Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
BMO chief economist Doug Porter described ‘The 7 Key Trends in Canada’s Economy’ in his Friday report,
“The personal savings rate actually climbed in the quarter to a meaty 14.2%. That’s up from 13.0% in Q1, almost in line with last year’s lofty average reading and roughly 10 times the pre-pandemic level. This further added to the already groaning hoard of excess savings, which we now peg at roughly $270 billion (or more than 10% of current GDP). We continue to believe that this wall of wealth will ultimately boost spending when restrictions recede… While real GDP was a clear disappointment in Q2, an underplayed element was that nominal spending quietly remained robust. The 7.9% advance ranks as the second strongest of the past decade (aside from the wildness of the past year). And nominal GDP is now essentially back to its pre-pandemic trend … Last year saw the biggest annual rise in personal disposable income (+10.4%) in four decades—in the midst of a deep recession—mostly thanks to massive government support payments. Adjusting for inflation, last year’s disposable income rise was the fastest in 60 years of records … The national accounts measure of corporate earnings may lag well behind the more timely company reports, but it provides a more complete picture of business financial health. And the latest check-up is very positive indeed. The broad “net operating surplus” edged up further in Q2 to record highs and now stands a lofty 68% above depressed year ago levels”
These are the top four trends. The others are housing as a giant component of GDP, the current account shifting to surplus, and number seven is “the relentless net outflow of foreign direct investment (FDI)”
“7 Key Trends in Canada’s Economy” – BMO Capital Markets Economics
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Morgan Stanley’s U.K-based global strategist Andrew Sheets describes the difficult environment for portfolio managers this year, and identifies commodities as the most predictable sector,
“It’s been a year where ‘ESG’ and ‘Quant’ remain key structural trends in the investment community … Under the surface, it’s been hard. It’s been hard in a ‘good’ market like US equities, where major rotations have led to sharp swings in relative performance (US small caps rose +20% through mid-March, and are lower since). And it’s been hard in global equities, where MSCI China has fallen 26% since February 14, while MSCI Europe is up 14% over the same period. Many active managers are lagging their benchmarks … Year-to-date, following these historical patterns has led to poorer outcomes in interest rates and FX compared with all other asset classes. Where have historical patterns done better? Commodities. A lot better. Investing systematically based on attractive factors (carry, momentum, valuation, supportive fundamentals) has been working better in commodities than any other asset class (credit is second). Why? We have a few theories… Natural inefficiencies in the commodity market create risk premium. The tendency of commodities to move in longer cycles means that momentum is more effective. Central banks aren’t intervening in these markets (and investor flows have been more muted),”
“@SBarlow_ROB MS: commodities have been most tradeable asset class in 2021” – (research excerpt) Twitter
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Credit Suisse U.S. quantitative strategist Patrick Palfrey made a host of changes to his list of “Best Ideas for an Accelerating Economy.”
SunRun Inc., MasTec Inc., Penn National Gaming Inc., Envista Holdings Corp., Synchrony Financial and NXP Semiconductors NV are in, while Howmet Aerospace Inc., Textron Inc., Aptiv PLC, IQVIA Holdings Inc., Prudential Financial Inc. and Lam Research Corp. are out.
The resulting list of largely mid-cap stocks has 47 members. Prominent names most notable to Canadian investors include Alphabet Inc., Citigroup Inc., Nucor Corp., Flowserve Corp., Parker Hannifin Corp., Estee Lauder Companies Inc., Royal Caribbean Cruises Ltd., Oshkosh Corp., Universal Health Services Inc. (disclosure: I own this hospital stock personally), and Marriott Vacations Worldwide Corp.
" @SBarlow_ROB CS: Top stocks for an accelerating economy” – (full table) Twitter
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Diversion: “Dune [directed by Canadian Denis Villeneuve] Is the Jaw-Dropping Sci-Fi Epic You’ve Been Waiting For” – Gizmodo
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Scott Barlow