David Burrows' Top Picks: February 9, 2022
BNN Bloomberg
Top picks from David Burrows, president and chief investment strategist, Barometer Capital Management
MARKET OUTLOOK:
Reflationary theme outperformance continues at the asset class and the sector level as market participants have begun to accelerate portfolio rotation and repositioning for a different type of environment.
Investors are begrudgingly using previous highly priced and well-owned leaders in growth and bond proxies as a source of cash and repurposing the proceeds into sectors and companies that are economically sensitive and that have pricing power. Risk comes in many ways and today, inflation is a credible risk to investors for the first time in decades.
When this type of rotation begins, it challenges well-established beliefs and can take years to run its course. During the last 40 years of secular falling rates and disinflation, investors large and small became increasingly focused and invested in a subset of the market that worked consistently to provide predictable returns.
During this time, reflationary sectors had only brief cyclical periods of outperformance and often ended in disappointment. As a result, sectors like energy, materials and financials have come to be seen as risky, are relatively unloved and now make up a very small percentage of the SPX compared to previous reflationary periods.
As inflation and rising rates allow for higher prices for products and services, profits and ultimately dividends, in these sectors are likely to grow to represent a larger percentage of those from the SPX. Fundamentally, revenues and earnings from the materials sector this quarter are on track to be up 35 per cent and 95 per cent respectively. Energy sector revenues are to be up over 80 per cent.
