Christine Poole, CEO and managing director of GlobeInvest Capital Management 

FOCUS: North American large-cap stocks

Market outlook:

Financial markets ended the year with an impressive finish in the fourth quarter.

Lower interest rates, a growing economy, and corporate profit growth will likely be required for stocks to hold their price gains and further appreciate in 2024.

The pace at which inflation comes down will dictate how quickly central banks cut interest rates. The U.S. Federal Reserve acknowledged at its December meeting that inflation has declined much faster than it previously expected. The Fed’s preferred measure of inflation, the core Personal Consumption Expenditures (PCE) deflator, was 3.2 per cent annualized in November, down from 5.0 per cent at the start of the year. Goods inflation has plunged to deflationary levels while services inflation has receded slower. The latter should dissipate as the rent component continues to drop.

Now that consumers have nearly exhausted their savings stockpiles accumulated during the pandemic, employment income will be the primary driver of consumer spending. In Canada, slower hiring and steady labour growth has continued to put upward pressure on the unemployment rate, which is now approaching six per cent. In contrast, the U.S. unemployment rate has remained below four per cent for 23 consecutive months, the longest stretch since the 1960s. Its resilience so far may be an important cushion against policy mistakes the Federal Reserve could make.

Based on consensus estimates, a profit recession is not expected in 2024. Earnings per share (EPS) for the S&P 500 companies are expected to grow 2.8 percent in 2023 and accelerate to 10.9 per cent this year, supportive of a soft landing for the U.S. economy. For the TSX companies, EPS is forecast to contract 4.9 percent in 2023, and then grow 8.5 percent in 2024.

Geopolitical tensions remain elevated around the world. The world has always been a neighbourhood of conflicting forces, measured by periods of rising or receding complacency. Nonetheless, the global economy adapts to changing geopolitics and this inevitably presents investment opportunities within industries and companies.

We adhere to our longstanding philosophy of staying invested in quality income and growth companies over economic cycles and letting the power of compounding grow wealth over the long term.

• Sign up for the Market Call Top Picks newsletter at bnnbloomberg.ca/subscribe
• Listen to the Market Call podcast on iHeart, or wherever you get your podcasts

Top picks:

JPMorgan Chase (JPM NYSE)

JPMorgan Chase is the largest bank in the U.S. engaged in consumer and corporate banking services, investment banking, and wealth and asset management. Led by a well-respected management team, the bank has a solid track record of successfully navigating to outperform through the cycle. JPMorgan offers a dividend yield of 2.5 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 2.8 per cent.

WSP Global (WSP TSX)

WSP Global provides engineering and design services to clients in the earth and environment, transportation and infrastructure, property and buildings, resources, power and energy, and industry. Through strategic acquisitions, WSP has expanded its global presence with Canada representing 17 per cent of revenues, Europe/the Middle East/India/Africa represent 32 per cent, the Americas represent 34 per cent, and Asia Pacific represents 17 per cent. WSP is committed to its proven growth strategy of being a consolidator within a fragmented industry, continuous margin improvement, and growing organically while maintaining a strong balance sheet. WSP offers a dividend yield of 0.8 per cent.

Past picks: January 18, 2023

Alphabet (GOOGL NASD)

Then: US$91.12
Now: US$147.85
Return: 62 per cent
Total Return: 62 per cent

Aritzia (ATZ TSX)

Then: $44.95
Now: $34.68
Return: -23 per cent
Total Return: -23 per cent

Visa (V NYSE)

Then: US$219.46
Now: US$270.67
Return: 23 per cent
Total Return: 24 per cent

Total Return Average: 21 per cent