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

MARKET OUTLOOK

Fed Chairman Jerome Powell may be saying the U.S. economy is growing, has low inflation and it’s close to record employment, so what’s worry? Well, the first quarter numbers were a sham, U.S. factory orders are down 0.8 per cent (the ex-defence number was zero), The ISM on Monday was a surprise and a disappointment and global growth overall is slowing markedly; that’s what’s to worry.

I suspect that the U.S. Fed is close to “panic stations.” They’re looking at the low growth and inflation condition in Japan, which seems to be well on its way to characterizing Europe as well, and saying to themselves, that sort of looks where we’re headed as well. That may be why St. Louis Fed President James Bullard is on the record saying cutting rates "may be warranted soon.”

The market jumped the other day in a Pavlovian reaction when the Fed said that it was likely to cut interest rates. But interest rates are not the issue: It’s earnings. Corporate profitability in the U.S. may have peaked, at least for this cycle, and profit margin headwinds from rising labor costs and tariffs are likely to have a material impact going forward. Our proprietary measure of the intrinsic value of the S&P 500, which looks ahead 12 months, has not budged upwards in over a year. And now earnings are slipping – just a bit for now, but slipping.

I think that the market is struggling to find new leadership as the FANGs – for one hot area – are giving up the ghost. If the best that the market can do is to hand over leadership to those “unicorn stocks” like Uber and Lyft, then heaven help investors.

TOP PICKS

CVS HEALTH (CVS.N)

A very cheap U.S. healthcare stock looking to reignite its growth strategy.

VANECK VECTORS JUNIOR GOLD ETF (GDXJ.N)

A good, leveraged way to play strength in the bullion market, “leveraged" because the junior gold stocks have more upside than the senior stocks when bullion moves.

CASH

Consider the riskiness of the market at present.

PAST PICKS: JULY 30, 2018

HOME CAPITAL GROUP (HCG.TO)

• Then: $15.18
• Now: $19.04
• Return: 25%
• Total return: 25%

CANADIAN UTILITIES (CU.TO)

• Then: $32.11
• Now: $38.38
• Return: 20%
• Total return: 25%

LAURENTIAN BANK (LB.TO)

• Then: $46.45
• Now: $44.02
• Return: -5%
• Total return: -1%

Total return average: 16%

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