Brian Madden's Top Picks: March 28, 2022
BNN Bloomberg
Top picks from Brian Madden, chief investment officer, First Avenue Investment Counsel
Brian Madden, chief investment officer, First Avenue Investment Counsel
FOCUS: Canadian equities
MARKET OUTLOOK:
With the first quarter drawing to a close, the breathtaking and virtually uninterrupted bull run in U.S. stocks off the pandemic lows two years ago has been broken, with U.S. major market indices poised for a down quarter. The Canadian S&P/TSX Composite index is set to eke out a modest gain for the quarter, bolstered by its concentration in energy and other commodities as inflation runs rampant and as geopolitical risk holds at multi-decade highs.
Tragic as the war in Ukraine is, and as much as it has captured investor attention and media headlines, it is not the primary reason for weakness in stocks this quarter. That’s because geopolitical events rarely end economic cycles. We are positioning portfolios for slowing economic growth in the coming quarters as the economy laps a COVID re-opening and fiscal and monetary stimulus fueled 12 per cent growth rate in Q2 2021 – the fastest pace of growth since at least 1950.
We expect disinflation in the back half of the year as demand for durable goods is in many cases satiated, household finances are less flush than they were a year ago and as supply chain bottlenecks in many categories of manufactured goods are expected to be alleviated. Last but not least, disinflation will also emerge as the effect of gradually rising interest rates sets in. Under the circumstances we favour staple companies, utilities, rate sensitive banks, and other defensive businesses. Over the past few months, we have been reducing “long duration” equities like the high growth tech giants, as higher discount rates weigh upon their valuations in the marketplace, and as rising volatility curtails investor appetite for risk-taking and speculation.
