Christine Poole, CEO and managing director, Globe Invest Capital Management

Focus: North American large-cap stocks 

MARKET OUTLOOK:

Price pressures are moderating, and the monetary easing cycle has begun with several central banks in advanced economies announcing interest rate cuts. The Swiss National Bank led with a rate cut in March, followed shortly by Sweden’s Riksbank, and more recently the Bank of Canada and the European Central Bank. While central banks are starting to pivot, they have warned that future rate cuts would be gradual and data-dependent. Notably, ongoing strength in the U.S. labour market has pushed back expectations of a rate cut by the U.S. Federal Reserve at least until fall.

In Canada, employment growth is lagging population growth, with job gains insufficient to keep the unemployment rate from rising to 6.2 per cent. The lagged impact of higher interest rates is still not fully felt here due to variable mortgages with fixed monthly payments and fixed-rate mortgages that come due for renewal over the next two years. Higher debt servicing costs combined with a weak employment situation will pressure household income. As evidenced by higher provisioning for credit losses by Canadian banks in their most recent quarterly reports, this is a headwind to economic growth, but year-over-year gross domestic product (GDP) growth is expected to remain positive, nonetheless.

Notwithstanding restrictive monetary policy, the U.S. economy is benefiting from an accommodative fiscal policy through providing incentives for on-shoring of semiconductor plants and the Inflation Reduction Act. While cognizant that employment data is a coincident indicator, the U.S. employment situation is healthy, with the unemployment rate hovering at four per cent. The U.S. personal savings rate at 3.6 per cent has retraced back below the historical trend, signaling households are more sensitive to higher prices for goods and services as well as job gains, particularly in lower-income households.

Equity markets are discounting a soft landing – a combination of slower economic growth and lower interest rates. Consensus corporate profit growth for the broad equity indices is positive and supportive for future price appreciation. We continue to advocate investing in companies that have the financial capacity to withstand and grow through an economic cycle.

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TOP PICKS:

Brookfield Renewable Partners (BEP.UN – TSX)

Brookfield Renewable is an international renewable power energy producer with generation assets in hydroelectric, wind and solar.  The company’s cash flows are supported by a strong contract profile with 90 per cent of total generation under long-term contracts, and a weighted average contract duration of 13 years. With a track record of consistently increasing its distribution, Brookfield Renewable currently provides a yield of 5.4 per cent. Recent purchase price $36.75 range in June 2024

The Home Depot (HD – NYSE)

The Home Depot is the leading home improvement specialty retailer with over 2,300 retail stores in the United States, Canada, and Mexico. While the industry is facing some near-term cyclical headwinds, the longer-term outlook for the home improvement sector continues to benefit from home value appreciation and an aging housing stock. Home Depot’s supply chain investments to improve distribution efficiency and e-commerce capabilities support its industry-leading position. Home Depot provides a dividend yield of 2.7 per cent. Recent purchase price $330 range in June 2024

S&P Global Inc. (SPGI – NASD)

SPGI is a diversified financial information services company and operates in five business segments: market intelligence, ratings, commodity insights, mobility and indices. Its businesses are leading players within their respective sectors, providing proprietary “need to have” information with attractive organic growth opportunities. Due to the subscription-based nature of many of its services, 72 per cent of SPGI’s revenue base is recurring. SPGI provides a dividend yield of 0.8 per cent. Recent purchase price $428 range in June 2024.

PAST PICKS: June 13, 2023

FORTIS (FTS TSX)

• Then: $56.85
• Now: $54.09
• Return: -5%
• Total Return: -1%

THERMO FISHER SCIENTIFIC (TMO NYSE)

• Then: US$526.05
• Now: US$570.98
• Return: 9%
• Total Return: 9%

ZOETIS (ZTS NYSE)

• Then: US$116.01
• Now: US$175.85
• Return: 5%
• Total Return: 6%

Total Return Average: 5%