In this edition of Market Factors we start with a strategist who is certain market turmoil is ahead and offers two strategies to sidestep it. I discuss the research process for a potential investment in air conditioning and the diversion covers an alarming increase in young-onset gastrointestinal cancers.
Traders work on the floor at the New York Stock Exchange (NYSE) in New York City, U.S., July 21, 2025.Brendan McDermid/Reuters
EquitiesSteep correction, then higher for the S&P 500
Evercore ISI strategist Julian Emanuel is certain that markets have entered the FOMO stage of the rally and that investors should brace for volatility as a result.
Mr. Emanuel’s Sunday research report recounted phone calls from several market veterans of Y2K and the great financial crisis asking the strategist some variation of “is it different this time?” for markets. For legendary fund manager Sir John Templeton (who I met in Nassau by the way), this question represents the most dangerous words in investing.
Mr. Emanuel’s report included a paragraph of self-congratulations for accurately predicting the strong market rally from the April lows – he had identified a degree of bearishness last seen in 2008, which indicated that selling was exhausted. He’s not a permabear.
Mr. Emanuel believes that equities have priced in more good news than what is going to occur. His informal surveys indicate a consensus view that tariff rates will decline from here despite the August 1 deadlines and that S&P 500 earnings will exceed current estimates.
The rally has more room to run, according to Evercore, but volatility is set to make investors uncomfortable on the way up. Potential tariff news, seasonality (late summer and fall historically see volatility increase) and current high valuations all make for a skittish market to year end.
Mr. Emanuel expects a sharp correction of between seven and 15 per cent in the coming weeks before the S&P 500 resumes its rally. He sees historical precedent in the sell-offs of 1999 and late 2021 – both served as warnings of a deeper downdraft to come.
The strategist recommends two investment strategies that are likely to outperform during the coming volatility. The first, not viable to many investors, is an options straddle on the Nasdaq 100. This involves buying a call option and a put on the index and makes money with a significant move either up or down. Basically it’s a bet on volatility.
The second strategy is more broadly available: buying stocks with attractively low valuations and strong upwards earnings revisions. This is very likely to beat the benchmark during periods of market upheaval.
Every cycle is different. In the current case, the steepening of the U.S. yield curve after a long period of inversion wasn’t followed by an economic recession as history would suggest. As Mr. Emanuel notes, however, what never changes is the constant rotation between investor greed and fear that drives equities.
This picture taken on April 18, 2025 shows a general view of air conditioning units installed on the facade of a building in New Delhi.SAJJAD HUSSAIN/AFP/Getty Images
Investment ideaFinding the best way to invest in air conditioning
The M.I.T. Technology Review published In defense of air conditioning and that, combined with a near-global heat wave and a Citi conference call wherein an analyst cited the low penetration rate of AC in Europe, had me looking for ways to invest in the residential cooling sector.
I started with the dominant air conditioning unit sales companies in Europe. Japanese giant Daikin Industries has a good foothold in the region but it also sells a lot in the U.S. and that revenue is under threat of tariffs. Mitsubishi Electric is also a major player but an increase in European air conditioners is unlikely to push its stock higher because the company’s too big.
There are private companies that sell a lot of air conditioning in the European union – Vaillant Group, Viessmann Group (which recently partnered with Carrier Global), and Robert Bosch GmbH are important examples – that aren’t much use to investors.
Carrier Global is, of course, the sector giant but I don’t have a handle on how much Europeans hate American companies right now, or whether Carrier products will be tariffed in Europe.
I decided to dig a bit deeper and discovered there were different refrigerants used in air conditioners and they are produced by different companies. The refrigerants are boringly named R-410A, R-454B, R-32 and R-22 (Freon), and made by DuPont spinoff Chemours, Honeywell International, Arkema SA, Daikin and Mexichem, among others.
The older refrigerants like R-410A and R-22 are being phased out in favour of R-32 and R-454B which are shown to be less damaging to the environment. Honeywell dominates R-454B production but it’s too big for the stock to ever demonstrably benefit from rising air conditioner sales. Daikin makes R-32 and was the first to adopt it for home use.
The result of all my reading and listening on the topic identified Daikin as the company to watch although I would have to do a lot more work before buying the stock. I’m certainly not going to buy it in the middle of a heat wave – I’m more of a buy-snow-shovels-in-August type of investor.
No transaction resulted from my research but that’s usually the case. The air conditioning theme provided a typical example of the pre-buying process.
DiversionsUnder 50s increasingly at risk of gastrointestinal cancers
My impression was that younger generations ate healthier than their elders so news that not only are gastrointestinal cancers surging among millennials and Gen Z, but also that doctors have no idea why, was an unwelcome surprise.
A report from the Dana Farber Cancer Institute detailed by Gizmodo found that colorectal cancers in particular were rising more quickly than other cancers. Admittedly we’re using a loose definition of younger people here – those under 50 – but the findings are disturbing.
Kimmie Ng, director of the Young Onset Colorectal Cancer Center at Dana Farber, reported that pancreatic, gastric and esophageal cancers were also on the rise. Pancreatic cancer caused by the daily consumption of 75 unfiltered Player’s cigarettes killed my grandfather and was a primary reason I quit smoking, and also makes me think about the rise of vaping.
The relationship between heavy alcohol consumption and esophageal cancer isn’t quite as strong as lung cancer and cigarettes but hard alcohol is a major risk factor for esophageal cancer. The rise in this type of cancer seems incongruous with declining alcohol consumption among younger generations.
The doctors at Dana Farber suggested that more study should be done on potential links between GI cancers and obesity, sedentary behaviour and diet.
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What’s up next
Retail sales Thursday is the only domestic economic release of wider importance in the next week. Economists expect a month-over-month decline of 1.0 per cent for the headline number and a drop of 0.2 per cent ex-autos.
Canadian National Railway Co. reports earnings on Tuesday (C$1.877 per share expected). Rogers Communications Inc. (C$1.102) posts results Wednesday followed by First Quantum Minerals Ltd. (loss of US$0.049 expected) and Waste Connections Inc. (US$1.245) on Thursday. Friday sees Teck Resources Ltd. (C$0.256), Loblaw Companies Ltd. (C$2.323) and FirstService Corp. (US$1.398) reports.
In Trumpland there’s an early look at U.S. manufacturing PMI for July on Thursday and preliminary durable goods results for June – a drop of 10 per cent month over month is forecasted but a flat result is predicted for the ex-transportation reading – is out Friday.
U.S. earnings season is picking up steam. Drinks behemoth Coca-Cola Co. ($0.833) reports Tuesday along with health care logistics leader IQVIA Holdings Inc. ($2.776). On Wednesday we get Freeport McMoRan Inc. ($0.446), Boston Scientific Corp. ($0.725), Tesla Inc. ($0.427) and Alphabet Inc. ($2.17). The reporting schedule Thursday includes a company maybe only I care about, Keurig Dr Pepper Inc. ($0.484), because Dr Pepper is delicious and I want it to succeed. Blackstone Inc. ($1.093) is also posting results Thursday and Cadence Design systems Inc. ($1.575) reports next Monday.
See our full earnings and economic calendar here