MARKET OUTLOOK:

In the shorter term, we have not altered our upside market target, which is just above 5,100 for the S&P 500. (That is, of course, more optimistic than all of the principal U.S. dealers, but it just happens to also be the valuation peak at 4½ times book - one of our key market breakpoints, last seen in 2000 at that market top.) The outlook for the 3rd quarter is one important issue here, as the forecasts are at considerable variance with what appears to be emerging weakening economic fundamentals. 

I do not see a “taper tantrum” – or indeed, any tapering at all, and I think that Powell is in accord, and will be over-ruling the majority of the Fed’s Board. He can read the current economic numbers, too, and has reason to be concerned. I therefore suspect that the policy takeaways from Jackson’s Hole symposium will provide some impetus to move the stock market higher, as a result.

While that means that interest rates will not be rising in the shorter term, it also means that there will be more stimulus coming down than some board members were hoping – and that is bullish for the general market as well as the precious metals. 

The thing that concerns me most about the stock market today is that investors and many commentators appear to be oblivious to current overall valuation levels and the risks that are entailed. The S&P 500 bottomed at 1 times book in 2008-9, when anything that could go wrong, did go wrong. Now it is trading at 4 times book. Can it go higher? Why not? But I would ask you to ask yourself, if anything at all goes wrong, where do you think that a sustainable low might be?


TOP PICKS:

Bank of Nova Scotia (BNS TSX) 
The banks can look forward to another 3 quarters of good earnings gains now that OSFI is allowing them to recoup the excess reserves which were required to be put aside during the pandemic. That also means that dividend increases will be on the table sooner or later.

Alamos Gold (AGI TSX)
Not only are many of the golds – the junior more ones in particular – cheap but Alamos has had very considerable success in increasing their high-quality reserves. While I like the economic fundamentals for golds in general, AGI has particular appeal as a take-over candidate as a result.

Medical Facilities (DR TSX) 
Pent-up demand for surgical services is massive now, and I would expect that when things really do open up – as we expect – the need for DR’s services will boom. Historically, the shares have been valued at much higher price/book levels than today and I expect that those levels will return. Incidentally, while this is a “Canadian” company, its facilities are all in the U.S.