Andrew Pyle, senior wealth advisor and portfolio manager at Scotia Wealth Management

Focus: North American equities

MARKET OUTLOOK

Markets are in the middle of a late cycle normalization following the move from an extreme overbuying situation in August to being oversold in December. Anticipation of a near-term recession was overplayed and fundamentals currently show continued, albeit slower, growth in North America for the time being. There has been a disconnect in data with U.S. job growth remaining solid as retail sales became weaker, even though the likes of Walmart have posted strong results.  There is going to be a lag in the benefits from tax credits south of the border, but we should see sales pick up late in the first quarter and this will produce a healthy base effect for second quarter U.S. GDP.  Investors need to be aware that this current rally is still taking place towards the end of the cycle and we are even more vulnerable to a repeat of what happened in the second half of last year.

Another potential risk is getting too bulled up on the supposed shift in direction of the Federal Reserve policy. If equities continue to grind higher and economic numbers come in stronger for the second quarter, I believe the Fed might step back in with another rate hike before the market expects it.  Most analysts keep pointing to the second half for when there will be a move, but I expect the Fed will want to take out insurance well before then in case the window for tightening shuts entirely. 

For Canada, the outlook for stocks marries the U.S., assuming that USMCA gets signed into law and commodity prices push higher into the summer.  Bank stocks are in the middle of their post Q4 rebound and have some room to run, which should give the TSX a lift, but this rally has a limited shelf life in my opinion. In a single digit return environment, investors are going to have to make an important decision into mid-year.  Take a potential five to 10 per cent return on a balanced portfolio and bank it, or roll the dice on the view that a recession doesn't emerge until later in 2020.

I still like emerging markets and especially China.  Concerns over the country's growth prospects and debt were overdone last year and we have yet to see the full benefits of an explosion in foreign direct investment abroad as the U.S. pulls back its horns.

TOP PICKS

DOLLARAMA (DOL.TO)

THE STARS GROUP  (TSGI.TO)

SUNCOR (SU.TO)

PAST PICKS: NOV. 15, 2018

BCE (BCE.TO)

• Then: $54.80
• Now: $58.36
• Return: 6%
• Total return: 8%

THE STARS GROUP (TSGI.TO)

• Then: $22.66
• Now: $21.93
• Return: -3%
• Total return: -3%

MULLEN GROUP (MTL.TO)

• Then: $13.07
• Now: $12.45
• Return: -5%
• Total return: -4%

Total return average: 0.3%

WEBSITE: pylegroup.ca