David Dietze, founder, president and chief investment strategist at Point View Wealth Management
FOCUS: U.S. equities
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MARKET OUTLOOK

The S&P 500 continues to be driven by the FAANMG stocks (Facebook, Apple, Amazon, Netflix, Microsoft and Google). These six stocks account for nearly 50 per cent of the returns for the market year to date. Right now, the market is not really “the market” if a handful of stocks are pulling the entire cart. Our focus continues to be on diversification and risk management rather than chasing stocks. Although it's been the worst performing sector year to date for the market, we continue to think energy stocks are undervalued when looking longer term. The market continues to focus on the supply side of the oil equation, and not the demand side. Global GDP growth is solid, led once again by China. Demand for oil continues to be strong. 

In terms of fixed income, investors are running into high-quality bonds for safety and forgetting about interest rate risk. This is a complete reversal from six months ago, when the Fed began its campaign to normalize rates. The US 10 year touched 2.6 per cent and has rallied to 2.15 per cent. The Fed will makes its announcement in a few weeks on rates. The market is expecting the Fed to begin reducing its balance sheet and selling off assets as a form of tightening. If the Fed decides to shrink its balance sheet and raise rates to complete its goal of three hikes in 2017, bonds could sell off sharply.

TOP PICKS

PFIZER (PFE.N)
The health care sector has been battered by political concerns; leaders on both sides of the aisle debate the Affordable Care Act amid hand wringing over medical costs.  While smaller competitors may go by the way side, Pfizer’s competitive advantages, its financial strength, its robust research and development program, and largest sales force in the world will ultimately allow it to thrive no matter what happens in Washington.  Its stock price is the Dow’s third lowest, its yield at 3.9% the fifth highest, while the stock is flat over the last year versus a 14% gain in the S&P.

CHEVRON (CVX.N)
Chevron is at the top of my list.  Energy is by far the worst performing sector this year, down over 17% per a Vanguard ETF tracking the sector, despite the S&P’s 9.1% return.  Chevron has lagged the Dow and the overall market dramatically, down 5.3%, consistent with the industry.  Chevron’s yield is just shy of 4%, the Dow’s fourth highest. While energy stocks are under extreme pressure, with oil prices down by over half since 2014, new exploration and production is declining fast. That will stabilize pricing.  As one of the most diversified, both geographically and by operations, CVX is an easy survivor.  It may well benefit by the weaker leaving the business.  While you wait collect a yield that’s nearly twice the ten-year Treasury.

GENERAL ELECTRIC (GE.N)
GE looks appealing.  At 3.92% it boasts the Dow’s fifth greatest yield.  If you are attracted to the small Dogs performance, GE has the (dubious) distinction of having the lowest share price, now under $25 per share.  And you certainly aren’t buying at the top, as this year alone the stock has tanked nearly 23%, the Dow’s worst performer.  This conglomerate must turn operations around; expect to see calls to break up if results don’t improve fast.  GE has already taken the first step, switching CEOs.
 

PAST PICKS: JUNE 9, 2017

EXXON MOBIL (XOM.N)

• Then: $82.13
• Now: $77.26
• Return: -5.92%
• Total return: -5.01%

PFIZER (PFE.N)

• Then: $32.77
• Now: $33.85
• Return: 3.29%
• Total return: 4.29%

GOLDMAN SACHS (GS.N)

• Then: $222.44
• Now: $218.97
• Return: -1.56%
• Total return: -1.22%

TOTAL RETURN AVERAGE: -0.64%
 

TWITTER: @dietzepointview
WEBSITE: www.ptview.com