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Christine Poole, CEO & managing director, GlobeInvest Capital Management FOCUS: North American Large Caps The risk-off trade is dominating equity markets. Recession fears, emerging markets contagion, and crude oil price swings are some of the factors tempering investor enthusiasm for equities. Undeniably, the collapse in energy prices has significantly, negatively affected economic conditions in regions which are overly dependent on energy revenues. Investor angst about the oil markets and impact on the U.S. economy, however, appear to be excessive. The energy sector accounts for less than 5 percent of 2016 S&P 500 profits, energy industry employment accounts for 1 percent of U.S. jobs and energy expenditures represent about 0.5 percent of GDP. Low oil prices do not usually cause recessions. The American consumer is in good health. Real disposable income per capita is rising, the employment situation is robust and consumer confidence/sentiment are at relatively high levels. The non-manufacturing or services sectors, which covers almost 90 percent of the U.S. economy, remains solidly in expansionary mode. Turmoil in global markets, deflationary pressures from falling energy and commodity prices and uneven economic measures suggest the pace of U.S. interest rate increases will be very gradual, or possibly even put on hold this year. Statements by the Fed members that the actual path of the Fed funds rate will depend on the economic outlook and thus, data dependent, suggest elevated sensitivity to daily economic events and market stock price action more volatile than underlying fundamentals, will persist. The dual headwinds of a strong currency and collapse in energy prices has muted U.S. corporate profit growth, however, comparisons should ease as the year progresses. So far, Q4 2015 earnings for the S&P 500 companies are down about 2 percent year-over-year (or up 5.4 percent excluding energy). For 2016, profit growth is expected to be up 5 percent. Top Picks Alphabet (GOOGL.O) Home Depot (HD.N) Cineplex (CGX .TO) Click here for more information on Christine Poole's top and past picks Follow us on Twitter: @marketcall |