Hap Sneddon, president and chief portfolio manager, Castlemoore

FOCUS: Technical analysis 

MARKET OUTLOOK:

Markets are in the strongest part of the year – the late October to April period – and accordingly, investors should be fully invested.

Though business sentiment was downbeat in January, things have turned out better than expected. U.S. gross domestic product (GDP) figures have come at nearly 2.4 per cent. Additionally, earnings expectations have been raised from initial forecasts of the low four per cent range to an almost five-per-cent print now. Some fall-off in spending and labour conditions is anticipated, however, consumer balance sheets are decent. Investors are balancing outlooks of a continuation in the reduction in inflation and a soft landing for the economy.

The outcome of this tension lies in the direction of the U.S. 10-year bond. Since peaking near five per cent in mid-October, the rate has plunged to 4.22 per cent. A move below 3.88 per cent would break the inflation story and suggest a hard, not soft, landing. The U.S. Federal Reserve is still taking the “over” as just this past week, voting members were out reminding investors that inflation has not yet been vanquished. My bet is rates resume their uptrend in time.

In the meantime and near term, tax-loss selling, which historically mutes the markets in the first two weeks of December, may be less of an influence this year, paving the way for clear sailing until technical challenges emerge in late winter.

• 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:

Jacobs Engineering Group (J NYSE)

Jacobs is a global provider of engineering, design, construction, and maintenance services as well as cyber engineering and security solutions. Though recent earnings were met with heavy investor selling, it’s an opportunity to start or add to a position in a company with a bright future on a mid and long-term view. 

The company has some awesome tailwinds including client infrastructure updating, space exploration, intelligence analytics, energy transition, supply chain investments and 5G (technology) buildout. Because of Jacobs’ focus on water and transportation infrastructure, it also expects to capitalize on the $1.2 trillion infrastructure bill in the U.S.

Tourmaline Oil Corp (TOU TSX)

This too is a value play. Tourmaline is the largest natural gas producer in Canada, and the fifth largest on the continent, with its assets spread across the Alberta Basin, the Peace River oil sands, and the Montney Formation. Its product mix is 80 per cent natural gas and 20 per cent crude petroleum and natural gas liquids. 

Recent quarterly earnings saw Tourmaline report above expectations on most metrics and an expansion in production. While its capital budget is expected to rise 7.5 per cent on average the company is also keenly aware of returning excess free cash flow to shareholders. Great long term hold.

Apollo Global Management LLC ( APO NYSE)

Apollo is an asset manager that focuses on illiquid instruments and private equity in credit, equity, real assets, capital solutions, financial services, and retirement solutions. With lots of economic and market dislocations yet to still emerge from rising rates, Apollo’s eye will continue to benefit shareholders. As investor’s why not get some help with investment decisions by owning good asset managers?