Christine Poole, CEO and managing director, GlobeInvest Capital Management

FOCUS: North American large caps 

MARKET OUTLOOK:

Inflation pressures are easing and keeping central banks at bay. The lagged impact of the rapid interest rate hiking cycle is being felt with business and consumer confidence softening resulting in a more cautious spending outlook.

In Canada, economic growth as measured by real gross domestic product (GDP), contracted in the second quarter and conditions have not since improved. Slower hiring and steady labour growth have continued to put upward pressure on the unemployment rate. Price pressures should abate over time as sluggish growth conditions persist.

Economic growth in the U.S. has been more resilient, with real GDP accelerating to 4.9 per cent in the third quarter, lifted by robust consumer spending primarily in services. Going forward, growth is expected to slow as American consumers have nearly exhausted their excess savings accumulated during the pandemic and increased their credit card usage. The latter is not a sustainable source of funds, especially in a higher interest-rate environment.    

With inflation receding and economic growth slowing, policymakers should err on the side of patience as they seek a balance between stable prices and maximum sustainable employment. Having been caught off-guard when inflation initially spiked up, central banks are biased towards holding off on rate cuts for as long as reasonable.

Third-quarter profits for the S&P 500 Index companies were better than expected, with earnings per share (EPS) up 6.6 per cent from a year ago. While EPS growth for the fourth quarter has been revised down, it remains positive, and the growth rate is expected to accelerate into next year. For now, a profit recession is not in the cards.

Financial markets, especially equities, are highly unpredictable in the short term. Investors are encouraged to remain focused on the long term and adhere to a defined investment strategy to build wealth over time.

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TOP PICKS:

Loblaw (L TSX)

Loblaw is Canada’s largest grocery retailer offering consumers multiple banners and through Shoppers Drug Mart, the leading national drugstore operator. Its scale, locations, extensive private label offering, and PC Optimum loyalty program are advantaged assets within a highly competitive industry. Loblaw provides a current yield of 1.5 per cent. 

Otis Worldwide (OTIS – NYSE)

Otis is the world’s largest elevator and escalator manufacturing, installation, and service company. It is the market leader with a 19 per cent share of the fundamentally attractive global elevator market, operating in over 200 countries with international operations representing 72 per cent of sales. New equipment and service contributes 43 per cent and 57 per cent of sales, respectively, and 18 per cent and 82 per cent, respectively, of operating profits. Otis provides a dividend yield of 1.1 per cent. 

Royal Bank (RY - TSX)

Royal Bank’s diversified business mix consists of personal and commercial banking (52 per cent of earnings), capital markets (24 per cent), and wealth management and insurance (24 per cent). geographically, Canada accounts for 59 per cent of revenues, the U.S. 25 per cent and international 16 per cent. The stock provides investors with a current dividend yield of 4.5 per cent.