A roundup of what The Globe and Mail’s market strategist Scott Barlow is reading today on the Web
Merrill Lynch quantitative strategist James Yeo has uncovered that the U.S. stocks most subject to tax loss selling have outperformed significantly in the November to January period providing their growth fundamentals are solid,
“November-January is the seasonally strongest three-month period for the S&P 500, with an average total return of 4.4% vs. the overall average rolling three-month return of 2.9% since 1936. And the performance of TLC stocks is particularly strong: since 1986, S&P 500 stocks that were down more than 10% in the first ten months of the year (TLCs) subsequently beat the S&P 500 by 145bp on average in the next three months, with a 70% hit rate. A strategy of owning TLCs from Nov.-Jan. had an impressive track record from 2000-12 and 2016-18, outperforming in all but one year (2007) during that period.”
Mr. Yeo published a list of trade candidates that includes Marathon Oil Corp and F5 Networks Inc. (the latter is a stock I’ve traded successfully in the past).
“@SBarlow_ROB ML: top trade ideas for tax loss selling season’ – (full table of 16 trade ideas) Twitter
UBS global economist Arend Kapteyn thinks market prices are ahead of themselves - the growth outlook is still mediocre at best while equities rally and bonds fall,
“The news has been good, but is now fully priced in our view while green shoots in the data are few and far between. Global growth ticked up marginally to 2.6% annualized in Q3, but is still only running in the 14th percentile (last 20 years) and damage from the May and September tariff escalation is still working its way into the data (i.e. even if there is a "Phase one" US/China deal that avoids Dec tariffs). Real rates have jumped 55bp in the UK on Brexit deal hopes and 20bp in Europe, and this has inspired a factor rotation into Value, but we do not believe the yield pick-up will sustain. The uncertainty holding back global investment will keep easier financial conditions from translating into better growth. We would fade the back-up in yields and the rally in cyclicals”
“@SBarlow_ROB UBS: "growing gap between market's pricing of risk and fundamentals"” – (research excerpt) Twitter
U.S. bond market insider Laura Frost provided a seasonal six scary charts for investors. The most salient of the charts involves a widespread desperation for yield that has more than €1-trillion in corporates bonds trading with negative yields,
“Even many corporate bonds are now negative yielding. This chart shows the face value of negative-yielding debt in the ICE BofAML Euro Corporate index: now as high as €1 trillion! Most of this negative-yielding corporate debt is actually in the lower end of investment grade, namely A and BBB.”
The key factor here is what happens when investors in the sector stop getting capital gains on their holdings.
“ @SBarlow_ROB From Bond Vigilantes : Neg yield spreading to corporates” – (chart, excerpt) Bond Vigilantes
Tweet of the day: “@MAAWLAW “[#China and the US] reached a deal in which the US would allow imports of Chinese cooked #chicken & #seafood products in exchange for China scrapping the ban on US poultry shipments... The opportunity to fill China’s #pork gap with chicken has US poultry executives salivating.”” – Twitter
Diversion: “ 5 of the Worst Halloween TV Episodes We’ve Ever Had to Sit Through” – i09