Dave Canal's blog

Change is underway in the equity markets so far in 2026.  In our year-end 2025 letter we alluded to the potential for a significant leadership change.  We noted the high valuations and speculative excesses notably within the artificial intelligence space.  It was those areas that have narrowly led the market for several years.  Sometimes, when the market gets too top-heavy it rolls over.  At the time, we noted that the best-case scenario would be an orderly transition away from former leadership into new leadership.  That is happening.
 

The long story short: Overall stock prices have been driven higher by a very narrow group of stocks for several years, and to see the revival of “dinosaur” stocks starting to participate is a very welcome, healthy sign for the overall market.  We expect this to continue and is a very bullish sign for the equity markets. Read on for more. 

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Both the equity and bond markets delivered solid gains in 2025, marking three consecutive years of positive gains. 

As we pause to reflect on the sacrifices of so many for our great country this Memorial Day weekend, we wanted to take a moment to provide our thoughts and perspectives on the recent volatility across the capital markets landscape.

If you follow financial news you are undoubtedly aware of the story about millennial stock traders using a computer network to challenge a 12 billion hedge fund. They impacted a stock appropriately named GameStop. Millions of them “colluded” in buying this heavily shorted stock, creating a short squeeze. Their effort drove the stock up 1,600% in a couple of weeks! “Pools” of organized speculators did this 100 years ago. It was then made illegal. But with computerization, it is so easy to do.

By no means are we out of the woods yet with the Coronavirus pandemic, but things are certainly trending in the right direction.  The incredible social distancing efforts that Americans have endured has “flattened the curve” and our politicians are working to restore our society to some form of normalcy. 

Years ago, I was randomly changing television channels when suddenly, I saw something extraordinary. A young boy was standing with his back to a cathedral in Paris. There was an artist’s palette behind him. Then a voice said, “Now turn around.” The boy turned, stared at the medieval cathedral for a moment, then turned again with his back to the cathedral and drew the church with all its myriad iconic detail.  His precision was astonishing. The voice then softly said, “The boy is autistic and gifted.” Later, I realized we all have a gift.

During this time of unprecedented uncertainty, all of us here at Contravisory are concerned about the safety and well-being of our families, colleagues, customers, partners, and the many friends who make up Contravisory’s broader family.  Please know that we are thinking of you.

With half the stock market’s total capitalization represented in index and ETF funds, it could almost be called a “passive” stock market. But that will never happen. The impact of an individual stock on a portfolio’s performance is too great. Peter Lynch expressed this reality best when he said, “It is not the number of times you are right, but the magnitude of when you are right.” I had learned that lesson years ago working for Merrill Lynch as a young order clerk.

If you’ve ever watched a TV quiz show called “Jeopardy,” your reaction might have been similar to mine.  “Wow, how do they know that?  They’re really bright!” Endless facts.  Endless “knowledge” about things that I, for one, know nothing about.  But it is not knowledge; it’s about an ability to retain information.  That’s very different from having knowledge of a subject.  With knowledge, one has the ability to use information.  It is the essence of the quote, “May the force be with you” from the Star Wars epic film saga.