CANADA STOCKS: Beware Defensive Sectors Like Consumer Staples, Telecoms and Utilities: National Bank
National Bank Financial says its asset mix is unchanged this month, with equities slightly overweight and bonds slightly underweight relative to its benchmark. Despite the recent wave of downward earnings revisions and the likelihood of year-end profit-taking, NA expect the downside for equities to be limited by a continuing decline of inflationary pressures that will give the central bank credence and make a disorderly rise of bond yields unlikely. Though it expects interest rates to increase slightly, equity valuations have room to rise further before matching pre-recession earnings yield spread. National Bank says: "Our sector rotation in Canadian stock market is unchanged this month, still reflecting our more aggressive asset mix. In our view, the moderate rise in interest rates that we anticipate will penalize defensive sectors such as Consumer Staples, Telecoms and Utilities."