Markets are shifting beneath the surface, with leadership concentrating in a select group of strong performers. Strategic adjustments this week reflect a focus on resilience while staying prepared for what’s next.
Key Points:
Breadth Narrowing, but Select Leadership Emerging
- From last week to this week, 6% of stocks moved from uptrend to downtrend, with a general shift to weaker breadth. However, electric utilities and industrial machinery showed notable strength, and the strongest sectors remain concentrated on the right side of the bullish% distribution chart (best breadth).
Selective Trimming and Portfolio Adjustments
- The team sold MNT Bank and Intact Financial to raise cash, bringing financials weight down ~5%. Industrials were reduced by 4% based on weakening breadth, and energy weight decreased earlier in July due to reduced gas exposure.
Tech Leaders Driving Strength, Exposure Still Cautious
- Despite strong earnings from Microsoft, Google, and Meta, overall technology exposure remains underweight at 13%, well below the S&P 500’s 33%. The portfolio continues to emphasize select leadership while avoiding overexposure to weaker names like SiTime.
Materials and Industrials Supporting Performance
- Materials weight has grown to 13% and is contributing meaningfully to returns. Miners like Agnico, Kinross, Wheaton Precious Metals and Camecoremain standouts. The industrials allocation, though trimmed, still includes top performers like GE, AXON, GE Vernova and Raytheon.
Defensive Sectors Remain Minimal
- Exposure to defensive sectors—real estate, utilities, healthcare, consumer staples, and discretionary—remains negligible or low. Boston Scientific represents a 2% weight in healthcare. These sectors continue to lag and remain underweight across portfolios.
Dividend Growth Outpacing Inflation
- The income mandate continues to emphasize dividend growth, with a 12% year-over-year increase across holdings. This helps protect investor income from inflation and aligns with the firm’s quality-focused approach.
Macroeconomic Conditions Remain Supportive
- Corporate balance sheets remain healthy, credit risk is low, and volatility remains within bull market norms. These factors provide a constructive backdrop for continued equity exposure but the team is watching a slowdown in employment.
Rate Cut Expectations Building into September
- Markets are now anticipating more rate cuts, with expectations starting in September. Easing monetary policy could further support risk assets and reinforces the current constructive positioning. A key risk to the scenario is sticky and potentially re-accelerating inflation.
Bullish Outlook with Active Risk Monitoring
- The team remains confident in portfolio structure, emphasizing exposure to high-performing sectors and global names. With ~6% cash and limited exposure to underperforming sectors, portfolios are positioned to adapt quickly should risk conditions deteriorate.