That’s the advice offered by Craig Basinger, CFA, in a Richardson GMP market insights report.
“We remain significantly underweight energy, and more defensively focused mainly on integrateds and some pipes,” he says. But with oil prices more attractive, “we are nearing a phase at which we would consider adding.”
What he’s watching: the rapid decline in the number of net non-commercial futures contracts.
“If these tick much lower when the data is released on Tuesday, and the stocks continue to slide, we may switch our fundamental hat for a contrarian hat and do some buying,” he says. The next short-term energy outlook report by the U.S. Energy Information Administration is released tomorrow.
Meanwhile, the loonie rally is likely seeing its tail end, given the market has mostly priced in a rate hike by the Bank of Canada later this week. Regardless, Basinger remains neutral, as he was back in May when the loonie was at 75.5 cents relative to the U.S. dollar. (Today, the loonie reached 77.7 cents.)
“Our base case is this rally in the C$ will fade, and we will see a lower exchange rate in the coming months that will offer an attractive point to add to our [currency] hedge or [to] trim U.S. exposure,” he says.
Another taper for bonds?
With more central banks indicating a potential change in the direction of monetary policy, bond yields could move faster than expected, albeit gradually, says Basinger, who suggests reducing bonds or at least reducing duration.
He adds: “You can also reduce exposure to the more interest-rate sensitive sectors and reallocate to more cyclical yield sectors. Financials including regional banks, money centres and lifecos all stand to benefit from rising yields.”
He says he’s already seeing momentum loss in telecoms, utilities, consumer staples and real estate.