Andrew Pyle, senior investment advisor and senior portfolio manager, CIBC Wood Gundy

FOCUS: North American equities 

MARKET OUTLOOK:

While all eyes will be on this week’s U.S. Federal Reserve meeting, I would argue that energy prices have taken center stage in terms of what will set the direction for both bonds and equities over the remainder of this quarter and into October.

Crude has moved comfortably into the US$80 to $100 per barrel range that we were looking for back in the second quarter. If we were to break above the $93.74 intraday high seen back in November last year, then the street is going to raise targets to $100. This move is having a multi-layer impact on financial markets. First, it will potentially stall out the disinflation trend that has allowed traders to become more agreeable with the soft-landing scenario. Second, it is going to put upward pressure on transportation costs. Diesel prices are also jumping due to a lack of refinery capacity. Third, with the U.S. crude production significantly higher than in past cycles, the move higher in crude is pushing the U.S. dollar higher, at the same time that China is “allowing” the yuan to drift lower. The U.S. Dollar Index is approaching the highs we saw back in March and this is contrary to the engine of growth that the dollar depreciation created for stocks in the final months of last year and into 2023.

Bonds are likely to interpret the revival in oil and gasoline prices as a negative for the economic outlook, on top of the ancillary items like repayments of student debt and the auto strike. I also think you will see investors moving out of high-yielding cash positions into longer-duration bonds to capture the recent backup in yields. While five per cent on cash is good, a 4.4 per cent yield on a 10 year U.S. treasury (or near 3.8 per cent on a 10-year CDA) also offers the potential for a double-digit total return should we see yields retrace. 

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TOP PICKS:

Metro (MRU TSX) 

Rogers Communications (RCI.B TSX) 

Andlauer Healthcare Group (AND TSX) 

PAST PICKS: October 11, 2022

TC Energy (TRP TSX)

• Then: $55.25
• Now: $50.18
• Return: -9%
• Total Return: -4%

Cameco (CCO TSX) *restricted on Cameco*

• Then: $35.62
• Now: $53.73
• Return: 51%
• Total Return: 51%

Open Text (OTEX TSX)

• Then: $35.16
• Now: $52.56
• Return: 49%
• Total Return: 54%

Total Return Average: 34%