by Ryan Lewenza, VP, Senior U.S. Equity Analyst, TD Wealth
Volume 5 Highlights
• Since bouncing off its 50-day moving average (MA) in early August, the S&P/TSX Composite Index (S&P/TSX) is up over 3% and for the first time in over a year, is outperforming the S&P 500 Index (S&P 500). However, it is now once again trading at the key technical resistance level of 12,900, which has contained the S&P/TSX over 2013. Because the S&P/TSX remains range-bound, we expect the S&P/TSX to be capped at 12,900 in the near-term and see it heading lower in the September/October period, which has historically been a weak period for the equity markets.
• The REIT sector had a rough summer, with the S&P/TSX Capped REIT Index down roughly 20% since May. The weakness in the sector can largely be attributed to the recent rise in government bond yields. Given our view that government bond yields should be nearing their peak on an intermediate basis, the recent pressure on REITs should soon abate.
• With the S&P 500 approaching technical resistance and a near overbought condition, we expect the S&P 500 to struggle in the coming days and see the potential for some near-term profit taking, resulting in a pullback to its uptrend, currently intersecting at 1,650.
• With the U.S. Federal Reserve (Fed) likely to announce a tapering of asset purchases following its September 17-18 meeting, and the S&P 500 near technical resistance (and all-time highs), we believe the S&P 500 is approaching an important inflection point, with the market reaction in the coming days, possibly providing a window into the next few quarters.
• The S&P 500 Industrials Index remains in a clear, long-term upward channel but the sector is quickly approaching short-term technical resistance and is nearing an overbought condition, which could lead to some near-term profit taking. However, we would look to increase exposure to the industrials sector on weakness, as its technical profile remains bullish in our view.
• In this week’s report we highlight Bank of America Corp. (BAC-N) and Dundee REIT (D.UN-T) as attractive buy candidates and recommend investors trim/sell Conagra Inc. (CAG-N), Campbell Soup Co. (CPB-N) and Kellogg Co. (K-N).
You may read the complete report in the slidedeck below:
