This Market Factors starts with news that AI is already seeing widespread adoption and how investors can profit from the trend. Section two highlights the surprisingly positive market backdrop despite maddening political news. The diversion covers terrifying new applications for genetic manipulation. Quick hits concludes this newsletter as always.
Robots fight during the "Rek Tokyo 2026" humanoid robot fights in Tokyo on July 25, 2026.AFP Contributor#AFP/AFP/Getty Images
Stocks to watch
Profit from AI adoption
Report on Business banking reporter Stefanie Marotta’s feature on domestic banks adopting AI and rethinking hiring processes earned a big reader response, hinting at broader HAL 9000-related concerns. Thing is, AI adoption is well underway despite these fears and as investors it’s our job to find a way to profit.
Morgan Stanley chief U.S. equity strategist and chief investment officer Michael Wilson focused on companies adopting AI in his Weekly Warm-up report released over the weekend. He noted first that positive earnings revisions were most common among companies reporting AI adoption. Companies with positive pricing power and AI adoption are reporting profit margins roughly 4 percentage points above the median S&P 500 stock.
Analysis of management earnings calls found that 25 per cent of S&P 500 companies cited measurable benefits from AI during the second quarter. This compares with 14 per cent 12 months ago. Mr. Wilson expects AI to add about 1.0 percentage point to index profit margin expansion in 2027.
The strategist screened the S&P 500 for companies where AI adoption was central to the growth thesis, pricing power was either neutral or positive, and Morgan Stanley analysts had an “outperform” rating.
The list of stocks from the screen has almost 60 members so too long to post here. I shortened the list to companies most likely to interest Canadian investors. I ranked them by year-to-date return.
Market Sentiment
Investing backdrop very positive
U.S. trade policy remains ham-handed and petulant, and there’s a completely avoidable war in the Middle East, yet despite that it’s hard to complain about the global investing backdrop according to one prominent strategist. BofA Securities quant strategist Nigel Tupper’s global wave index incorporates global producer prices, credit spreads, earnings revisions, consumer confidence, capacity utilization, industrial confidence and global unemployment to assess the global investing environment. The news is constructive enough for him to call his most recent report Friendly Wave.
Mr. Tupper reported that improving macroeconomic data was successfully driving profit growth while positivity in the business news flow (again, outside of the White House), is approaching eight-year highs.
In terms of specific sectors, the strategist noted that semiconductors have historically been the best performers when the global wave is rising. This, combined with recent weakness in that sector, suggested a buying opportunity in his estimation.
Mr. Tupper has developed a stock list of what he calls “boosters’, which have characteristics that perform best when the global wave is rising. These factors include cyclical earnings growth, higher beta, positive correlation to bond yields, and high earnings estimate dispersion.
The international (non-U.S., non-Europe) booster list holds little of interest to most Canadian investors, with the notable exception of Ivanhoe Mines. The U.S. booster list has Lululemon Athletica, United Airlines, Liberty Media F1, First Solar, ON Semiconductor and Zoom Communications. European boosters include BMW, Ryanair and Antofagasta.
Diversions
Fatal eugenics
A Chinese six-year-old, with marginal developmental issues that had her trailing her classmates and using chopsticks meant for younger children, underwent a revolutionary treatment to adjust her genetic code. It killer her.
The process, using gene-editing technology even more precise than the CRISPR machine, had previously been successful in a Philadelphia baby with a life-threatening genetic disorder.
All of these details are from a heavily researched Science magazine story that uncovered that the Chinese child had a fatal response to the virus carrying new genetic material that was injected into her spinal fluid.
Genetic manipulation for deadly diseases is uncontroversial but this one … I don’t know. Maybe we don’t have the full details but it doesn’t sound like anything potentially fatal was going on.
I can see the parents’ motivation. If the doctors had assured them the treatment was safe and the genetic change would end the developmental problems, the child could lead a more comfortable life.
This is a tragic story and unfortunately, I don’t think it will be the last of its kind as technology and ethics are tested.
The essentials
Looking for our updates on market movers, analyst actions, stock technicals, insider trades and other daily, weekly and monthly insight? Click here to visit our Inside the Market page.
Globe Investor highlights
Norman Rothery presents a table of dividend stocks that has performed better than the TSX over the past 25 years. Meanwhile, Tim Shufelt says the free ride is over for dividend investors
Safety has rarely been so expensive in the stock market. Ian McGugan wonders if supposedly safe stocks are now all that safe after all.
Some investors expect an exodus from stocks if the U.S. 10-year bond yield rises much further to these critical levels
Magna has come roaring back. David Berman says there’s a case for holding on
How fast money is warping market logic
Quick hits
Goldman Sachs chief U.S. strategist Ben Snider helpfully provided three non-AI investment ideas for volatility-averse investors. Consumer experience is the most actionable idea, a set of stocks – membership clubs, parks, theatres, museums, gambling, sports centres and accommodations - reflecting secular growth and attractive valuations. The other two ideas – compounders and merger and acquisition targets – are stock screens except with the resulting stocks missing from the report.
BofA Securities has developed an index of “blue collar semiconductors” that signal the direction of the industrial sector. The constituents are Texas instruments, Analog Devices, NXP, Microchip, ON Semiconductor, STMicroelectronics, Infineon and Monolith Power.
Read this week’s earnings and economic calendar here