Christine Poole, CEO and managing director, GlobeInvest Capital Management
FOCUS: North American large caps
Top Picks: McDonald’s, Pembina, RTX
MARKET OUTLOOK:
The global economy is slowing, not stalling. That is the desired outcome of restrictive monetary policy as central banks navigate to a soft landing. Inflation is on a downward trend, moving towards the target ranges, providing central banks leeway to start lowering policy rates. So long as slower inflation readings continue, rate cuts should continue.
The Canadian labour market has been cooling over the past two years. The unemployment rate dropped to a low of 4.9 per cent in June 2022 and has since edged up to 6.4 per cent in June. The deteriorating employment situation reflects the cumulative negative impact of rising interest rates translating into fewer job openings and population growth resulting in more job seekers. Further signs of softening in labour markets would help to reassure the Bank of Canada that inflation pressures are more likely to drift lower and set the path for additional rate cuts to follow.
The employment situation in the U.S. has been much more resilient, albeit the unemployment rate has moved up to 4.1 per cent from a recent trough of 3.4 per cent in April 2023. Population growth in the U.S. has been more muted than in Canada, barely 0.5 per cent higher than a year ago compared to Canada’s 3.2 per cent. U.S. Federal Reserve officials are cognizant of the delicate balance between taming inflation and avoiding a significant deterioration of the labour market. Fed Chair Jerome Powell has acknowledged that the labour market is cooling off and has reiterated his view that a sudden deterioration in employment growth could spur faster rate cuts. For now, consensus expectations are for the first policy rate cut to happen in the fall.
Narrowing breadth in equity markets is concerning and a broadening in price gains across more sectors would be a healthy development. Upside to consensus corporate profit expectations and visibility to future profit growth is necessary to support equity prices.
Our focus is to build wealth for our clients over the long term through owning a diversified portfolio of financially sound, well-managed and reasonably priced companies.
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TOP PICKS:
McDonald’s Corporation (MCD NYSE)
McDonald’s is the world’s largest fast-food restaurant chain, serving over 69 million customers daily in over 100 countries. Of the over 41,000 restaurants at the end of 2023, 95 per cent were franchised. MCD’s revenues come from the rent, royalties, and fees paid by the franchisees, as well as sales in company-operated restaurants. The global scale of McDonald’s allows an underlying “value for money focus” especially important as consumers consider trading down in a slowing economy. MCD has increased its dividend for 47 consecutive years and offers a dividend yield of 2.7 per cent.
Pembina Pipeline (PPL TSX)
Pembina is a leading North American energy infrastructure company providing energy transportation and midstream services. Its business is diversified across the energy complex with close to 70 per cent of its cash flow under contracted under long-term, take-or-pay or cost-of-service agreements. Pembina offers an attractive dividend yield of 5.4 per cent.
RTX Corporation (RTX – NYSE)
RTX is a leading aerospace and defence company engaged in providing advanced systems and services for commercial, military and government customers globally. Its product portfolio includes avionics, interiors, aircraft engines, sensor and communication systems and missile defence systems. Its commercial aerospace businesses benefit from the growth in global air travel while demand for its defence products is robust due to ongoing geopolitical conflicts. The stock provides a dividend yield of 2.5 per cent.
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| MCD NYSE | Y | Y | Y |
| PPL TSX | Y | Y | Y |
| RTX NYSE | Y | Y | Y |
PAST PICKS: July 13, 2023
Chubb Limited (CB NYSE)
- Then: $190.00
- Now: $260.31
- Return: 37%
- Total Return: 39%
Thermo Fisher Scientific (TMO NYSE)
- Then: $526.65
- Now:$546.67
- Return:4%
- Total Return: 4%
Visa (V NYSE)
- Then: $243.31
- Now: $266.50
- Return: 9%
- Total Return: 10%
Total Return Average: 18%
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| CB NYSE | Y | Y | Y |
| TMO NYSE | Y | Y | Y |
| V NYSE | Y | Y | Y |