Christine Poole, President & Co-Chief Investment Officer, Davis Rea
Focus: North American Large Caps
Top Picks: Microsoft, RTX Corp, Stryker
MARKET OUTLOOK:
In October, the contrast in performance between the headline S&P 500 Index and the S&P 500 Equal Weight Index highlighted a significant broadening in market breadth. The market cap weighted index was down 0.9 per cent in the month while the equal weighted index was up 4.9 per cent. Broadening market breadth means the participation in a stock market rally is expanding beyond a concentrated handful of mega-cap technology companies to include a wider variety of companies across diverse sectors. The Democratic sweep in the midterm elections has added uncertainty to the pace of the AI buildout and put additional downward pressure on AI-related stocks.
The resilient U.S. economy continues to expand, supported by strength in consumer spending and private business AI-related investment. U.S GDP grew by 2.2 per cent in the second quarter and accelerated to 3.4 per cent in the third quarter. The unemployment rate is low, hovering around four per cent. Leading economic indicators reinforce durable momentum with the ISM Manufacturing Purchasing Managers Index (PMI) signaling expansion for ten consecutive months, and the Services PMI expanding for 28 consecutive months. However, inflation continues to be stubbornly above the Federal Reserve’s long-term two per cent target, serving as the primary reason for the central bank’s September rate hike.
The Canadian economy is expanding at a more modest pace, anchored by subdued consumer spending, muted population growth, and ongoing trade-related pressures. According to the Bank of Canada’s latest Monetary Policy report, GDP is expected to be two per cent in the third quarter and slow to below one per cent in the fourth quarter. The unemployment rate has been around 6.5 per cent, pointing to excess supply in the economy. While core inflation (excluding gasoline) remains close to two per cent, the Bank of Canada increased interest rates in October as a preventative measure in anticipation of increased cost pass-through as higher energy prices and tariff-related costs are eventually priced into consumer goods and services.
Looking ahead to next year, economic growth in Canada is projected to improve due to stronger business investment, bolstered by federal tax incentives such as the Productivity Mega Deduction, and government spending. The long-term sustainability of spending in AI and continued growth in consumer spending, which accounts for about 70 per cent of U.S.
GDP, are key drivers for continued U.S. economic prosperity. A caveat to a slower pace of AI investment is reduced inflationary pressures for technology goods.
Our investment framework shifts away from market timing and toward what we can control: owning reasonably priced, high-quality companies within industries that offer attractive secular growth or stable income generation. Staying invested in a diversified portfolio with an asset mix geared to your risk tolerance and financial capacity is the path to preserving and generating long-term wealth.
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TOP PICKS:
Microsoft (MSFT NASD)
Microsoft is a global technology company providing a wide range of software services and products including Windows, Office 365, LinkedIn, and Azure cloud computing as well as owning a leading gaming platform, Xbox, and video game publisher, Activision Blizzard. Its growing recurring revenue, robust cloud computing growth, and strong balance sheet are appealing investment attributes. Microsoft’s dividend yield is 0.7 per cent.
RTX Corp (RTX NYSE)
RTX is a aerospace and defense company engaged in providing advanced systems and services for commercial, military and government customers. Its product portfolio includes avionics, interiors, aircraft engines, sensor and communication systems and missile defense systems. Its commercial aerospace businesses benefit from the growth in global air travel while demand for its defense products is robust due to ongoing geopolitical conflicts. The stock provides a dividend yield of 1.5 per cent.
Stryker (SYK NYSE)
Stryker is a leading medical technology company offering a broad portfolio of products and services across neurotechnology and orthopedics, including knee and hip implants, surgical equipment, and neurovascular devices. Approximately 75 per cent of the company’s revenue is generated in the United States, with the remaining 25 per cent derived from international markets. Stryker is estimated to hold 75 per cent of the U.S. orthopedic surgical robotics market, providing a strong competitive position. Stryker is also well positioned to benefit from demographic trends, particularly an aging population and the associated increase in demand for joint replacements and surgical procedures. Stryker has a track record of dividend growth and offers a dividend yield of one per cent.
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| MSFT NASD | Y | Y | Y |
| RTX NYSE | Y | Y | Y |
| SYK NYSE | Y | Y | Y |
PAST PICKS: NOV. 7, 2025
Abbott Labs (ABT NYSE)
Then: US$126.36
Now: US$109.59
Return: -13%
Total Return: -11%
CN Rail (CNR TSX)
Then: $133.31
Now: $179.07
Return: 34%
Total Return: 37%
Otis Worldwide (OTIS NYSE)
Then: US$91.02
Now: US$78.00
Return: -14%
Total Return: -12%
Total Return Average: 5%
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| ABT NYSE | Y | Y | Y |
| CNR TSX | Y | Y | Y |
| OTIS NYSE | Y | Y | Y |
