Christine Poole, CEO and managing director, GlobeInvest Capital Management

FOCUS: North American Large Caps

Market outlook:

Global economies, led by the U.S., are recovering. The most encouraging is the transition in U.S. economic growth, initially induced by the Fed’s near zero interest rate policy to self-sustaining growth, led by improving employment. Adopting a “normal” policy of rising interest rates (from historically low levels) against a back drop of a strengthening U.S. economy is a positive development.

With inflation running below the Fed’s official target and the appreciation of the U.S. dollar, a subdued pace of rate increases is expected.

Outside of the U.S., accommodative monetary policies by central banks, including the European Central Bank recently launched QE program through to September 2016, should stimulate their respective economies. Lastly, the unexpected windfall arising from the collapse in crude oil prices is beneficial to consumers worldwide and countries that import their energy requirements.

Despite numerous headwinds, Q4/14 earnings season for the S&P 500 companies came in better than expected at 6.8 percent year-over-year (YOY) versus 2.3 percent consensus. Excluding energy which reported a 22 percent decline in YOY quarterly profits, earnings per share growth was 10.6 percent. However, future profit growth is more relevant for equity markets, going forward.

For non-energy related companies, downward revisions in 2015 profit guidance have largely been currency-related and when combined with the sharp decline in Energy sector profits (down close to 50percent based on consensus), annual earnings growth is now forecast to be in 2 percent to 4 percent range, compared to 10 percent to 12percent six months ago.

Low interest rates and benign inflation, however, are generally bullish for stock market valuation multiples. Recessions cause the end of a bull market and so far, economic indicators suggest recessionary risks are minimal.

Top Picks

Bombardier (BBDb.TO)
Johnson & Johnson (JNJ.N)
Chartwell Retirement Residences (CSH_u.TO)