Brianne Gardner, Senior Wealth Manager, Velocity Investment Partners, Raymond James

FOCUS: North American large caps  

MARKET OUTLOOK:

As we delve into the economic landscape in the U.S., recent market performance tells a story of resilience and recovery. The S&P 500 Index, facing a challenging period from August to October, demonstrated a significant rebound in November, with three consecutive weeks of gains that erased prior losses and approached July's highs. In just one month, the S&P 500 gained an impressive 8.7 per cent, while the S&P/TSX Composite Index exhibited a solid total return of 6.32 per cent.

This resurgence can be attributed to several factors. The U.S. Federal Reserve's decision to maintain interest rates provided stability, and a favourable batch of economic data hitting a sweet spot resulted in a notable decline in yields, pushing up stock performance. Looking ahead, there are indications of a potential correction in December, influenced by historical trends and tax loss selling.

However, the broader outlook for 2024 leans toward a soft landing. Anticipated easing of macroeconomic data in the first quarter, as consumption stabilizes, sets the stage for a prompt market recovery fuelled by robust corporate earnings. Seasonal patterns, particularly in the third year of the presidential cycle, suggest sustained growth, though not as robust as the present year. In Canada, the TSX experienced a similar rollercoaster, showcasing a robust rebound in November that nearly recouped losses incurred in preceding months. Nevertheless, economic indicators signal impending headwinds, with the labour market contracting, unemployment on an upward trajectory, and gross domestic product (GDP) growth showing signs of stagnation, hinting at a potential mild recession in 2024. Despite these challenges, the stabilization of oil prices and the Bank of Canada's decision to maintain interest rates emanate a cautious optimism amid economic uncertainties. Both the U.S. and Canadian markets exhibit resilience amid challenges. The U.S. anticipates a soft landing in 2024, while in Canada, a cautious approach is required in the face of potential economic headwinds, necessitating careful monitoring of key indicators in the coming months.

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TOP PICKS:

WALMART (WMT NYSE)

Walmart has been the world's largest company by revenue since 2014, with sales of more than $600 billion a year. On the last earnings report, it has beat earnings and revenues. Not a surprise, it has been beating them together in consecutive six quarters. The recent drop in the price has more to do with the guidance issued for next year. It increased its previous earnings guidance, but the market was expecting more. Walmart expects sales growth to moderate in the fourth quarter as inflation in grocery prices slows down. We do agree that prices will moderate, we also think there are other areas like pharmacy or e-commerce (+24 per cent in U.S. this quarter) that can help to partially offset the moderation in revenues. For us, Walmart has great fundamentals. Consensus target is 180, almost a 15 per cent upside potential. Dividend yield 1.46 per cent

ABBVIE INC (ABBV NYSE)

The pharmaceutical company is one of the top 10 largest by revenue in the biomedical segment. It recently announced plans to buy cancer drug developer ImmunoGen for $10 billion, paying a 95 per cent premium from the target price. Price of AbbVie rose 2.5 per cent after the announcement. It is trying to join in the race in the development of a treatment that aims to target only cancer cells, potentially reducing toxicity for other cells. Pfizer and Merck already announced similar acquisitions of companies related to this treatment. AbbVie is taking a meaningful step to close the gap from his best-selling drug Humira's loss of exclusivity with this acquisition. It has been showing resilience and since 2019 it missed earnings in two quarters. For us, AbbVie has great fundamentals. RJ target is $177, almost a 25 per cent upside potential. Dividend yield 4.5 per cent.

GOLD BULLION ETF (VALT TSX)

Gold has regained attention due to the Fed potentially reducing rates sooner than later and the dollar weakening. As we expect economic data to ease, also we expect the so-called flight to quality and gold to appreciate. Once the Fed hits peak rates which we believe we have seen, gold should have some potential tailwinds to help it. We have had gold for a while but increased the position by adding VALT to our portfolio before this last run-up. Historically, gold begins to perform well in anticipation of lower rates and a weaker U.S. dollar. We are watching this sector closely as there are opportunities there right now, VALT is returning more than the TSX in total return (10.36 per cent versus 6.86 per cent). Gold seems attractive for us at least until the first quarter of 2024 when we expect the economy to absorb the full impact of rate hikes and also is a way to diversify our portfolios.

PAST PICKS: September 22, 2022

Amazon (AMZN NASD)

• Then: US$117.31
• Now: US$146.45
• Return: 25%
• Total Return: 25%

Telus (T TSX)

• Then: $28.83
• Now: $24.78
• Return: -14%
• Total Return: -9%

Enbridge (ENB TSX)

• Then: $54.05
• Now: $47.50
• Return: -12%
• Total Return: -4%

Total Return Average: 4%