Hap Sneddon, Chief Portfolio Manager and Founder, CastleMoore Inc.

FOCUS: Technical Analysis & Macro Portfolio Strategy

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MARKET OUTLOOK:

Today markets are still being driven by post-Brexit momentum, an event that had been initially touted in the investment and political community as negative should U.K. citizens vote to leave (Recall Obama’s in-person speech and BOE Carney’s warning). However, at this time of year upside catalysts are few, especially with the earnings season wrapping up and many investors on vacation. In fact, for the reasons mentioned often any even slightly negative news can push around markets from low-staffed trading desks. 

The FOMC minutes released yesterday confirmed that there was no urgency in raising the U.S. interest rate band. Statements earlier in the day from a hawkish Dudley and a milder Lockhart paints an incoherent Fed message of a potential rate increase in the fall –maybe creating an “on eggshells” environment is intentional. We may get some more clarity or confusion in Jackson Hole next week from Yellen but overall it appears central bankers are gradually being toned out by markets. 

Fundamentally, economic data too confirms no near term positive catalysts with most prints soft or weakening. The same with corporate earnings, thought credit concerns are growing. Technically, the move since late June finds markets in a state of suspended elevation with VIX extraordinarily low (8 year low), and the number of stocks trading above the 200dma, the TED spread (rising), bullish advisors and writers, high.

All in all, investors are rightfully directed to the reliability of individual securities (with risk management in place) vs. handicapping the big picture. Near term support on the S&P is 2166.

Top Picks:

Fairfax Financial Holdings (FFH.TO), Recently purchased June 30, 2016 @ $687.40485

An investment in Fairfax is a clear investment in Prem Watsa’s ability to navigate markets, especially ones such as today, or as in 2008. Like Watsa, we believe that deflation is still a factor down in the deep. While the insurance business ticks slightly below average, his experience in derivatives allows CastleMoore to leverage our own asset allocation in separately managed accounts and stand on the shoulders of those that have better global vision. Target of $825.00 (New)

Costco Wholesale (COST.O), Recently purchased August 17, 2016 @ $167.3890

Retail has been a tough game the last year, but the company continues to increase store traffic resulting in a rising market share. The model is allowing them to expand internationally, and also protect margins. The stock ranks well within the S&P. Target of $210 (USD)

Emera (EMA.TO), Recently purchased August 31, 2015 @ $45.46

The company recently reported Q2 2016 adj. EPS of $0.33 slightly below consensus largely from lower gas trading margins as a results of short-term transportation and storage costs and decreased lower merchant power inputs. The acquisition of TECO Energy, a Tampa Bay utility, on July 1 is now being integrated, and it bolsters its stable of regulated income, a positive attribute when investors see a wide-range top to bottom in the corporate earnings spectrum. Target $63.00

Past Picks:  July 21, 2015

BCE (BCE.TO)

• Then: $53.51
• Now: $61.68
• Return: +15.27%
• TR: +20.87%

Emera (EMA.TO)

• Then: $42.30
• Now: $48.33
• Return: +14.26%
• TR: +20.31%

Consumer Staples Select Sector SPDR ETF (XLP)

• Then: $50.04
• Now: $55.05
• Return: +10.01%
• TR: +12.81%

Total Return Average: +18.00%

Fund Profile

CastleMoore Canadian Equity

Performance as of: June 30, 2016

* Index: TSX Composite

* Returns net fees & dividends

Top Holdings:

1. BCE Inc. - 10.2%
2. Metro Inc. - 8.7%
3. Goldcorp Inc. - 7.3%
4. CDN Apartment Properties REIT - 6.5%
5. Aecon Group Inc. - 6.3%

Twitter: @Hap_Sneddon

Website: www.castlemoore.com