Deutsche Bank foreign exchange analyst George Saravelos published a report entitled: “This chart should worry you.”
So of course I opened it right away.
The featured chart was a global economic surprise index which compares data releases to consensus estimates. In these indices, readings of zero indicate that the most relevant global data points (the more important data like GDP and industrial production carry more weight in the index) are being announced in-line with economist estimates.
The index is now near record highs indicating that reported economic results are coming in more beyond consensus forecasts than at any time since 2003.
For Mr. Saravelos these extremes are not sustainable. “Can this level of positivity be sustained?” he writes. “Does it make sense to be as bullish on risky assets with such an unprecedented positive run of data having already taken place?”
The analyst also noted that with colder weather approaching for most G10 nations, the potential for new COVID-19 outbreaks in closed spaces creates more risks to economic growth.
I’m not sure how seriously to take this warning. Stronger-than-expected economic growth is clearly good for corporate profits and stock prices. Mr. Saravelos has a point, though, because it’s unreasonable to expect the surprise index to stay at current levels. If equity investors have priced stocks as if the speed of the post-pandemic recovery stays at the current pace, some significant corrections may be in store.
-- Scott Barlow, Globe and Mail market strategist
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Stocks to ponder
Nutrien Ltd. Shares of this, and other companies with potash mines in Canada, have bounced higher over the past month. The jump reflects improving fundamentals in the fertilizer industry. It also reflects geopolitical turmoil – in particular, the decision of many Belarussians to walk off their jobs as part of mass demonstrations aimed at toppling the country’s long-time dictator, Alexander Lukashenko. The protests matter to Canada’s potash miners because Belarus produces a fifth of global potash exports. Continued chaos in Belarus could disrupt the country’s potash production in the short-term and lead to higher potash prices over the long-term. Ian McGugan looks at why investors may want to start accumulating shares in this 5-per-cent yielding stock. (for subscribers)
GICs are still in demand as stocks soar - here’s what people are doing with their money
Interest rates have been edging lower for months now. Where five-year GICs offered 3 per cent a few months ago, the highest rate available in late August was 2.1 per cent. Yet, investors are still turning in droves to the investment vehicle. Rob Carrick looks at some of the latest trends. (for subscribers)
A major U.S. bank thinks inflation is just around the corner - and that’s good news for Canadian stocks
Morgan Stanley strategists and economists correctly forecast the sustainability of the post-March market rallies, and if their next prediction is right, it means wholesale changes in market leadership that favour Canadian stocks. Scott Barlow explains (for subscribers)
Falling dividend yields point to a potentially bitter winter for income investors
Canadian dividend yields are slipping as August comes to a close. They’re now generally below levels seen at the start of the year. Norman Rothery takes a closer look at where things stand for yield-hungry investors of the TSX. (for subscribers)
Canada’s TSX seen higher as outlook improves for cyclical stocks: poll
Canada’s main stock index is set to extend its rebound over the coming months and in 2021, boosted by an expected recovery in corporate earnings after they were hammered by the coronavirus pandemic, a Reuters poll of 27 portfolio managers and strategists found. The outlook for Wall Street stocks isn’t nearly as robust. Fergal Smith reports (for everyone)
Is the value premium in Canadian stocks dead, too? You may be surprised
It has been all over the investing news for months: “The value premium is dead.” Value (low price-to-earnings or price-to-book) stocks, the pundits say, are no longer outperforming growth (high P/E or P/B) stocks. But almost invariably they are referring to U.S. markets, which normally attract all the attention. And indeed, evidence suggests the value premium (that is, value-stock returns minus growth-stock returns) has been mostly negative in the United States for the past 10 to 12 years. But is this also the case in the Canadian market? Dr. George Athanassakos has done some data crunching to find the answer. (for everyone)
How Victoria Woodhull made a fortune in the stock market
Victoria Woodhull was ahead of her time. In 1868, she made a fortune in the stock market. Two years later, she and her sister were the first women to launch a stock-brokerage firm on Wall Street. Then, in 1872, she became the first female to run for U.S. president. With Aug. 26 being Women’s Equality Day, it’s a fitting time to tell her extraordinary story, courtesy of Larry MacDonald. (for everyone)
Others (for subscribers)
Wednesday’s Insider Report: CEO and COO both top up positions in this consumer staples stock
Tuesday’s Insider Report: Executive VP invests over $500,000 in this depressed REIT yielding 6.7%
Number Cruncher: Which of these 10 leading forest-products stocks are undervalued?
Ask Globe Investor
Question: What is a value stock and can you give me some examples of value stocks? I read an article about them but it was somewhat confusing. Two of the stocks suggested were ExxonMobil and Johnson & Johnson.
Answer: Investopedia defines a value stock as one that trades at a lower price relative to its fundamentals, such as dividends, earnings, or sales. Such stocks usually offer a high dividend yield, low price/book ratio and/or a low p/e ratio. Value stocks typically trade at a bargain price relative to their peers.
I wouldn’t classify Johnson & Johnson (JNJ-N) as a value stock. It has a p/e ratio of over 26 and a dividend payout of 2.73 per cent. ExxonMobil (XOM-N) has a p/e of 25.83 and a dividend of 8.09 per cent. The high dividend suggests the market believes it is not sustainable and likely to be cut, which would hurt the share price.
Two stocks I suggest fall into the value category as defined by Investopedia are Canadian Utilities (p/e of 14.95, yield of 5.25 per cent) and U.S. telecom Verizon (VZ-N) (p/e of 12.73, yield of 4.2 per cent). Also, the bank stocks look like good value plays at this time.
What’s up in the days ahead
Have we seen the top for the loonie this year? Tim Shufelt will report on the Canadian dollar’s prospects after its strong performance in recent weeks.
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Compiled by Globe Investor Staff