Mike Archibald's Top Picks: April 8, 2022

Top picks from Mike Archibald, vice president and portfolio manager, AGF Investments

Mike Archibald, vice president and portfolio manager, AGF Investments

FOCUS: Canadian equities

MARKET OUTLOOK:

There is a lot of market uncertainty right now – central bank tightening, global turmoil, worldwide, inflation and supply chain disruptions. All of this affect nearly all sectors in both Canada and the U.S. Despite all this, North American economies remain strong and I believe we remain in a bull market. Earnings won’t be as strong as in the prior two years, but they should remain positive, and volatility will be a mainstay in most asset classes for 2022. As some of the things mentioned above start to abate and become clearer, uncertainty should diminish a bit, and earnings multiples should start to move higher again. I think investors will need to be nimble and act quickly in market pullbacks like we saw in Q1-2022.

There are some pretty aggressive forecasts for interest rate hikes in both Canada and the U.S., and this will certainly put some stress on the consumer, who is already feeling the pinch from higher prices, which are pretty much everywhere. Tighter financial conditions is what the U.S. Fed/Bank of Canada are looking for to tame inflation, which will result in a more volatile equity environment than we have seen in quite some time.

I suggest continuing to watch commodities, and specifically energy stocks to give us a read on when inflation has peaked. The ratio of energy companies to the TSX composite still remains in an uptrend, representing a good sector for capital, but also has done a good job at signalling the peak in inflation over many cycles. At the moment, inflation looks to be more persistent than many thought six months ago; sectors correlated to higher inflation and ones with pricing power in that backdrop continue to act well, including energy, materials and REITs.