The broader markets have been off to a pretty good start in light of all the jittery developments that unfolded in recent months. Undoubtedly, rate hikes and bank failures have been a cause for concern and a volatility driver thus far.
Moving forward, inflation and questionable earnings could be the next list of things to worry about as Canada flirts with a recession. It’s an anticipated recession, though. One we’ve been hearing about non-stop for well over a year now. And you can bet that such fears have been baked into the stock market already. How much is baked in, though, remains unknown.
In any case, investors must be cautious as the market rally continues to gain steam. Will it take us to new highs by year’s end?
Perhaps if earnings come in better than expected and a recession proves milder than anticipated. However, we must also brace for bumps in the road, even as the tech-heavy Nasdaq 100 adds to its new bull market (that’s a 20% gain off the bottom), with the S&P 500 not so far behind (less than 5% from being up 20% from the bottom).
Value hiding in plain sight
Though tech and the risk-on sentiment have improved considerably with time, it’s never a good idea to be a chaser after the tides have already shown signs of turning.
At writing, the TSX Index surged over 11% in around six months. Simply put, risk appetite is improving, but valuations have become a tad less attractive since the start of the year. That’s why it’d be nice to insist on a wider margin of safety, as the next bull gets closer into sight.
Investing cautiously, even as conditions improve, is always prudent. You may not get to most gains out of the next bullish charge higher. However, you will be able to average some decent results, regardless of where markets go from here.
Loblaw stock: Defensive growth at its finest
Loblaw (TSX: L) stock is a name that has been working incredibly well over the past few years of inflation and macro headwinds. The stock powered through the 2020 recession en route to new heights in 2021 and 2022. Over the past week and change, shares are off to the races again, up around 9%.
Undoubtedly, Loblaw has fared well amid surging inflation. A few weeks ago, Canadian grocery chief executive officers faced stiff questions from members of Parliament regarding inflation-driven prices and their profits. Indeed, Loblaw stock has been incredibly hot, which is not a good look, as grocery executives were grilled at Parliament Hill.
In any case, Loblaw seems well equipped to keep marching higher from here. Though it may wish to put forth more “price freezes” on low-cost, private-label goods to improve its reputation.
Inflation has cooled off a bit but could still linger above 2% for a long time. Further, Loblaw remains one of the best ways to play defence. Sentiment may have improved of late. But we have yet to enter a recession. It’s unclear just how much a downturn could impact stock valuations and corporate earnings. Further, it’s still uncertain what “shape” the ensuing economic recovery will be.
As markets begin to be constructive again, investors shouldn’t let their guard down. Risks tend to hit the hardest when most investors discount them in search of maximizing their gains.
