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Mondays are great for me because they bring a fresh onslaught of equity strategy research reports. This week most of them said the same thing - namely that the economic recovery is largely priced in to equities and returns will be harder to come by in the months ahead.

B of A Securities U.S. quantitative strategist Savita Subramanian raised her S&P 500 profit estimates for 2021, which sounded great. But then she added: “We expect secular headwinds [to] pressure margins, including potential higher corporate taxes, higher cost of debt, wage pressure” and she noted that companies that beat on earnings last quarter were not met with higher stock prices. Above-consensus earnings growth was already reflected in stock prices and Ms. Subramanian believes this remains the case.

Morgan Stanley U.S. equity strategist Michael Wilson was on the same page with his Weekly Warm-up report. Mr. Wilson noted the same investor lack of interest in earnings beats before predicting an imminent decline in earnings revisions breadth – the percentage of companies raising forward profit guidance.

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Citi U.S. equity strategist Tobias Levkovich has been arguably the most bearish strategist among major Wall Street firms. His PULSE Monitor: Still Euphoric and Thus Risky research report released over the weekend also expressed concern with the profit outlook, calculating that only four of the 11 major U.S. market sectors were experiencing rising earnings estimates in April.

It’s not unheard-of that strategists agree like this. It is rare that a market trend becomes so apparent that three major strategists cover the same topic within the space of a single weekend.

These are U.S. research houses but the conclusions are easily applicable to the TSX. The market sectors that have benefitted most from the early-cycle recovery from the March 2020 lows – resources and banks in particular – are those that dominate the Canadian benchmark. So if, as Mr. Wilson believes, markets are transitioning to mid-cycle patterns then the positive relative performance of domestic stocks may be ending.

The takeaway from this strategist chorus is investors should prepare for a counterintuitive scenario where economic growth is strengthening as businesses re-open while equity markets stagnate. Stock prices are forward-looking and it appears that the rally of the past year has already accounted for a post-pandemic growth surge.

What happens after that will depend on the extent to which the year-over-year profit gains in 2021 are sustainable. After a global economic near-halt during the pandemic and subsequent unprecedented monetary and fiscal support, that future is far too tough to call.

-- Scott Barlow, Globe and Mail market strategist

Also see: Gordon Pape: The stock market is at a crossroads – will this bull run continue?

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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

‘Where is the bubble?’: Money manager, pension expert square off over highflying stock market

Bears point to some of the loftiest stock valuations in history – not to mention the hunger for bitcoin, electric-vehicle startups and speculative investments of all stripes – and ask how long the madness can possibly endure. Bulls counter that investors have no realistic alternative. When bonds pay next to nothing and are practically guaranteed to erode your purchasing power, stocks look very attractive indeed. As Ian McGugan discovered after talking with two well-respected professionals, the debate between these opposing viewpoints can grow fierce.

Also see: Melt up? More money poured into stocks in past five months than last 12 years

Why I’m reinvesting dividends in this Big Five bank

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Our dividend growth investor John Heinzl reviews the first quarter performance of his model portfolio and reveals where he’s putting the cash that has accumulated.

Why Canadian industrial stocks are set to outperform

While industrial companies look very well-positioned to capture incremental capital flow over the coming months, the S&P/TSX Industrials Index has returned roughly 8 per cent year to date, and underperformed the S&P/TSX Composite index, which is up closer to 10 per cent. But historical data sets that correlate well to industrial performance and earnings estimates suggest a turn in sector expectations – and earnings – could be right around the corner. That might make Canadian industrials an overlooked cyclical play in an increasingly crowded trade, argues Mike Archibald of AGF Investments.

With U.S. stocks at record highs, investors look to future earnings

Wall Street is kicking off a crucial reporting season as U.S. companies provide quarterly results a year after the coronavirus pandemic crippled the economy and as investors look for reasons to support a stock market at record highs. With the S&P 500 index at record highs, valuations are stretched heading into the season, leaving some investors looking to earnings for further support. Caroline Valetkevitch of Reuters reports.

Others (for subscribers)

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The week’s most overbought stocks: S&P/TSX Composite Index vulnerable to a pullback

Monday’s Insider Report: Three well-known consumer stocks that company leaders are selling

Monday’s analyst upgrades and downgrades

Globe Advisor

The Financial Times: Markets test how far to price in an economic boom

Are you a financial advisor? Register for Globe Advisor ( 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.

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What’s up in the days ahead

Rob Carrick presents a reality check on the 12-month returns investors are about to start seeing from ETFs and mutual funds.

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.

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