TopPicks from Andrew Pyle, senior wealth advisor and portfolio manager, CIBC Wood Gundy
FOCUS: North American equities It is becoming increasingly likely that the original market thesis of a first-half slowdown or recession, followed by a second-half resurgence in stocks is proving wrong and that we end up with the brunt of any economic storm later in the year. That suggests that equities are still overvalued relative to where earnings growth will be in a couple of quarters.
I expect the S&P 500 to at least retrace back to 3,800 and probably re-test the lows in October below 3,600. Similarly, the TSX should re-test support in the 19,150 area last seen in December. We still favour energy stocks at this juncture, given that crude futures have likely found solid support in the $70 area.
The spread between bond yields and dividend yields is climbing back toward the highs seen in October and despite the modest retracement in bond yields in recent days, the bounce in stocks has been disproportionate. Actually, as we wrote last week, bonds still offer a better risk-adjusted return opportunity this year, despite the recalibration of U.S. Federal Reserve policy expectations.
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