Ross Healy, chairman of Strategic Analysis Corporation and senior portfolio manager at MacNicol & Associates Asset Management
Focus: North American large caps

MARKET OUTLOOK

Is Nov. 3, 2020 the market’s best-before date? Stunning federal deficits and massive doses of “QE4ever” and its equivalents are likely to continue until then in an effort to re-elect Donald Trump as president. After that, U.S. policymakers will focus on the really overwhelming problems, such as the near-bankrupt public pension system, which desperately needs higher interest rates if it’s even to just survive.

Perhaps the S&P can stay above its intrinsic value (currently, 3,145) despite its 35-year history of peaking there. But where will the economic energy come from to drive the market higher when earnings forecasts 12 months out are sagging? And, if low rates and heavy stimulus do manage to hold the market up until the Nov. 3 election, what then? What is left for Trump and the Fed to do once that date is past?

Can the market actually make it to election day before it too realizes that its timeline is reaching the end? If not, how soon will it be before investors as a whole start to take evasive action? Volatility is likely to be a key feature of 2020.

What could alter the above equation is a major change in the political outlook away from a reasonably probable Trump win. If a Democratic presidency looks more likely, the outlook for earnings beyond 2020 will change drastically as corporate tax giveaways are rescinded and moves towards stable financial conditions and fiscal sanity are re-established. In either case, we suspect the Democrats will regain the Senate, which would neuter the Trump administration if re-elected.

There are things we know we know. There are also some things we know we don’t know. Then, there’s Donald Trump. The market does not like chaos and with an election on the line, there is no limit to the U.S. president’s need and desire to create it. First up this year: A possible war with Iran right out of the blue conjuring up images of a “WWIII.”

TOP PICKS

Given the market risks, safety of capital is imperative when making my choices. Income (if I can get it) and balance sheet quality are key.

IMPERIAL OIL (IMO:CT)

This is a bet that oil prices can improve in 2020. If not, the shares are at their 1995 valuation low (their net book value), so price risks are minor. Excellent balance sheet and a modest dividend yield as well.

BARRICK GOLD (ABX:CT)

This fiscal climate requires a holding of gold. Barrick is fairly cheap historically and has a solid balance sheet.

MANULIFE FINANCIAL (MFC:CT)

Rising earnings and a powerful intrinsic value measure plus a decent dividend yield all suggest the there is more in store for investors.

PAST PICKS: JAN. 3, 2019

EMERA (EMA:CT)

• Then: $43.54
• Now: $55.93
• Return: 28%
• Total return: 35%

ALAMOS GOLD (AGI:CT)

• Then: $5.21
• Now: $7.65
• Return: 47%
• Total return: 48%

IMPERIAL OIL (IMO:CT)

• Then: $34.06
• Now: $34.52
• Return: 1%
• Total return: 4%

Total return average: 29%

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