B8 G THE GLOBE AND MAIL | SATURDAY, SEPTEMBER 6, 2025 GLOBE INVESTOR | REPORT ON BUSINESS T he U.S. stock market is roaring higher. That is to be expected. It does this every 25 years or so. Unfortunately, the aftermaths of these euphoric periods aren’t usually pretty. Investors who don’t want to be blindsided may want to ponder a few unfortu- nate moments in Wall Street his- tory. Start with the last bubble: Just over 25 years ago, in the mid-to- late 1990s, euphoria over the po- tential of the brand-new internet drove tech stocks such as Intel Corp., Cisco Systems Inc. and Nortel Networks Corp. to absurd peaks. That was followed by a painful multiyear crash. The tech-heavy Nasdaq Composite Index lost three-quarters of its value from 2000 to 2002. It didn’t claw its way back to its dot-com high until 2015. A similar story played out 25 years earlier, when investors went wild for the Nifty Fifty stocks – a tech-heavy group that included such hot young things as Polaroid Corp., Xerox Corp. and International Business Ma- chines Corp. Enthusiasm for those supposedly invulnerable businesses propelled Wall Street to giddy heights in the early 1970s. The euphoria vanished when an oil crisis, rising inflation and the Watergate scandal yanked the market back to reality in 1973 and 1974. The benchmark S&P 500 Index lost nearly half its peak value. It did not regain its previous peak until 1980 in nom- inal terms and not until 1993 when adjusted for inflation. To be sure, this neat 25-year- or-so cycle between the U.S. mar- ket frenzies of 1973, 1999 and 2025 breaks down if you look at the market’s relative calm in the late 1940s and early 1950s. Per- haps the Second World War dis- rupted the normal sequence of events. Peer back just a bit further, though, and you can see the best-known bubble of them all. That was the Jazz Age madness of the late 1920s, when excite- ment over breakthrough innova- tions such as radios, airplanes and cars drove share prices to re- cord levels and prompted even shoeshine boys to play the mar- ket. Radio Corp. of America (RCA) and Columbia Phono- graph Co. were just two of the hot stocks that seemed to have endless room to grow. When Wall Street crashed in October, 1929, it devastated a generation. The Great Depres- sion followed. The Dow Jones In- dustrial Average didn’t recover its 1929 peak until 25 years later. You can debate the precise mechanics of these various bub- bles, but it’s hard to miss the similarities among them. In each case, the starting point was the appearance of legitimately excit- ing new products. These innova- tions prompted enthusiasts to declare that a new era was at hand. Their excitement set off a stampede of speculation. The stampede drove stock prices for- ward, drawing in crowds of eager new investors until prices hit lev- els that assumed perfection and beyond. All of which sounds rather like today, doesn’t it? Sure, artificial intelligence (AI) is an exciting breakthrough. So were radio, mainframe computers and the internet back in their days. The question is whether investors are once again expecting too much from a fascinating new technol- ogy. Most of the standard ways to value stocks scream that expec- tations are now way too high. When you compare stock prices to their underlying revenues or earnings, the current U.S. stock market is just as expensive as it was at its previous bubble peaks. David Kelly, chief global strat- egist at J.P. Morgan Asset Man- agement, warns that Wall Street’s “serious valuation is- sues” may be even more serious than most investors realize. Peo- ple are not just paying a lot for each dollar of a stock’s earnings, he points out. They are also pay- ing those share prices based up- on levels of corporate profitabil- ity that seem inflated in compar- ison with historical norms. At the height of the dot-com bubble, in early 2000, adjusted after-tax profits for the S&P 500 accounted for 6.4 per cent of U.S. gross domestic product. Today, those adjusted after-tax profits account for 10.8 per cent of GDP. This is worrisome because profits can’t expand forever as a share of the U.S. economy. By historical standards, they are al- ready lavish. It’s hard to see how they can grow rapidly from an already elevated share of the economy. If anything, profits seem more likely to stagnate, or even decrease, as a piece of the overall economic pie. Yet investors aren’t playing it safe. They seem confident that profits can grow and keep on growing at historically unusual levels for as far as the eye can see. Their confidence may reflect excitement about the potential of AI, but even cheerleaders such as Sam Altman, chief executive of ChatGPT-creator OpenAI, warn that expectations are run- ning ahead of reason. “Are we in a phase where investors as a whole are overexcited about AI? My opinion is yes. Is AI the most important thing to happen in a very long time? My opinion is al- so yes,” he was quoted as saying last month. At such giddy times, it pays to ponder history. I remember a white-haired stockbroker telling me during the dot-com insanity that markets go crazy once a generation, because a new bub- ble can’t really get going until all the investment pros who re- member the last one retire. This may explain the regular occur- rence of market frenzies once ev- ery 25 years or so. Personally, I’m prepared to edge back from the current Wall Street silliness, focus on non-U.S. investments and start getting ready for the great bull market of 2050. This market frenzy occurs every 25 years The aftermath of euphoric periods is rarely pleasant. Investors may want to recall past painful moments in Wall Street history IAN McGUGAN OPINION Just over 25 years ago, in the mid-to-late 1990s, euphoria over the potential of the brand-new internet drove tech stocks such as Intel Corp., Cisco Systems Inc. and Nortel Networks Corp. to absurd peaks. That was followed by a painful multiyear crash. M any of us embrace com- panies that pay attractive dividends and increase the payouts at least once a year. But should we pay more attention to companies that cut their divi- dends? I know, the question sounds a bit crazy. But with BCE Inc.’s share price up nearly 14 per cent since May, when the Canadian telecom giant slashed its quarterly distribution by more than half, the stigma as- sociated with the dividend cut is losing some of its edge. And the interesting thing is, BCE is not an isolated example of a stock that has rebounded on bad news. During the lockdowns in 2020, a number of Canadian companies cut their payouts to preserve cash during a particularly tumultuous time for the economy. These companies included Laurentian Bank of Canada, Sun- cor Energy Inc., RioCan Real Es- tate Investment Trust, CAE Inc. and Gildan Activewear Inc. But within a year, a portfolio of 10 Canadian stocks that slashed their payouts during the first half of 2020 had rebounded 56 per cent. This performance beat the S&P/TSX Composite Index by a dazzling 30 percentage points over the same one-year period, not including dividends, accord- ing to numbers I compiled at the time. The 10-stock portfolio even beat the S&P Dividend Aristocrats Index, which consists of stocks that have a history of raising their dividends every year, by 21 per- centage points. Dividend cuts, it seems, can mark a good time to buy stocks, not sell them. Okay, there are plenty of ca- veats here. (Full disclosure: I own shares in BCE and RioCan, and – sheesh – remain underwater with both.) For starters, the dividend cuts that occurred during the CO- VID-19 pandemic were specifical- ly tied to the short-term conse- quences of lockdowns. They we- ren’t related to bad management decisions or shifting fundamen- tals of a struggling sector. When the lockdowns ended, and the economy recovered, most distributions began to recover as well. Second, the share prices of divi- dend-cutting companies bounced back from depressed lows. But that doesn’t mean in- vestors benefited over the longer term. Some stocks failed to recover to 2019 levels. Others recovered and then sank again. Laurentian Bank continues to struggle. And RioCan’s unit price is still about 30 per cent below its pre-pandemic level, in December, 2019, even though the REIT raised its payout as recently as March, 2025. Dividend cuts, in other words, don’t guarantee riches. And the third caveat: Timing can be difficult to get right. Algonquin Power & Utilities Corp. cut its dividend in January, 2023. It then cut it again in August, 2024. But the share price didn’t hit a low until later, in January, 2025. Still, the bigger takeaway here is interesting: If a slashed divi- dend offers a clear signal that management has run out of fi- nancial options, it might signal that the worst is over for a diving stock. Is the worst over for BCE? The telecom still faces a large debt load, declining population growth and intense competition within the all-important smart- phone business. But its most re- cent quarterly results, released in August, showed improving reve- nue and profit that beat analysts’ expectations, which is encourag- ing. So perhaps BCE’s dividend cut earlier this year was the low point for the stock – or close to it – and a recovery has begun. We can only hope that a pattern is emerging. Was BCE’s dividend cut a buying opportunity? It’s increasingly looking that way DAVID BERMAN INVESTMENT REPORTER T his year’s meteoric gold ral- ly has been driven by war, lingering inflationary pres- sures, erratic U.S. trade policies and President Donald Trump’s at- tacks on Federal Reserve inde- pendence, making the metal a winning hedge against a world turned upside down. Gold investors now need to brace themselves for what comes next: zzzzz. That’s right, the underpinnings for gold’s next move could be far less dramatic than the headline- grabbing events that sent inves- tors scrambling for the perceived safety of bullion over the past year. The next phase of the rally could rest on factors that are far more traditionally aligned with gold, such as expected Fed rate cuts and a weaker U.S. dollar. Still, if these technical factors drive the price of gold higher from today’s record highs, investors are unlikely to complain. Gold took off in August, ending four months of zigzagging and emerging as the best-performing U.S. asset class for the month, ac- cording to Savita Subramanian, equity and quant strategist at Bank of America. The price of gold gained 4 per cent last month before rising to a high of US$3,650 early Friday. It outshone investment-grade cor- porate bonds, the S&P 500 and even the tech-fuelled Nasdaq Composite Index. Okay, the S&P/TSX Composite Index did a little better than bul- lion in August, rising 4.8 per cent. But take a look at what pro- pelled Canada’s benchmark high- er over the past month and you’ll see big gold producers such as Kinross Gold Corp., Barrick Mining Corp. and Agnico Eagle Mines Ltd. among the top per- formers in the index, with solid double-digit gains. What’s more, TSX-listed gold producers contributed 572 points to the index’s performance last month, according to Bish Koziol, an analyst at RBC Capital Markets. The contribution was larger than that of banks, even though the five largest gold companies in the index are less than half the size of the five largest banks in terms of the combined value of their shares. Over the longer term, gold has risen 38 per cent this year. The iSh- ares S&P/TSX Global Gold Index ETF, which tracks the perform- ance of dozens of gold producers, is up 90 per cent. Investors who have shunned individual gold stocks may have gained significant exposure to the sector simply through broad in- dex-tracking funds. Even more broadly, some econ- omists argue that the Canadian dollar is being supported by bul- lion as Canada’s trade surplus in gold surges, overcoming weaker economic data that would nor- mally skewer the value of the loo- nie. “There is no historical prece- dent for gold exerting such influ- ence over the currency, eclipsing both oil and rates as the primary force behind Canadian dollar moves,” Stefane Marion and Kyle Dahms, economists at National Bank of Canada, said in a note this week. So what’s next for gold? The dull case rests on Fed mon- etary policy. The central bank has hinted that rate cuts are coming, perhaps in a couple of weeks, as the U.S. labour market weakens and economic activity turns soft- er. Lower rates reduce the oppor- tunity cost of owning gold, since investors may be less enamoured with lower-yielding cash and short-term securities. Rate cuts could weigh on the U.S. dollar as well, and a weaker dollar tends to be bullish for bul- lion. Citigroup strategists expect that the price of gold can rise to US$3,750 over the near term, based partly on strong investor in- terest in gold ETFs and rising U.S. stagflation risks – in which eco- nomic growth subsides but infla- tion remains sticky. The higher target implies an- other 3-per-cent gain from Fri- day’s price, which is, well, pretty ho-hum. But there are a couple of com- pelling reasons to stay alert here. David Rosenberg, the presi- dent of Rosenberg Research & As- sociates, believes gold is in the midst of what he calls a secular bull market, in which sweeping trends underpin demand for gold over the long term. Central banks, for example, will continue to diversify their for- eign exchange reserves by buying more gold, essentially putting a floor under the price. Another reason to keep an eye on gold: Mr. Trump is showing no signs of controlling his erratic im- pulses. That could raise the demand for the metal as a hedge against ugly surprises, such as a steep drop in the value of the U.S. dollar, a tariff-induced economic down- turn or a stock market selloff. “Gold is at a record high at a time when the stock market is al- so pressing against a record high. Imagine what happens if the risk- on trade morphs into a risk-off trade,” Mr. Rosenberg said in an interview. He thinks gold is going to US$6,000 at some point in this bull market. Perhaps there’s still some excitement here. Extraordinary factors drove this year’s gold rally. Now comes the boring part DAVID BERMAN OPINION The price of gold gained 4 per cent in August before rising to a high of US$3,650 early Friday. It outshone investment-grade bonds, the S&P 500 and the Nasdaq Composite Index. DAVID GRAY/AFP VIA GETTY IMAGES