Market Factors begins this week with why the growing strength in U.S. small-cap stocks is of little interest to me. I’ll discuss why all capital markets jobs are sales jobs and the diversion covers new data on the decline of social media.
Futures-options traders work on the floor at the American Stock Exchange (AMEX) at the New York Stock Exchange (NYSE) in New York City, Oct. 2, 2025.Brendan McDermid/Reuters
Investment ideas
Have fun, I’m not playing
BofA Securities strategists have a compelling argument for investment in U.S. small-cap stocks but I don’t want to play along. As an asset class, small caps are like airline stocks - they are for renting, not owning – at this stage of my investing life.
The Russell 2000’s three per cent rally in September was notable because it was entirely based on fundamentals. Average valuations were unchanged for the month, indicating that gains were based primarily on improving profit outlooks.
BofA’s Jill Carey Hall emphasized that both earnings and sales revisions for the Russell 2000 are at multi-year highs and small-cap earnings growth is forecast to exceed large caps for the fourth quarter.
U.S. small-cap stocks are trading with a 30 per cent discount to large caps, at levels implying a roughly 8 per cent annual return for the next decade - well above the 1 per cent implied for large caps.
These statistics are compelling, but I am too old for small-cap stocks. I don’t want to deal with the extra volatility inherent in the sector. I’m not willing to own any asset class where I have to watch it every day with my finger over the sell button trying to find the peak price before getting out.
I am not saying that small caps aren’t a good idea. I’m saying they’re a bad idea for me. There have been prolonged periods of small-cap outperformance when the sector increased returns while providing diversification beyond the S&P 500. The Russell 2000’s near-40 per cent return in 2013 is a recent example.
For investors willing to stomach the extra risk, Citi U.S. equity strategist Scott Chronert published a list of what he calls value creators – small- and mid-cap stocks with healthy balance sheets and strong growth prospects relative to their valuations. The stocks on this list most likely to interest domestic investors include BJ’s Wholesale Club Holdings Inc. (BJ-N), Chewy Inc. (CHWY-N), Flowserve Corp. (FLS-N), QXO Inc. (QXO-N), Knight-Swift Transportation Holdings Inc. (KNX-N), Docusign Inc. (DOCU-Q), Mirion Technologies Inc. (MIR-N), Wix.com Ltd. (MIR-N) and Sealed Air Corp.(SEE-N)
Human resources
Of course soft skills are still important in finance
The weekly Briefing newsletter from Goldman Sachs included results from a survey of summer interns on their way out of the company. The interns were questioned about their workplace experience and the results underscored the importance of soft skills - the ability to get along while getting things done - despite the rise of AI. Soft skills have always been vital in capital markets where more or less everybody is in sales.
There is a common misconception that traders on major trading floors (to the extent they still exist – automation has decimated their numbers), for instance, come up with trading ideas of their own and execute them. In actual fact the normal course of their day is trying to convince institutional clients to give them tickets (buy or sell orders).
Analysts travel the country once a year meeting major portfolio managers, selling their insight into specific companies and stocks so that the managers send their trade orders to the analyst’s company. Institutional sales is self-explanatory - a sole focus is absorbing analyst knowledge and transforming them into trade ideas to sell to fund managers so that they generate buy and sell orders.
Investment bankers, the hub around which capital markets revolves, are the most sophisticated of salespeople. The job there is to convince corporate management teams to do their IPO, secondary offering or debt issue with their company. Investment banker expense accounts are near bottomless because theirs is the highest profit margin business and no sales pitch is too extravagant if successful.
Photo illustration of the logo of the social media platform X (former Twitter).MAURO PIMENTEL/AFP/Getty Images
Diversions
Social media a failing experiment
Social media is starting to look like a fad. The Financial Times commissioned a survey of 250,000 people in 50 countries and found that time spent on social media has been falling steadily since 2022.
The average daily usage of social media dropped 10 per cent for adults between 2022 and the end of 2024. Furthermore, “The shares of people who report using social platforms to stay in touch with their friends, express themselves or meet new people have fallen by more than a quarter since 2014.”
I moved from Twitter to Bluesky this year as part of a strategy to reduce time on social media. It worked in part – I am less likely to participate on social media and more often just lurk – but I’ve replaced that time with a lot of passive Instagram usage in my free time.
The biggest lesson I learned from social media is how much abuse women take for merely expressing their opinions. I knew misogynistic cretins existed but their sheer numbers and blind cruelty both surprised and depressed me. I blame them, and those like them, for the ongoing decay of social media but maybe its end is for the best.
I discovered the survey through Marginal Revolution.
The essentials
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Globe Investor Highlights
Norman Rothery notes that TSX returns over the long haul aren’t nearly as impressive once you factor in inflation
Canadian investors are betting on defence and construction stocks as Carney targets nation-building projects
Trump has his eye on Canadian forestry stocks - and David Berman says you should, too
It isn’t just Wall Street. AI is also generating huge gains in Chinese stocks
What’s up next
The domestic economic calendar starts with international merchandise trade for August on Tuesday when economists expect a C$5.75-billion deficit. Unlike the government-shuttered Americans, we get a report on employment for September, released on Oct 10. The forecast is for a loss of 10,000 jobs and an unemployment rate of 7.2 per cent.
For profit reports we have DPM Metals Inc. on Tuesday (US$0.636 per share expected) and Thursday will see results from Richelieu Hardware Ltd. ($0.405) and Aritzia Inc. ($0.389)
U.S. economic reports that could but probably won’t actually happen include the trade balance for August (a deficit of $61.4-billion forecasted) on Tuesday and wholesale inventories for August on Thursday.
U.S. earnings reports in the next week include McCormick & Co. ($0.818) on Tuesday and PepsiCo Inc. ($2.265) and Delta Air Lines Inc. ($1.571) on Thursday.
See our full earnings and economic calendar here