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Norman Levine's Top Picks: ARC Resources, Brighthouse Financial, Pentair
BNN.ca Staff
MARKET OUTLOOK We remain concerned about valuations in the U.S. being stretched and despite the fact that the major indexes continue to hit new highs there, they are becoming increasingly narrow as the equal-weight S&P 500 declines while the market-weight S&P 500 increases. That reinforces our desire to hold an above-average amount of cash and to look for values in Europe, Asia and Canada.
MARKET OUTLOOK Volatility has returned to equity markets as geopolitical risks create uncertainty for investors. Markets in the U.S. abruptly declined last week, fuelling a shift towards risk aversion as investors look to shelter their portfolios in this slower time of the year for stocks. Erratic equity moves in either direction have become all too typical at this time of year given the lack of positive catalysts through the end of the third quarter. The S&P 500 quickly fell to its rising 50-day moving average, instantly finding buying demand as investors maintain the “buy-the-dip” mentality. But cracks have emerged with last week’s selloff. Long-term rising trendline support was breached and momentum indicators are negatively diverging from price, an indication of waning buying pressures. In addition, the defensive sectors of consumer staples and utilities have been outperforming the market for the past month, as per seasonal norms, an indication of diminished risk sentiment. The market activity over the past few weeks has been indicative of potential weakness ahead.
On the economic front, the manufacturing economy has posted some impressive numbers, particularly with respect to durable goods. The 12-per-cent gain in durable goods orders through the month of June presents the best first half of the year since 2000. This has presented a positive influence for the price of base metals, mainly copper and zinc, which have seen gains exceed 15 per cent in the past couple of months. This manufacturing renaissance has been giving lift to employment in the sector, allowing the economy to mitigate the typical summer factory slowdown that tends to take a bite out of activity in the month of July.
On the flipside is the consumer, which is showing minor signs of slowing as they become more selective of where and how to spend their hard-earned dollars. In the recent report on retail trade in the U.S., spending at food services and drinking places, arguably the most discretionary category of the report, showed an increase through the first seven months of the year of a mere 0.5 per cent, well short of the 6.1 per cent average increase through this point in the year. This is the second-worst first-half-of-the-year increase on record, presenting cause for concern that the largest input to GDP, the consumer, is weakening going into the critical holiday spending season ahead. The diverging forces between manufacturing and the consumer are likely to keep investors on their toes in the remaining months of the year when emphasis amongst investors generally leans towards consumer spending through the fourth quarter.