MARKETCALL: Top picks from David Burrows, president and chief investment strategist, Barometer Capital Management
FOCUS: North American Large CapsIn our early summer visit, we stated that it appeared June 24th marked an important low for equity markets and risk markets overall. We also felt that inflation was likely peaking. Though markets rallied through summer, the Fed's Jackson Hole reiteration of its determination to aggressively fight inflation using higher rate policy for longer, raised the probability of a hard landing recession.
While the investment team at Barometer does not forecast, we can comment on what we derive analyzing what is happening internally in asset markets. Barometer uses quantitative tools to track expanding or contracting market internal breadth by asset class, sector and themes to understand what investors are actually doing, reflecting their underlying views.
Increased evidence of hard landing can be seen in the deterioration of some economically sensitive materials and energy producers. While Barometer believes that the longer-term setup for commodities versus equities setup remains bullish, investors have been reducing risk of all types and this cannot be ignored.
Tactically, Barometer portfolios remain overweight energy, and defense contractors bar-belled with defensive over-weights in utilities and staples dividend payors. As Barometer uses stop losses on each portfolio position to limit losses, this has served to increase our cash position to approximately 30 per cent over the last several weeks which provides safety and flexibility to deal with further developments.
Barometer remains void of tech, communications , real estate and consumer discretionary sectors and continues to avoid bonds beyond one year to maturity. Given the large sector weights of weak over-owned groups within the key equity indices, Barometer believes this in not the time to be a passive index investor.
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