Christine Poole, CEO and managing director, GlobeInvest Capital Management

FOCUS: North American large-cap stocks 

MARKET OUTLOOK:

Inflation is moderating; however, recent reports indicate it is receding at a slower pace than many had anticipated at the start of the year. Nonetheless, financial markets remain sanguine that interest rate cuts will commence later this year.

The lagged impact of the interest rate hiking cycle is becoming more fully entrenched as evidenced by Canadian business insolvencies in January surging to their highest level in 19 years. Job creation is not keeping up with population growth and the Canadian unemployment rate continues to edge higher. While the Bank of Canada acknowledges economic growth is weak and below potential, it is still concerned about inflation risks, particularly the persistence in underlying inflation and recently reiterated “it’s still too early to consider lowering the policy interest rate.”

In contrast, hiring activity in the U.S. continues to be robust and the unemployment rate remains below four per cent, marking 25 consecutive months of sub-four per cent readings. Economic growth has surprised to the upside and recession risks are abating. Americans, however, are saving less and spending more. The personal savings rate was 3.8 per cent in January, below 5.2 per cent a year ago and the historical average of about 6.2 per cent. Other worrisome signs include rising credit card debt with delinquency rates returning to pre-pandemic levels and higher debt servicing costs. The health of the U.S. job market is increasingly crucial to keep the American economy on solid footing.

The U.S. Federal Reserve increased its policy rate 11 times since March 2022 and has been on hold since July 2023. The tightening cycle is over and the transition from restrictive to accommodative monetary policy by central banks globally should commence later this year. Albeit central banks will err on the side of caution in their quest to bring inflation under control and engineer the much-anticipated soft landing. Given the strength in equity markets so far this year, any unanticipated delay in monetary easing could be unsettling for investors.

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TOP PICKS:

Alphabet (GOOGL NASD)

Alphabet is a global technology company providing the world’s leading search engine, Google, and dominates in both global desktop and mobile search engine queries. The company is a beneficiary of the shift to online advertising, offering various digital advertising tools powered by artificial intelligence. Other revenue streams include Google Cloud, YouTube, and Google Play.

Mondelez (MDLZ NASD)

Mondelez is a global snacking company with category-leading market shares in biscuits and chocolate. Its portfolio of leading global brands includes Oreo, beVita, Ritz, Cadbury, and Toblerone. With about 39 per cent of its revenues from emerging markets, Mondelez is well positioned to benefit from the growing middle-class population in these regions.  Mondelez provides investors with a dividend yield of 2.4 per cent.

Zoetis (ZTS NYSE)

Zoetis is a global leader in the animal health industry offering therapeutics for companion animals and livestock. Operations outside of the U.S. account for 46 per cent of revenues, including 21 per cent in emerging markets. The company has a diverse, durable, and innovative portfolio with about 300 product lines across eight animal species and within seven major product categories.  Zoetis provides a dividend yield of one per cent.

PAST PICKS: MARCH 21, 2023

Chubb (CB NYSE)

• Then: US$194.29
• Now: US$257.66
• Return: 33%
• Total Return: 35%

Enbridge (ENB TSX)

• Then: $50.84
• Now: $48.75
• Return: -4%
• Total Return: 3%

Loblaw Companies (L TSX)

• Then: $114.22
• Now: $149.78
• Return: 31%
• Total Return: 33%

Total Return Average: 24%