MARKET OUTLOOK:

Equity markets continue to climb higher with the S&P 500 Index and MSCI World Index both posting seven straight monthly gains. However, the ongoing threat of the COVID-19 Delta variant and a looming U.S. Federal Reserve tapering of asset purchases could keep equity markets in check over the near-term. Inflation pressures and ongoing supply chain constraints have further raised doubts about the resiliency of the global economy. Lastly, September’s historically weaker seasonality trends could also add downside risks for stocks.

COVID-19 vaccinations around the world continue to progress with more than 5.79 billion vaccine doses administered worldwide thus far at a rate of roughly 34.9 million shots a day. At this pace, it will take roughly another 5 months to cover 75 per cent of the global population. Undoubtedly, the extent of the Delta variant (and other potential new variants) along with the pace of global vaccinations will largely determine the path of the global economic recovery and equity markets over the coming months.

Beyond any near-term market volatility, the macroeconomic landscape continues to look favourable – massive fiscal stimulus, low interest rates and tremendous household savings provide a positive backdrop for the global economy. In Stan Wong Managed Portfolios, we continue to seek strong secular growth companies with high-quality attributes trading at reasonable valuations. We favour cyclical over defensive equities and remain focused on an active stock, industry and sector selection strategy.

From a geographic perspective, we like U.S. equity markets for its breadth and depth of high-quality names. We also like Europe given its relative valuation discount and broadening economic restart. In Canada, the financials and energy sectors continue to look attractive.


TOP PICKS:

Amazon.com (AMZN NASD)
Last bought in August 2021 at ~US$3,225
Amazon is the world’s leading online retailer and cloud company with over US$476 billion in revenues expected in 2021. Currently, Amazon accounts for approximately 50 per cent of U.S. online retail spending and about 32 per cent of the worldwide cloud market through its Amazon Web Services (AWS) division. 

Additionally, the Company’s high margin advertising business continues to scale quickly and should boost margins over the next several years. Since 2018, Amazon’s Prime membership has doubled worldwide to 200 million paying members today. Looking ahead, Amazon’s revenue is forecasted to grow by more than 22 per cent annualized over the next few years. AMZN reports it next quarterly results on October 29th.

iShares Global Energy ETF (IXC NYSE)
Last bought in August 2021 at ~US$23
The iShares Global Energy ETF provides exposure to a basket of large-cap energy companies around the world with about 53 per cent allocated to the U.S. and the remainder to international markets including Canada. 

Energy prices are being supported by improving global demand, diminished supplies and a drawdown in inventories. With the cold winter months approaching, energy prices could push higher given surging consumption demand. 

Large-cap global energy companies generally have strong balance sheets, strong free cash flow and have become more disciplined with expense and capital management. Valuations in the energy sector appear attractive relative to other sectors and share prices have not kept up with rising earnings forecasts. 
A steepening yield curve and rising inflation expectations also bode well for energy stocks. Top holdings in the iShares Global Energy ETF include Exxon Mobil, Chevron, BP, Royal Dutch Shell and ConocoPhillips.
 

Mastercard Inc (MA NYSE)
Last bought this month at ~US$345
Mastercard is the second largest global payments company in the world. With nearly US$19 billion in expected revenue for fiscal 2021, Mastercard operates in more than 210 countries and processes transactions in over 150 currencies. 

An eventual return to a more normal business environment should help in the recovery of consumer spending volumes, particularly in more lucrative travel and cross-border transactions. Driven by rising online sales and digital wallet usage, the secular trend from cash payments to electronic payments provides an extensive runway for long-term growth. On a global scale, electronic payments surpassed cash payments only a couple of years ago. 

After falling 9 per cent in 2020, Mastercard’s revenue growth is expected to climb nearly 20 per cent annualized over the next few years. Management has executed efficiently, beating quarterly analyst earnings expectations 93 per cent of the past 40 quarters (10 years). Mastercard reports its next quarterly results on October 28th.