For the past year, Morgan Stanley U.S. equity strategist Michael Wilson has categorized primary market risks under the headings ‘fire’ and ‘ice’ – inflation as the former and slowing growth as the latter. Closer to home, Scotiabank strategist Hugo Ste-Marie has been a staunch and correct believer that ‘fire’ would drive economically sensitive stocks like energy, materials and banks higher, defying slowing growth fears.
To be clear, Scotiabank is not outright bearish on the stock market, describing its mid-term view as ‘constructive’. At the same time, Mr. Ste-Marie has concluded that “the risk-reward profile is less compelling than it was a few months ago.” A significant overweight position in energy stocks helped Scotia’s Strategic Edge model portfolio outperform the S&P/TSX Composite by almost 5 percentage points during the first quarter. Mr. Ste-Marie is now trimming the portfolio’s allocation to the sector by taking some of the profits in each of Canadian Natural Resources Ltd., Imperial Oil, Cenovus Energy Inc. and Arc Resources Ltd.
The proceeds of these sales were allocated to cash and defensive stocks, including Empire Co. Ltd, Rogers Communications Inc., TC Energy Corp., Altagas Ltd. and Brookfield Infrastructure Partners.