Daniel OuelletPortfolio manager at Groupe Ouellet Bolduc, associated with Desjardins Wealth Management. He oversees $1.7 billion in assets under management.
I consider myself in the realist camp. When you don’t want to sound too pessimistic, that’s what you do. Now is the time to be careful. It won’t cost much to be cautious in the short term. There is so much noise in the news that it is difficult to navigate. We are currently underweight equities relative to our targets and overweight cash or bonds.
The first point to remember is related to investors’ perception of the resilience of the economy. It takes 18 months for rate hikes to show up with real effects in the economy. Since the first rate hike came in March 2022, that brings us to September 2023. It is therefore normal that there are not really any bad surprises yet in the statistics on consumption and employment.
The second point to raise or to remember is that we tend to find that the results of companies for the second quarter of the year have been excellent because we regularly hear that 70% of companies have exceeded expectations. This is just noise, because the earnings of the companies making up the index S
Finally, the risk premium of equities over the 10-year US government bond rate has just reached its lowest level since 2004. It is therefore less and less “paying” to bet on equities, compared to a safe bond. . When we say that the market is trading with a valuation multiple of 20 times profits, we are at the top of the valuation corridor. The stock market is far from being a boon at the moment in a context where it is believed that the economy will eventually slow down. The bond market therefore now offers a better prospect of performance. The good news is that you can invest cash at rates that yield up to 5%. This is why it is not expensive to be cautious in the short term.
Cimon Plante Portfolio Manager at Groupe Pagé Plante, affiliated with National Bank Financial. He is responsible for $1.3 billion in assets under management.
The market rebound is being received with some skepticism by both institutional and retail investors. The sentiment is therefore basically more pessimistic than positive at the moment. We cannot therefore say that the market is going through a period when investors are euphoric and afraid of missing the boat. It’s quite the opposite. And the best gains that can be made in the market are realized when a dramatic or serious situation becomes less serious than one would have anticipated.
The extreme case is certainly that of real estate trusts. No one wants to invest in this industry due to rising interest rates and the rise of telecommuting. The result is a significant drop in stock market value. Yet operators of real estate trusts have never been more proactive in 10 years.
The index S
If we embark on the market today with an investment horizon of at least three to five years, there are sectors which, despite the rise in interest rates, will attract capital in a massive way. A theme that I particularly like is that of decarbonization. There are several ways to position yourself.
Take for example the $400 billion US budget deployed for decarbonization. It will create a large demand for materials. Just think of copper.
The other theme that I really like is that of onshoring, which stems from a desire to bring manufacturing back to North America. There are big projects underway, and companies will necessarily increase their turnover by 2026.
I also like the themes of agricultural productivity and energy. The stock market is treading water despite the fact that there are several nested companies that touch on these four major themes. I am thinking in particular of companies like Teck Resources, Ag Growth, West Fraser Timber, Chemtrade, Northland Power, ARC Resources and even a stock like Canadian Pacific, which risks taking advantage of the desire of companies wishing to reduce their carbon footprint by abandoning transport. road in favor of rail transport.
