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

FOCUS: North American large-cap stocks

MARKET OUTLOOK:

Inflation, a lagging indicator, is moving in the right direction but remains too hot and well above the U.S. Federal Reserve’s target range. Employment, a coincident indicator, is healthy and provides ammunition for the Fed to rapidly raise interest rates to achieve price stability. High inflation does not appear to be embedded in future expectations, with the five-year and 10-year breakeven inflation rate at 2.49 per cent and 2.38 per cent, respectively. 

Restrictive monetary policy combined with an accelerated pace of quantitative tightening elevates the risk of a hard landing. Leading indicators of a pending recession are providing a mixed view. The U.S. Treasury yield curve has been inverted since June, suggesting a recession is (potentially) on the horizon. On the flip side, the high-yield debt spread remains below the long-term historical average and does not reflect the growing concern of default risk. As well, the ISM manufacturing and services indices continue to report expansionary economic activity.

The cushion provided by excess savings accumulated during the pandemic and a strong labour market has allowed most households to maintain their consumption despite their eroding purchasing power. The pace that inflation subsides is critical as savings will eventually be depleted. A more cautious outlook by consumers and corporations means softer demand and weaker job growth. The latter is already showing up in Canada while the unemployment rate is still holding steady in the United States.

Volatility will remain elevated until there are more visible signs that inflation is declining. Investors are encouraged to be patient and use pullbacks to invest in quality income and growth stocks.  

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TOP PICKS:

Alphabet (GOOGL NASD)

Recent purchase price $102 range in September 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.

BCE Inc. (BCE TSX)

Recent purchase price $62 range in September 2022

BCE is Canada’s largest communications company operating three segments; wireline, wireless, and media. Its service offerings are benefiting from the rebound in international travel and strong immigration flow into Canada. BCE provides an attractive dividend yield of 5.9 per cent. 

Dollar Tree (DLTR NASD)

Recent purchase $139 range in September 2022

Dollar Tree is an operator of discount variety retail stores under two banners, Dollar Tree and Family Dollar. Its growth prospects are enhanced with the move to a multi-price point strategy at the Dollar Tree stores and initiatives to drive traffic and productivity at the Family Dollar banner.