Andrew Pyle, senior investment advisor and senior portfolio manager, CIBC Wood Gundy
FOCUS: North American equities
Top Picks: iShares Cybersecurity andTechnology Index ETF, McDonalds Corp CanadianDepositary Receipt, Microsoft Corp CanadianDepositary Receipt
MARKET OUTLOOK:
It’s premature to say that market participants are happy with the new slate for the U.S. election in November, but the moves in the last few weeks do suggest that expected volatility in the lead-up to the election has dissipated. That doesn’t mean we aren’t in the middle of a post-Biden sugar rush that could fall apart in the weeks ahead, but the odds of that coming from fundamentals have likewise diminished.
Fears only four weeks ago that we were hip-deep in a U.S. recession have receded. Consumer confidence has picked up this month which could be picking up the influence of lower inflation, election dynamics, market performance or a combination of all three. The renewed optimism coupled with the recognition that we are leaving the five per cent plus cash world should provide enough lift for the S&P 500 Index to re-test its July highs up in the 5,667 area –following the lead by the Dow this week. Small caps are lagging in this latest push, with the Russell 2,000 actually down 2.3 per cent on the month, and opens up another opportunity for investors to build out exposure and diversify from mega-cap names.
Canadian stocks have outperformed in the quarter, with the exception of the Russell 2,000. Mining has definitely helped, but we have seen notable gains across other sectors (Shopify, MDA Space, and even NFI Group). Maintaining this recent outperformance will require that we don’t see more acute deterioration in the economy relative to the U.S.
A U.S. Federal Reserve rate cut in September is all but assured, though 100bps in cuts by the end of the year still looks a little rich. The key risk, outside of the election and geopolitical developments, is that expectations of the magnitude of central bank rate cuts turn out to be overly optimistic. Consensus is for Fed funds and the Bank of Canada rate to come in for a landing near three per cent by the end of next year. If growth comes in hotter, then the terminal rate might end up higher, requiring a re-think of equity and bond valuations.
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TOP PICKS:
I prefer CDRs basically because, with the CDN dollar trading near the lower part of its range and our view that it likely appreciates over the medium term, this insulates us from a negative currency effect.
iShares Cybersecurity and Technology Index ETF (XHAK TSX)
McDonalds Corp Canadian Depositary Receipt (CDR) (MCDS TSX)
Microsoft Corp Canadian Depositary Receipt (CDR) (MSFT TSX)
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| XHAK TSX | Y | Y | Y |
| MCDS TSX | Y | Y | Y |
| MSFT TSX | Y | Y | Y |
PAST PICKS: SEPTEMBER 18, 2023
Metro (MRUTSX)
- Then: $72.67
- Now: $84.35
- Return:16%
- Total Return: 18%
Rogers Communications (RCI.B TSX)
- Then: $56.51
- Now: $54.90
- Return:-3%
- Total Return: 0%
Andlauer Healthcare Group (AND TSX)
- Then: $42.93
- Now: $39.33
- Return:-8%
- Total Return: -7%
TotalReturn Average: 4%
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| MRU TSX | Y | N | Y |
| RCI.B TSX | Y | Y | Y |
| AND TSX | N | N | Y |