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Market Outlook and Top Picks from Stan Wong (Applied Materials, Rogers Communications & Samsonite International)

January 25, 2018


Global equity markets appear extended:

  1. In overbought territory, when looking at the relative strength index (RSI) – an important technical momentum indicator
    • According to the CNNMoney Fear & Greed Index, which looks at seven different measures of market sentiment, investor attitude is now signalling an ‘extreme greed’ reading
    • The American Association of Individual Investors (AAII) Investor Sentiment Survey, which offers insight into the mood of individual investors, is currently indicating that over 45 per cent of individual investors are feeling bullish about equity markets (well above the historical average of 38.5 per cent)
    • From a contrarian viewpoint, these several readings indicate that a healthy pause or pullback in the near-term for equity markets is likely
  2. Beyond any near-term pauses, the fundamental backdrop for global equity markets remains supportive, with strengthening economic data in almost all corners of the globe and corporate earnings accelerating. As such, we expect to see equity outperformance relative to fixed income in the year ahead
  3. However, we do anticipate more risks and volatility ahead, as investors navigate rising bond yields, higher inflation, global trade tensions and geopolitical risks. In our view, taking advantage of any temporary sell offs and ‘buying the dips’ would remain a prudent strategy
  4. In Stan Wong managed portfolios, we are overweight in the financials, technology and consumer discretionary sectors, while underweight defensive areas such as utilities and consumer staples
  5. We also favour high-quality stocks and expect dividend growers to outperform dividend payers. While growth stocks have largely outperformed value stocks since 2007, we expect value stocks to eventually outpace growth stocks as interest rates drift higher
  6. We continue to add to international and emerging market equities as we expect these positions to generally outperform North American equity markets based on relative valuation indicators and economic growth expectations

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