David Burrows, president and chief investment strategist, Barometer Capital Management

FOCUS: North American large caps

MARKET OUTLOOK:

Barometer continues to be positive on the outlook for equities and commodities as a way to benefit from a reflating economy and to protect against the erosion of the purchasing power of cash. In particular, Barometer is building portfolios to deliver dividend growth to our investors to help offset the rising cost of living by investing in companies that generate excess cash and have pricing power in a more inflationary world. We continue to have very little fixed income or bond proxy - high dividend telecom, staples, or real estate investment trust (REIT) exposure.

Barometer is also avoiding consumer discretionary companies as the consumer is seeing pressure due to high rates. In the past 60 days, utilities showed renewed strength on the back of the expectation of accelerated power demands due to AI computing and data centres. We added two companies; SO and NEE. Our market breadth models used to assess market health most recently turned positive at the end of April following a 5.7 per cent correction in the S&P 500 Index and continue to be constructive as market leadership is continuing to broaden. Not only is the U.S. broadening but we are seeing positive conditions in international markets, such as Japan, India, Latin America and Europe. 

While some key tech leaders continue to be important, we are underweight in the sector since December, favouring large overweights in financials, industrials, energy and materials. The global economies continue to be resilient and China's stimulus is now providing a tailwind. After the most aggressive global tightening cycle in 20 years, corporate earnings estimates continue to be revised positively out to the end of the year and for 2025. Equities should continue to be favoured. While many are awaiting a U.S. Federal Reserve rate cut, the fact that economic conditions remain strong, delaying cuts is a good thing.

It appears that investor positioning continues to be wrong-footed outside of tech with steady flows out of energy and materials and underweights in industrials and financials despite attractive valuations compared to tech, discretionary and communications.

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TOP PICKS:

Freeport McMoran (FCX NYSE) + Copper, Gold

We like both copper and gold and have an 11 per cent firm weight in materials (four times the SPX weight).

Freeport is a well-managed leader in both copper and gold with long-life assets.

Goldman Sachs (GS NYSE)

A pure play on the health of capital markets and improving trading, new issues and mergers and acquisitions activity.

Thompson Reuters (TRI TSX)

A clear beneficiary of use cases for AI. Thompson Reuters is actively building and acquiring capabilities to allow for the use of AI with its news applications and more so in its case law databases for researching documented precedents and creating legal docs. 

PAST PICKS: APRIL 3, 2024

JP Morgan (JPM NYSE)

• Then: US$198.30
• Now: US$203.80
• Return: 3%
• Total Return: 3%

Alamos Gold (AGI TSX)

• Then: $20.10
• Now: $22.82
• Return: 13%
• Total Return: 13%

Imperial Oil (IMO TSX)

• Then: $97.84
• Now: $94.08
• Return: -4%
• Total Return: -4%

Total Return Average: 4%