Alexander MacDonald, portfolio manager, GlobeInvest Capital Management

MARKET OUTLOOK:

A soft landing is looking increasingly likely. U.S. inflation continues to trend downwards, with last week’s report for the July consumer price index (CPI) showing a 0.2 per cent month-over-month increase in both core and headline inflation, representing the smallest back-to-back monthly increase in two years. This month-over-month reading would also roughly equate to annual inflation of 2.5 per cent if it persisted.

Rent inflation has been a significant contributor to the elevated CPI numbers, most recently increasing at 7.7 per cent year-over-year and being responsible for 90 per cent of the increase in CPI. However, the housing rent measure used to calculate CPI is a lagging one; real-time data for new leases suggest that rent inflation will be moving downward over the coming months. These encouraging inflation readings are happening while the job market, though still strong, appears to be moving closer into balance with both job gains and job openings easing off their highs.

With respect to what this means for the U.S. Federal Reserve, the next decision isn’t until Sept. 20, 2023. Between now and then it has the benefit of receiving additional data in the form of both an inflation report and a payroll report. But with the Fed Funds rate now up over 500 basis points since early last year, whether they hike by another 25 basis points is starting to matter less than how long it will keep rates elevated around today’s levels.

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TOP PICKS

Chubb (CB NYSE)

Last purchased on Aug. 1, 2023, at $206.37.

The world’s largest publicly traded property and casualty insurer has an excellent reputation for underwriting profitably, especially when compared to its peers. Management is highly regarded, and the company has good growth prospects from its Asian operations. The stock has underperformed this year, resulting in an attractive entry point.

Brookfield Corp. (BN TSX)

Last purchased on Aug. 1, 2023, at $45.66.

Office real estate holdings have been an overhang, but the premium office market where BN largely participates has held in comparatively better. On the flip side, the weakness in real estate has created some attractive buying opportunities for the likes of BN, which has significant liquidity available to deploy. The company has an excellent track record for investing across a wide variety of asset classes, and today’s valuation represents a significant discount to the value of those assets.

TD Bank (TD TSX)

Last purchased on July 26, 2023, at $85.90.

Leading market share in Canada at 33 per cent of deposits, it has excellent growth ahead if it can capture customers who do not have a mortgage with them. The bank has also outlined a strategy to capture a disproportionate share of new Canadians, and it has been growing faster than its peers over the last two quarters. It has strong growth prospects in the U.S., and mergers and acquisitions may again be a priority there over the medium term.