Andrew Pyle's Top Picks: November 1, 2021

Top picks from Andrew Pyle, investment advisor and portfolio manager, CIBC Wood Gundy

MARKET OUTLOOK:

While I don’t believe we are headed for an inflation spiral similar to decades ago, it is clear that supply constraints for labour and goods are ratcheting up costs and not all of these will be able to get passed on to end users. 

Reference to continued slack in the U.S. economy as a basis for maintaining policy accommodation is starting to be a riskier approach. It is possible we won’t get back the employment lost since the pandemic unless there is more vaccine take-up. 

Companies will compensate for this over time, by putting in place even more productivity enhancing technology, but the near-term could see either margin compression or slower overall consumption growth as households deal with increased costs on non-discretionary items and services. 

As we head into this week’s Federal Reserve meeting, the stakes are higher by the recent employment cost index stats. The 1.3 per cent gain in September was the highest on record and this has to move the Fed towards exiting QE faster than planned and may even bring forward rate hikes to the first half of next year instead of end of 2022. Throw in potential weather influences, as we are seeing play out with airlines, and expected energy shortages and the typical October correction may simply have been pushed out. 

For Canada, the elevation in stocks has to be taken against the dismal economic performance in the third quarter. The weakening in the Canadian dollar later in the third quarter should provide a boost to fourth quarter activity, but again we are seeing the loonie back to 80-cent plus levels. The TSX has been powered by strength in energy as crude oil pushes above US$80 a barrel and the indications from the U.S. energy patch is that higher profits make it more likely that the sector will see share buybacks and dividend increases. The risk is that we see more supply come on stream from OPEC+ at a time when demand might be negatively impacted by higher energy costs.