Andrew Pyle, Senior Investment Advisor and Portfolio Manager, CIBC Wood Gundy
Focus: North American stocks
The main theme for the markets this year is how well we can squeeze cycles through rhetoric of fear and strong monetary tightening. Late in the second quarter, we moved cash into government bonds and tech stocks for this very reason — valuations have squeezed a lot under this panic.
Severe inflation fears in the second quarter, which exacerbated the sell-off in fixed income and equities, gave way to the view that price pressures could ease in the face of weak economic activity.
The US jobs report for July appears to argue with this view, but other indicators support our claim that higher prices are destroying demand, especially in the housing sector. For the recent stock recovery to continue, we need to see actual evidence that inflation is abating, with no signs of stagnation, which is why this week’s US CPI report is so important.
In terms of general sentiment, we are likely to see some fading out as the market looks to see if the technical support levels hold. As for the S&P 500, we need to see a break of 4177, which is the high from June 2. TSX has much more room to cross to reach the intraday high from June 2 near 21,000. I think as the recession talk fades, we can see a rotation from technology to commodities. We are increasing our exposure to mining after the latest correction. While we don’t hold conventional energy companies, oil prices appear to have bottomed out in the near term, so this sector should start performing as well.
On the interest rate side, I think the real focus is not so much on how high the Fed and Bank of Canada will push their targets, but how quickly central banks can bring them back down. If we repeat the experience of 1994, the outlook for the economy and stocks is favorable. If prices stay at their peak for a long time, the odds of a recession will rise in 2023.
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Canadian Apartment REIT (CAR.UN TSX)
Teck Resources (TECK.B TSX)
Methanex (MX TSX)
Previous Picks: Sep 13, 2021
BlackBerry (BB TSX)
- Then: $13.25
- Now: $8.90
- Yield: -33%
- Total return: -33%
Allied Real Estate REIT (AP.UN TSX)
- Then: $42.01
- Now: $33.49
- Yield: -20%
- Total Return: -17%
Manulife Financial (MFC TSX)
- Then: $24.72
- Now: $23.70
- Yield: -4%
- Total Return: -0.1%
Average total return: -17%