Chris Blumas’ Top Picks: April 13, 2022

Top picks from Chris Blumas, portfolio manager, Raymond James Investment Counsel Ltd.

Chris Blumas, portfolio manager, Raymond James Investment Counsel Ltd. FOCUS: North American large cap stocks

MARKET OUTLOOK:

All eyes are on the U.S. Federal Reserve as it tries to combat high inflation and engineer a soft landing for the U.S. economy. Inflation pressures were expected to moderate this year but Russia’s aggression in the Ukraine and the prospect of further lockdowns in China have created additional supply chain pressures that could be more enduring in nature.

While high energy prices, rising interest rates, and lower government aid will undoubtedly hinder future economic growth, consumer spending is likely to remain strong over the near term. Consumer spending is the largest component of US GDP (~70 per cent in 2021) and is being fueled by robust household savings, low unemployment levels, and rising wages.

Against this economic backdrop, the Federal Reserve has started an abrupt monetary policy “U-turn” by reversing course and initiating plans to shrink its balance sheet and increase interest rates. With the ratio of wealth-to-income at an all-time high (~25 per cent above its prior peak) and aggregate credit growth expected to remain weak, the more speculative pockets of the financial markets could be vulnerable to a correction as liquidity is removed from the financial system.

With low nominal interest rates and negative real returns, investors holding cash and low yielding fixed income securities risk a loss in purchasing power over time. While putting investment dollars to work in this uncertain environment can be challenging, equities still look like an attractive asset class for investors. Going forward, I think investors should remain well diversified and defensively positioned. Some areas of the equity market that look to offer attractive value include select technology companies, diversified REITs, and financial services companies.