2025, in New York City.ANGELA WEISS\/AFP\/Getty Images<\/p>\n EquitiesValuations and market concentration are reasons for concern<\/p>\n I am growing <\/b>concerned. There are two unsettling signs of excess in global markets reminiscent of the year 2000 that will be painful to correct, not just in the S&P 500 but also the domestic equity market. <\/p>\n The first cause for concern is valuations, as outlined by Torsten Slok, partner and chief economist at Apollo Global Management. In a Wednesday report<\/a>, Mr. Slok emphasized that forward price-to-earnings ratios for the largest decile of S&P 500 stocks are now significantly more expensive than the heights reached in early 2000. <\/p>\n The average forward PE of the smallest nine deciles (in terms of market cap) in the U.S. market is also higher than the 2000s peak, as is the average PE for the S&P 500 as a whole. <\/p>\n Strategists like Savita Subramanian at BofA Securities have argued compellingly that modern markets deserve a higher multiple. The tech-heavy current market is far more profitable than companies of the distant past that had to build new factories to expand production. <\/p>\n Still, Ms. Subramanian concedes that valuations are the single most important indicator of market returns for the next decade and her expectations for S&P 500 performance in the upcoming ten years are low – basically flat plus the dividend yield. <\/p>\n The second sign of excess was highlighted by Scotiabank strategist Simon Fitzgerald-Carrier, who warned clients about market concentration in U.S. markets. <\/p>\n Mr. Fitzgerald-Carrier estimates that the largest decile of U.S. stocks account for 76.2 per cent of the S&P 500, a new record. The Magnificent Seven still account for a third of the S&P 500 despite Tesla\u2019s 22 per cent decline and Apple\u2019s 17 per cent drop year to date.<\/p>\n A U.S. technology sector swoon will take Canadian tech stocks with it. The TSX doesn\u2019t have anything like the tech concentration U.S. markets enjoy (or endure, depending on timing), but Shopify Inc. remains the second largest company in the domestic benchmark behind Royal Bank. <\/p>\n Shopify, Constellation Software Inc., CGI Inc. and Celestica Inc. add up to a not-insignificant 8.3 per cent of the S&P\/TSX Composite. In the event of a drastic correction in global technology stocks, the TSX will have a hard time overcoming the drag presented by these companies. <\/p>\n The aggravating fact remains that no one has been able to consistently call market tops so I\u2019m not about to try now. At the same time, I will be very careful to avoid excess risk in my portfolio by keeping the beta<\/a> \u2013 sensitivity to market movements – below 1.0 by emphasizing non-technology stocks. <\/p>\n Open this photo in gallery:<\/a><\/p>\n Chilean miner Juan Bugueno places explosives inside the Kiara copper mine, 136 km south of Antofagasta, Chile, after work, on June 22, 2021.GLENN ARCOS\/AFP\/Getty Images<\/p>\n MetalsCopper tariffs equal U.S. shooting itself in the economic foot<\/p>\n I\u2019m not going to TACO (Trump Always Chickens Out) trade copper myself but I think it\u2019s a viable strategy. A big U.S. copper tariff would be very bad for exactly the type of business the White House wants to encourage, which implies it won\u2019t be universally imposed. <\/p>\n The United States imported 53 per cent of its copper consumption in 2024 so its far from self-sufficient. Morgan Stanley analysts believe the blanket 50 per cent tariff announced by president Trump would result in a US$2.25 per pound increase in the commodity price.<\/p>\n Copper\u2019s already trading at decade-high prices and another US$2.50 per pound would not be absorbed easily. There would be demand destruction at the higher prices \u2013 aluminum wire sales would definitely go up \u2013 but there would still be significant financial pain. <\/p>\n The electrical power demand from AI-related data centers alone makes the copper tariff a bad, inflationary idea. One of Mr. Trump\u2019s (insane, in my opinion) goals is to remake the country into a manufacturing powerhouse. This would require a lot of materials, including copper. A soaring commodity price makes building manufacturing capacity less profitable and thus less likely.<\/p>\n There is a chance that the White House exempts Chile, a country capable of replacing exports from all other countries, from the tariff. <\/p>\n DiversionsAn interesting solution for carbon dioxide <\/p>\n I am not announcing that the climate crisis is over but new research from South Korea sounds like the type of progress that will directly improve the situation. Professor Jungki Ryu from the Ulsan National Institute of Science and Technology and Professor Jongsoon Kim at Sungkyunkwan University have developed a copper-based catalyst that can convert carbon dioxide into methanol. <\/p>\n The description of the process on the phys.org<\/a> site does not include energy requirements (they could be high enough that it doesn\u2019t make any environmental sense) or scaleability so the potential as a climate panacea are unclear. <\/p>\n Methanol is useful – it\u2019s the basis for necessary chemicals like formaldehyde, an alternative fuel for internal combustion engine and a store of energy. If it\u2019s possible to take an environmental toxin and turn it into an economically viable substance on a big scale that would be a big, big deal. <\/p>\n The essentials<\/p>\n Looking for our updates on market movers, analyst actions, stock technicals, insider trades and other daily, weekly and monthly insight? Click here<\/a> to visit our Inside the Market page. <\/p>\n Globe Investor highlights<\/p>\n After Tuesday\u2019s inflation data, markets and economists agree<\/a> that you can pretty much forget about a Bank of Canada rate cut this month. And prospects are dimming for the rest of this year, as well.<\/p>\n These 10 TSX stocks bought back the most shares last month – and for INK Research\u2019s Ted Dixon, four look like good buys<\/a>. For more stock-picking inspiration, check out this Number Cruncher<\/a> on nine high-flying Canadian stocks with strong momentum<\/p>\n The most popular story on Globe Investor this week looks at how a retired bank manager used a \u2018blazingly simple\u2019 – and conservative – dividend strategy to generate strong TFSA returns<\/a><\/p>\n The surprising investment<\/a> that has outperformed stocks and Canadian real estate so far this century. Hint: it\u2019s a commodity<\/p>\n