Christine Poole, CEO and managing director at GlobeInvest Capital Management

FOCUS: North American large-cap stocks

MARKET OUTLOOK:

Consumer spending is a major source of economic growth. In the U.S., consumer spending accounts for more than two-thirds of economic activity and in most industrialized economies, consumer spending accounts for about 60 per cent of GDP.

Household savings accumulated during the pandemic and a robust employment situation are cushioning the impact of higher prices for goods and services. The apparent shift in the overall consumer wallet towards products associated with social and travel-related activities means elevated prices on household goods are likely behind us. Price discounting to clear excess inventories of unwanted goods should help ease inflation in the months ahead.

The pandemic likely accelerated consumer bifurcation in North America. White-collar jobs were able to freely pivot to remote work, wealthier households saw the value of their assets appreciate, and savings were disproportionately concentrated among higher-income households. This cohort may well turn out to be the mainstay that allows the Fed to engineer a soft landing.    

Until inflation is demonstrably on the downswing, the U.S. Fed is expected to fight back aggressively with tighter monetary policy, especially with unemployment near historical lows. The hawkish tone of many central banks globally is driving up interest rates and clouding the corporate profit outlook.

Valuation multiples for the broad indices have receded closer to longer-term historical averages. Negative future earnings revisions, however, may contribute to further downward pressure on stock prices.

Investors are encouraged to look past the volatility and adhere to a strategy of owning a diversified portfolio consisting of financially strong, profitable companies.

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TOP PICKS:

Alphabet (GOOGL NASD)

Recent purchase price $2,300 range in June 2022

Alphabet is a global technology company, providing the world’s leading search engine, Google, and dominates in both global desktop and mobile search engine queries. The company is a beneficiary of the shift to online advertising, offering various digital advertising tools powered by artificial intelligence. Other revenue streams include Google Cloud, YouTube and Google Play.

Mondelez (MDLZ NASD)

Recent purchase price $60 range in June 2022

Mondelez is a global snacking company with top category market shares in biscuits, chocolate, and candy. Its portfolio of leading global brands includes Oreo, beVita, Ritz, Cadbury, and Toblerone. With close to 40 per cent of its revenues from emerging markets, Mondelez is well-positioned to benefit from the growing middle-class population in these regions. Mondelez provides investors with a dividend yield of 2.3 per cent.

Royal Bank (RY TSX)

Recent purchase price $127 range in June 2022

Royal Bank’s diversified business mix consists of personal and commercial lending (45 per cent of earnings), capital markets (25 per cent), wealth management and insurance (26 per cent) and investor and treasury services (four per cent). Geographically, Canada accounts for 58 per cent of revenues, the U.S. 25 per cent and International 17 per cent. The stock provides investors with a current dividend yield of four per cent.