Jason Mann's Top Picks: Labrador Iron Ore, Canfor, North American Construction
Markets are approaching all-time highs in the United States. Surprising as it is, it would be hard to argue against this being a new “bull” market. While its certainly surprising to witness a rally of this magnitude alongside some of the worst economic numbers in history, the big factor that might explain it better than any other is the extreme level of central bank easing and money supply increase. Money has to go somewhere, and that somewhere has been bond markets, equity markets, real estate and discretionary purchases. In expensive tech stocks, there is a speculative atmosphere, especially in younger retail investors who are new to the market. For the first time in a while, investors are talking about the risk of inflation as a result of the money supply increase. The inflationary outlook may be partially responsible for the rally in gold, along with the falling U.S. dollar. There are really two markets: the “work-from-home” beneficiaries that are concentrated in a handful of mega-cap tech growth stocks, and “everything else”. For those who feel like they’ve missed the rally, there are still opportunities in the “have-nots” of smaller, more cyclically-oriented stocks. These “return-to-work” stocks in industrial, consumer discretionary and financial sectors have plenty of catching up to do. There is a real risk of mean reversion from “growth” to “value”, which would be typical after emerging from a recessionary bear market. We’re rotating from more defensive stocks to cyclical ones, as we get further evidence that the value rally can take hold. We see value in industrials, consumer discretionary, and communications services. We’re avoiding expensive utilities and REITs. For the first time in a while, we are buyers of energy and materials sectors, which represent some of the “deepest” value in the market today.