TopPicks from Andrew Pyle, senior investment advisor and portfolio manager, CIBC Wood Gundy
FOCUS: North American equities In my opinion, U.S. and European stocks are looking overbought with little incremental positive news on the horizon, now that the U.S. banking sector appears to have stabilized and a debt ceiling deal has been signed. In fact, the negative view of stocks is symmetrical. To get the environment necessary for interest rates to be reduced by year-end, we will need to see a contraction in economic output in the coming months.
The S&P 500 is less than 40 points from testing its intraday high from last August and that level not only capped the summer advance but saw the massive reversal that ultimately placed us at the low for the year. I don’t anticipate another 20 per cent setback this time around but see 3,800 as being highly likely. I am favouring Canadian equities going into the summer and expect a recovery in banks and energy to offset sympathetic weakness in the broader market.
I see challenges in U.S. stocks in the coming weeks for other reasons. The rebound in Treasury issuance is not only going to subtract liquidity in general but if there is a large take-up in foreign buying of this new wave, that could send the U.S. dollar higher. This typically acts as a headwind. Any upward pressure on bond yields from this issuance and/or adjustment to central bank rate expectations should be viewed as a buying opportunity.
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