Gordon Reid, president and chief executive officer, Goodreid Investment Counsel

FOCUS: U.S. equities

MARKET OUTLOOK:

As poor as September was in the financial markets, October was its mirror image. These extremes happen with regularity in markets, fair value is just a pit stop on the way to oversold or overbought. Such volatility is easily explained. The recent U.S. Federal Reserve statement that sounded somewhat dovish was followed within minutes by a hawkish-sounding Fed chair, Jerome Powell. This seems like a good cop bad cop routine, the desired result being messaging that the Fed may slow down its interest rate increases to see whether the economy is responding to the tightening (the written message), offset by the “we are far from finished” hawkishness of the press conference. The last thing central bankers want to do is waste all the work tightened monetary conditions have accomplished by signaling to markets that all is well. Inflation is beaten by creating fear within markets. That is the weapon that curtails economic activity, reduces demand and causes businesses to lay off workers or not hire new ones.

U.S. mid-term elections normally tilt in favour of the opposition and create a form of political impasse. Markets like that. Historical studies illustrate that the second half of presidential cycles provide superior returns. Since 1948, when a Democrat occupies the White House and Republicans take control of Congress, the market has returned almost 17 per cent annualized for the remainder of the presidential term. This result would dovetail with historical evidence demonstrating strong rebounds after very large sell-offs in equity markets. Volatility will be part of the equation, but on balance, Goodreid is optimistic about constructive markets and the ability to continue to add meaningfully to performance.

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TOP PICKS:

Dana (DAN NYSE)

Latest Purchase April 2022 at $16

Dana is an auto parts supplier with a strong presence in the nascent EV revolution. The double whammy to Dana’s business over the past year has been high inflationary input pressures and the demand destruction to end markets caused by supply chain issues. Both are beginning to abate. Margins rose in the latest earnings report and commercial and off-highway volumes are strong.

JPMorgan (JPM NYSE)

Latest Purchase August 2022 at $118

The fears of a deep recession affecting business activity on both the retail and institutional sides have subdued JPM’s progress. Absent these negative economic projections, JPM is in the best shape in its lifetime. All of its franchises are industry leaders and its earning power is meaningful. As we move through the economic unknowns and a more neutral outlook emerges, Goodreid believes an upward move of 50 per cent+ would represent fair value.

Lowe’s (LOW NYSE)

Latest Purchase October 2022 at $196

Lowes is the second-largest home improvement retailer in the world. Margins are expanding, and solid growth of cash flow and earnings should allow for an expansion of P/E multiples, which now sit at 14 times. Expect chief executive officer, Marvin Ellison, a former HD executive, to continue to apply the HD playbook within the Lowes franchise.