Gordon Reid, president & CEO, Goodreid Investment Counsel Corp.
FOCUS: U.S equities
Top Picks: Amazon, Nasdaq, Morgan Stanley
MARKET OUTLOOK:
The U.S. Federal Reserve is clearly signalling a rate cut in September, leading markets to an important new phase in the monetary cycle. The U.S. economy is in excellent shape, with constructive labour statistics, a growing economy (albeit cooler than it was), and positive corporate profits. The worry is the consumer, who clearly is pulling back, despite recent real wage growth. It’s a confidence issue and after a severe bout of inflation, the consumer is showing price fatigue.
Rate cuts come in two flavours. The first is a move by central banks to “normalize” the rate structure, after using monetary tools to fight inflationary trends. This will likely be welcomed by the equity markets which will view the cuts favourably as they lower the cost of capital. This scenario will favour small capitalization stocks and could see a rotation back towards a broader market as opposed to the narrow leadership of the “magnificent seven.” However, if there are whiffs of a weakening economy and increased fears of an impending recession, rate cuts will be viewed quite differently by the market. Defensive central bank action, to try to “save” the economy from a central bank mistake of overshooting during the rate hiking phase would likely lead to market weakness.
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TOP PICKS:
Amazon (AMZN NASD)
Amazon is performing well on multiple fronts. Its retail business (e-commerce) has grown into the larger footprint it created post-pandemic and is paying dividends. Amazon Web Services (AWS) is also on a roll as its dominance in cloud services has regained its dominance. Add to that the buzz around artificial intelligence and you have an issue that is on the cusp of major earnings gains.
NASDAQ (NDAQ)
Two drivers of growth should propel this issue over the next year. First, its multi-year investment in technology supporting recurring revenue streams comprises a larger share of the business. Secondly, capital markets business is booming at the multi-centre banks, which will lead to financial deals and new issues.
Morgan Stanley (MS NYSE)
The financial sector is setting up for increased profitability. The end of the tightening cycle, inflation coming off the boil and greater confidence in corporate board rooms will be a tailwind to MS stock. At less than 14 times the expected 2025 EPS and paying a 3.5 per cent dividend yield we believe you can own MS with confidence.
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| AMZN NASD | Y | N | Y |
| NDAQ NASD | N | Y | Y |
| MS NYSE | Y | N | Y |
PAST PICKS: JULY 12, 2023
Chevron (CVX NYSE)
- Then: $159.54
- Now: $156.81
- Return:-2%
- Total Return: 2%
JPMorgan Chase (JPM NYSE)
- Then: $148.15
- Now: $209.28
- Return:41%
- Total Return: 45%
WEX (WEX NYSE)
- Then: $190.60
- Now: $187.85
- Return:-1%
- Total Return: -1%
Total Return Average: 15%
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| CVX NASD | Y | N | Y |
| JPM NYSE | Y | N | Y |
| WEX NYSE | N | Y | Y |
