Christine Poole, CEO and managing director, GlobeInvest Capital Management

FOCUS: North American large cap stocks

MARKET OUTLOOK:

Courtesy of a resilient labour market and the staying power of the consumer, inflation has been slow to come down. Albeit, prices have declined sharply from peak levels last summer, core inflation remains stubbornly high at 5.5 per cent in the United States and well above the U.S. Federal Reserve's target range.

Recent Fed commentary suggests a willingness to consider a pause on further rate hikes, in part because of expectations banking stresses following the failures of three mid-size lenders to further tighten financial conditions. Contrary to the Fed’s forecast, market consensus is for rate cuts in the back half of the year. While a pivot to accommodative monetary is ultimately supportive for economic growth, a precursor to rate cuts is a significant deterioration in economic activity. 

Historically reliable leading indicators signal a pending recession. The difficulty lies in pinpointing its exact arrival. Arguably, certain parts of the economy are already contracting. Manufacturing activity has stalled due to the pullback in goods spending as consumers have gravitated to services over goods spending post the pandemic. The ISM manufacturing index has been in contraction territory for the past six consecutive months. Higher interest rates have already slowed activity in the housing market, albeit a structural undersupply combined with expectations of a peak in mortgage rates suggest a 2008 housing bubble collapse will not be repeated. The outlook for commercial real estate is clouded by the office sector, which is feeling the double impact of both higher interest rates and rising occupancy rates as some form of remote work remains in place.

Economic forecasting is difficult. The only certainty is uncertainty, especially against a backdrop of geopolitical unrest, deglobalization, decarbonization and technological advancements. We continue to base our investment decisions on finding well-priced businesses that will perform over the long term and have the wherewithal to manage and adapt to short-term events.

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TOP PICKS

Aritzia (ATZ TSX)

Aritzia operates in the women’s apparel industry, offering an assortment of exclusive in-house brands at attainable price points that appeal to a wide demographic, coined as “Everyday Luxury.” Aritzia has strong unit growth potential in the United States as well as a growing e-commerce platform. Other sources of future growth include expansion into new categories and broadening existing product lines.

Recent purchase price $34 range in May 2023

Canadian National Railway (CNR TSX)

CN Rail is a transportation and logistics company. CNR’s network connects Canada’s eastern and western coats with the U.S. south through a near 30,000 kilometre-mile rail network and transports natural resources, manufactured products, and finished goods throughout North America. The stock provides a yield of 1.9 per cent.

Recent purchase $162 range in May 2023

TD Bank (TD TSX)

TD is a leading North American bank, deriving 41 per cent of its net income from Canadian retail operations, 38 per cent from U.S. retail, 13 per cent from wealth management and insurance, and 8 per cent from wholesale/capital markets.  Its strong capital base provides flexibility to make opportunistic acquisitions as well as share repurchases, and dividend increases. TD’s current dividend yield is 4.7 per cent.

Recent purchase $82 range in May 2023

PAST PICKS: May 17, 2022

Brookfield Corp (BN TSX)

• Then: $62.70
• Now: $40.69
• Return: -20%
• Total Return: -19%

Visa (V NYSE)

• Then: US$204.00
• Now: US$231.73
• Return: 14%
• Total Return: 15%

WSP Global (WSP TSX)

• Then: $136.46
• Now: $174.64
• Return: 28%
• Total Return: 29%

Total Return Average: 8%