FOCUS: North American stocks
MARKET OUTLOOK:
September was always going to be a critical month on several fronts. The effective return to school of children would potentially create an increase in labour force participation and reduce some of the excess demand for labour that we have seen in both Canada and the US.
Despite the weaker than expected rise in U.S. payrolls, this factor should drive employment growth to between 800K and a million for September. Canada didn’t fade in August, but should still see a strong gain in September.
The fact that equities have lost momentum this month isn’t a big surprise given that we haven’t had a negative month in months. And year-to-date gains of 18 per cent on the S&P and TSX may be tempting for investors that bucked the “sell in May” directions, but now don’t want to try to bet against the house. This is rational given that we have basically gained 100 per cent from the pandemic trough.
Still, I think that any setback in the September-October period will be limited to 5-10 per cent. With interest rates on hold and tapering expected to be tempered, I think investors should be treating pullbacks as opportunities. Trimming back some risk now and adding to cash reserves isn’t a bad strategy. Note, a 10 per cent correction in the S&P basically takes us back to the lows of May around 4060.
Provided we do not experience a material constraint on economic activity from a fourth COVID wave, I think you could still bounce back from that type of pullback and end the year near 4800.
For the TSX, it’s hard to see a 10 per cent retrenchment (which would get us back to early March levels below 19,000). Continued growth in global economic activity should give oil a floor and keep us in a $60-80 range.
TOP PICKS:
Allied Properties REIT (AP-U TSX)
PAST PICKS: May 25, 2020
Brookfield Infrastructure Partners (BIP-U TSX)
- Then: $56.10
- Now: $73.48
- Return: 31%
- Total Return: 40%
Bank of Montreal (BMO TSX)
- Then: $65.25
- Now: $127.86
- Return: 96%
- Total Return: 107%
Loblaw (L TSX)
- Then: $66.84
- Now: $90.72
- Return: 36%
- Total Return: 39%
Total Return Average: 62%
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| BIP-U TSX | N | N | Y |
| BMO TSX | N | N | Y |
| L TSX | N | N | N |
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