Hap Sneddon, president and chief portfolio manager at Castlemoore

FOCUS: Technical Analysis

MARKET OUTLOOK:

Equity markets are overbought in the short term. Many indicators, along with the price action, have begun to roll over. This is consistent with a regular soft spot that occurs very early each January. Normally, this works itself out through a bottoming process by late January. This year is different because of the U.S. presidential election. During an election year, markets head strongly lower through to mid-March before rebounding into the end of the year.

This historical pattern occurs due to all the political noise and often-erratic economic and corporate data. Any significant societal or geopolitical events just add to this short, but impactful period, creating a washing machine effect on prices and trends.

Earnings are a little weak but not too bad and the general economics are decent. However, on Tuesday, inflation came out hotter than expected in Canada and in the U.S., voting U.S. Federal Reserve member Christopher Waller said that the central bank can take its time lowering rates, both of which contributed to a bond market sell-off. There are many points for markets to overreact in the upcoming U.S. forth-quarter gross domestic product and producer price index releases, as well as a Congressional vote on spending, and impending Canadian, U.S. and European central bank announcements.

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TOP PICKS:

Bristol-Myers Squibb (BMY NYSE)

Bristol-Myers Squibb discovers, produces, and markets therapeutics for cardiovascular, cancer, and immune disorders. The company has a key focus on immuno-oncology. This is a value play with limited downside due to a robust pipeline of drugs with high sales potential and attention to rare diseases, immunology and cancer. Their products get quicker approvals and have strong pricing power.

Chemtrade Logistics Income Fund (CHE.UN TSX)

Chemtrade Logistics Income Fund provides industrial chemicals and services to customers in North America and around the world. Segments include sulphur and water chemicals (SWC), and electrochemicals (EC). It aids its customers primarily in water treatment, pulp and paper, and oil and gas industries. Recent earnings and margins easily beat street expectations. The company raised its full-year guidance again, and it pays a big fat distribution of 6.8 per cent

Arista Networks (ANET NYSE)

Arista is a networking equipment provider that focuses on ethernet switches and software to data centers. Some of its main customers are Microsoft and Meta. Its products give it a structural and long-term advantage over its competitors for both cloud and enterprise. While it has focussed on large customers, its new modular approach will allow it to penetrate smaller businesses building out private clouds and data centres. The company has very high profit margins, free cash flow and increasing market share.

PAST PICKS: August 8, 2023

Amgen (AMGN NASD)

• Then: US$260.80
• Now: US$301.16
• Return: 15 per cent
• Total Return: 17 per cent

Berkshire Hathaway (BRK.B NYSE)

• Then: US$363.73
• Now: US$359.72
• Return: -1 per cent
• Total Return: -1 per cent

AltaGas (ALA TSX)    

• Then: $25.55
• Now: $27.84
• Return: 9 per cent
• Total Return: 11 per cent

Total Return Average: 9 per cent