Mr. Belski examined the positive aspects of the U.S. economy and markets, what American companies have gotten right, and a return of corporate leadership.Christopher Goodney/Bloomberg
Brian Belski has been covering his ears a lot lately. The chief investment strategist at BMO Nesbitt Burns says there's too much noise in the market – blame President Donald Trump – that is distracting investors from what he sees as the early stages of long-term bull market.
How long term? Decades, perhaps.
The pessimists might be tempted to tune out Mr. Belski if it weren't for his recent track record. In late 2015, he forecast the S&P/TSX composite index would outperform the S&P 500 in 2016 and set a target for the S&P/TSX composite index of 15,300. It did outperform and closed at 15,288. The Globe recently spoke to him about his view of the markets and his calls for 2017.
What's your take on the markets?
U.S. stocks are mired in a 20-to-25-year bull market. Canada is going to come along for the ride. I think investors are focusing way too much on rhetoric.
Our call for 2017 for North America is overweight analysis and underweight rhetoric. The U.S. is going to continue to outperform Canada, I think, for the next three-to-five years, especially given the fact that the U.S. has a clear path towards fiscal policy changes – meaning tax cuts, health care changes, repatriation and infrastructure.
The positives we've seen so far from the Trump administration on Canada are the Keystone XL pipeline.
While Trump has been increasing the rhetoric on Canada, it's our belief that [a trade war] isn't going to happen. Our call all along has been that Trump needs a friend in the region, and that friend is going to be Canada. [What we've heard in recent days about trade regarding dairy, energy and lumber] is just noise. Trump needs Canada for the oil, the paper, the wood and the railroad, and those types of things.
You're calling for a 20-plus year bull run. What year are we in now?
We originally came out with that call in 2009. I can build a scenario that the bull market hasn't even started yet. The move to date has been driven by momentum and multiple expansion. We haven't seen real growth. We've had eight years of zero growth. You can't recess from zero growth. We don't think there's going to be a recession any time soon, given the fact that recessions happen from higher levels of GDP and are triggered by an inversion of the yield curve.
What are your forecasts for 2017?
Our base case is 2,350 for the S&P 500. Our best-case scenario is 2,500. [The U.S. benchmark ended last week just shy of 2,350.] We don't change targets because the markets go up, only if we see something change in the base, and that would be earnings. If we get this mythical pullback, what I call the "chicken little correction," we'll change our forecast, potentially. For Canada, it's 16,000. I think we'll see single-digit returns in Canada. [The TSX is at 15,614, so a rise to 16,000 would imply a return of about 2.5 per cent.]
Canada is on pretty firm footing. Oil prices have solidified. We think oil is mired within a $40-$60 [(U.S.) per barrel] trading range for the next several years. That can be good for Canada.
What will drive the next market correction?
This has been the most hated, discontented, discorded stock market rally in the history of bull markets and it has everything to do with the fear and loathing of corporate America and financial services. Investors should never base their decisions on fear or hatred. They should base them on fundamentals. Our call is that the big correction everyone is waiting for isn't going to be Trump-related. Corrections are driven by fundamentals or some geopolitical-type of surprise, which you can't manage money for. You just buy high-quality companies and when the market gives you an opportunity to buy them cheaper, you buy more of them.
What sectors do you like today?
Our favourite sectors in America are financials by far, health care, materials and industrials. In Canada, we are overweight financials, materials and industrials. We like banks and insurance companies, and insurance companies in particular in Canada over the U.S. because of the asset management side of things. We love the banks that have U.S. exposure. Industrials, this is all about a North American recovery – the waste management, railroad and aerospace companies.
Don't you see a threat to Canada's banks from the overheated national housing market?
All of the bank CEOs are being defensive – of course. Canadian banks are the most excellent stewards of capital in the world. They're all too conservative. They're all very smart in terms of managing their money. The "chicken little" housing correction [sentiment] in Canada is similar to the "chicken little, sky is falling any day now" in the stock market in America. Everyone can't wait for housing to go down in Canada. They've been willing it lower for five years. Think about the bull market in America in terms of stock prices; since March, 2009, nobody has believed it. Fear and loathing gets you nowhere.
What sectors are you underweight?
Anything to do with yield. REITs and utilities in Canada. We are also underweight health care in Canada because there are better alternatives in the U.S. We like telecom in Canada more than we like telecom in the U.S. – it has better dividends and better earnings growth.
Any parting advice for investors?
You have to turn down the volume on the noise. Noise doesn't drive stocks, fundamentals drive stocks. Investors need to deploy discipline and stick with it. Stocks are rarely linear for long. Never try to time the market. If we do see some sort of pullback, that's an opportunity to buy your favourite names.
This interview has been edited and condensed.