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Citi’s chief U.S. equity strategist Tobias Levkovich does not like this market at all. In Wednesday’s Feeling a 1999 Vibe (and That’s Risky), the strategist directly compares current market euphoria to the last months before the collapse of the 1990s technology bubble.

The report is only two pages long but still provides plenty of detail to keep investors with short time horizons awake at night.

Mr. Levkovich begins by noting that fund managers are feeling compelled to carry high levels of equity portfolio risk to keep up with the index and competition, “even if there’s also a recognition that it could end badly.” This pressure was widespread during the tech bubble, and particularly acute in Canada where portfolio managers had the choice to either hold a huge position in Nortel Networks or risk dramatic underperformance.

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Citi believes U.S. equities are overvalued, as the S&P 500′s market cap to sales ratio is now well above the year 2000 peak. Mr. Levkovich sees profit forecasts turning lower in some major industry sectors, including Financials and Materials. He also feels that investors are under-estimating the risk that President Biden will enact sharp and retroactive increases in corporate tax rates.

Wait, there’s more. The strategist called the high degree of market optimism “very worrisome” and reminded clients that his Panic/Euphoria sentiment indicator is deeply into euphoria territory, signaling negative S&P 500 returns in the next 12 months.

This all sounds terrible. We have, however, been taught by history that attempting to time the market by reducing and adding risk is a no-no, so it’s hard to advocate adding to cash positions here - tempting as it may be.

Mr. Levkovich’s strong case for imminent market volatility is, on the other hand, a good excuse to review portfolio positioning to assess whether it still fits our intended risk profiles.

-- Scott Barlow, Globe and Mail market strategist

This is the Globe Investor newsletter, published three times each week. If someone has forwarded this e-mail newsletter to you or you’re reading this on the web, you can sign up for the newsletter and others on our newsletter signup page.

The Rundown

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An ETF that dekes around what’s not working right now in the U.S. stock market

In a bull market, big stocks get bigger and can end up dominating the portfolio of an index-tracking ETF. Example: The S&P 500, an index commonly tracked by ETFs and widely used to measure U.S. stock market returns, was almost 21 per cent exposed to just five stocks as of March 30 – Apple Inc., Microsoft Corp., Amazon.com Inc., Alphabet Inc. and Facebook Inc. If these stocks were to soar like they did through much of the past year, an S&P-tracking ETF would do well. But what’s actually happening is that some of these stocks have come off their highs of the past 12 months and weighed down the S&P 500′s results. Luckily, as Rob Carrick reports, there’s a way to stay invested in the S&P 500 and avoid this tech-giant dominance.

How an Ottawa-based economist with nearly 20 income properties is weathering COVID-19

Jamal Hejazi, an Ottawa economist in the private sector, has no work pension plan. So, he saved and invested in income properties to provide for his old age, acquiring close to 20 properties over the previous 15 years. Not only were they assembled to support his retirement but they were also part of a succession plan for his children. Fortunately for him, his portfolio of investment properties appears to have emerged relatively unscathed from the COVID-19 vortex. Larry MacDonald spoke with him to find out why and what others can learn about such an investment strategy.

Markets lose faith in its own bets on the path for bond yields

Financial markets appear to have a case of double doubts - unsure the U.S. Federal Reserve will hold its nerve in delaying interest rate hikes to 2024 but now second-guessing their own aggressive assumptions of a tightening late next year. U.S. yields are drifting back lower as the second quarter kicks in despite a blowout U.S. jobs report for March, the highest reading for service sector growth ever, trillions of dollars of more government spending in the pipeline and ongoing inflation angst. And it’s not entirely clear why. Mike Dolan of Reuters reports.

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Emerging market investors need to be prepared for effects of inflation

As the world emerges from the COVID-19 pandemic, Western investors’ focus has shifted from the impact of a global health crisis to a lesser but still serious potential problem: inflation, and how bad it might get. In emerging markets, there is little debate: For them, inflation is already a reality. And a handful of central banks – in Turkey, Brazil and Russia – have already responded by raising benchmark interest rates. If others follow, the inflation and rate environment may present a challenge to any investors who still view emerging markets as a homogeneous asset class. Regina Chi of AGF Investments looks at strategies that can still do well in emerging markets even as inflation rises.

Others (for subscribers)

Wednesday’s analyst upgrades and downgrades

Wednesday’s Insider Report: CEO invests over $700,000 in this rebounding stock

Tuesday’s analyst upgrades and downgrades

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Tuesday’s Insider Report: Multiple insiders are buyers of this oversold stock

Number Cruncher: Six remote-work stocks that still have room to grow

Globe Advisor

Stress testing of portfolios has taken on greater importance amid COVID-19 crisis

Are you a financial advisor? Register for Globe Advisor (www.globeadvisor.com) for free daily and weekly newsletters, in-depth industry coverage and analysis, and access to ProStation - a powerful tool to help you manage your clients’’ portfolios.

Ask Globe Investor

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Question: I am a beginner investor and I’m learning. I am being extremely cautious in this as I don’t want to make a mistake. In November 2020, I purchased a stock through a margin account. I transferred that position from my margin into my TFSA. At the time, it was at a loss from the time I bought the position. I am worried that the transfer may not have been allowed? I want to make sure it was alright to do. I don’t want to get hit with a big penalty. Travis

Answer: What you did is called a transfer “in kind.” You can contribute to a TFSA either in cash or “in kind”. The thing you should know is that if the stock was at a loss when you transferred it in, you cannot declare the loss on your tax return. Conversely, if you had a gain, you would have to declare that for tax purposes. In this regard, the TFSA operates the same way that a self-directed RRSP does. You can own stocks, bonds, mutual funds within it.

A TFSA is not just a savings account. It is best used as an investment account. Its purpose is to tax shelter any gains or income that occur within it.

--Nancy Woods, Vice-President & Portfolio Manager at RBC Wealth Management.

What’s up in the days ahead

Get ready, dividend fans. This Friday Rob Carrick returns with the latest instalment of the 2021 ETF Buyer’s Guide. This week, it’s a look at the best funds for Canadian income stocks.

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Click here to see the Globe Investor earnings and economic news calendar.

More Globe Investor coverage

For more Globe Investor stories, follow us on Twitter @globeinvestor

You may also be interested in our Market Update or Carrick on Money newsletters. Explore them on our newsletter signup page.

Compiled by Globe Investor Staff

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