Full episode: Market Call Tonight for Wednesday, July 10, 2019
Christine Poole, CEO and managing director at GlobeInvest Capital Management
Focus: North American large caps
Much attention has been focused on U.S. market indexes making new highs, surpassing levels set in September 2018. Our perspective is that stock markets have been relatively range-bound since last fall, swayed by two factors: 1) central bank interest policy and 2) trade tensions. Their impact on economic growth and corporate profits will continue to dictate market direction.
While the current U.S. expansion is 10-years old, its pace of recovery pales compared to prior economic expansions. The previous longest expansion ran from 1991 to 2001, lasting 120 months; in the first 39 quarters, U.S. GDP increased 43 per cent. By comparison, in the 39 quarters through this March, GDP grew just 25 per cent. At its present pace, the current cycle would have to last six more years to match the cumulative growth of 1991-2001.
The one achievement of the current expansion is the decline in unemployment, coming in at 3.6 per cent in May 2019 (the lowest in half a century) from a peak of 10 per cent in October 2010. A healthy employment situation is boosting U.S. consumer confidence which remains elevated by historical standards.
As anticipated, a truce was reached at the G20 summit between Trump and Xi to avoid escalating tariffs and agreeing to resume trade talks. While it makes for encouraging headlines, nothing substantive has been resolved.
Global economic growth has resoundingly slowed over the past year, hampered by ongoing trade tensions, higher tariffs and geopolitical uncertainty. Central banks across the globe are responding with synchronized easing, fueling a rally in both fixed income and equity markets.
Accommodative central bank policy is a tailwind for markets so long as economic and corporate profit growth are sustained. So far this year, U.S. economic data while still relatively sound, has been weakening and earnings revisions have been negative. Stock markets however are up, suggesting a degree of optimism embedded in future expectations.
Recent purchase at $66.55 level in June 2019.
Loblaw is Canada’s largest grocery retailer, offering consumers multiple banners and Shoppers Drug Mart, the leading national drugstore operator. Digital retail initiatives include its PC Express “click and collect” and home delivery through Instacart. Its scale, locations, extensive private label offering and PC Optimum loyalty program are advantaged assets within a highly competitive industry. Loblaw provides a current yield of 1.9 per cent.
Recent purchase price at $109 range in June 2019.
JPMorgan is a leading financial services company with operating segments in consumer and business banking (45 per cent of revenues), corporate and investment bank (35 per cent), asset and wealth management (12 per cent) and commercial banking (7 per cent). JPMorgan is well-positioned to grow in the U.S., specifically within the HNW and private client segments. JPMorgan provides a dividend yield of 2.8 per cent.
UNITED TECHNOLOGIES (UTX.N)
Recent purchase price at $125 range in June 2019.
United Technologies provides products and services to building systems and aerospace industries around the world. Its four business segments are Carrier (28 per cent of revenues), Pratt & Whitney (28 per cent), Aerospace Systems (25 per cent) and Otis (19 per cent). By geography, the U.S. represents 38 per cent of sales; Europe 29, per cent; Asia, 21 per cent; and the rest of the world, 12 per cent. The split between aftermarket and original equipment sales is 47 to 53 per cent, with the former providing a higher margin and recurring cash flow stream. The announced plans to spin-off Otis and Carrier is expected to be completed by mid-2020, followed by the acquisition of Ratheon. A steady dividend grower, the stock provides a dividend yield of 2.3 per cent.
PAST PICKS: JULY 10, 2018
- Then: $46.95
- Now: $48.06
- Return: 2%
- Total return: 8%
MANIULIFE FINANCIAL (MFC.TO)
- Then: $23.86
- Now: $24.08
- Return: 1%
- Total return: 5%
JOHNSON & JOHNSON (JNJ.N)
- Then: $127.38
- Now: $141.21
- Return: 11%
- Total return: 14%
Total return average: 9%