Christine Poole, chief executive officer and managing director at GlobeInvest Capital Management 

FOCUS: North American large-cap stocks

MARKET OUTLOOK:

The pullback this year has been the result of compression in the price-to-earnings multiple for the broad equity indices. For now, corporate profits are still expected to grow this year and next. Negative profit estimate revisions are likely given a strong U.S. dollar, rising interest rates, inflationary pressures, and supply-chain-related expenses.

Aggressive monetary policy tightening combined with reduced consumer purchasing power are weighing on economic activity. Indicators that we track to assess the health of the economy are signalling slowing growth and a rising likelihood of a downturn.

Restrictive monetary policy will slow economic growth. Unfortunately, it has been the exception and not the rule that the Fed can engineer a soft landing while embarking on a path of higher interest rates. The task is even more challenging with inflation at 40-year highs and geopolitics contributing to a spike in energy and food costs.

Federal Reserve Chairman Jerome Powell has conceded that while higher rates are necessary to bring down inflation, they could cause an economic downturn. However, allowing high inflation to become entrenched could be more painful than a recession. Inflation is a global theme and central banks around the world will continue raising interest rates until there is evidence that inflation is moving down.

The financial health of consumers and businesses is generally in good shape to absorb the dual impact of rising interest rates and inflation. Households have de-levered significantly since the great financial crisis of 2008. The banking sector is well-capitalized as evidenced by the latest Federal Reserve annual stress test which concluded the nation’s biggest banks could withstand a severe recession.

Investors are encouraged to adhere to a strategy of owning a diversified portfolio of financially strong and profitable companies with resilient businesses that can weather periods of economic uncertainty.

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TOP PICKS:

Aritzia (ATZ TSX)

Recent purchase price $34 range in July 2022

Aritzia operates in the women’s apparel industry, offering an assortment of exclusive in-house brands at attainable price points that appeal to a wide demographic, coined as “everyday luxury.” Aritzia has strong unit growth potential as it expands in the United States. Other sources of future growth include expansion into new categories and broadening existing product lines.

Brookfield Asset Management (BAM.A TSX)

Recent purchase price $58 range in July 2022

Brookfield Asset Management is a global alternative asset manager with over $700 billion in assets under management. The company owns and operates assets on behalf of shareholders and clients with a focus on property, renewables, infrastructure, private equity and credit. The stock offers a dividend yield of 1.3 per cent.

Raytheon Technologies (RTX NYSE)

Recent purchase price of $91 range in July 2022

Raytheon Technologies 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. The commercial businesses will benefit from the ongoing recovery in global air travel. The stock provides a dividend yield of 2.4 per cent.

PAST PICKS: July 13, 2021

Walt Disney (DIS NYSE)

• Then: $183.65
• Now: $97.65
• Return: -47%
• Total Return: -47%

JPMorgan Chase & Co (JPM NYSE)

• Then: $155.65
• Now: $113.07
• Return: -27%
• Total Return: -25%

Linde plc (LIN NYSE)

• Then: $289.72
• Now: $280.75
• Return: -3%
• Total Return: -2%

Total Return Average: -25%