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Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow

RBC Capital Markets’ global technology research team published their sector predictions for 2024. The two most actionable were …

“M&A activity likely accelerates in 2024 after a down year in 2023 - With the decline in valuations from peak levels, elevated cash balances, and too many sub-scale public and private technology companies, we believe M&A activity is likely to ramp in 2024. In particular, we believe PE-based M&A activity could accelerate in 2024. Within software, BASE, BOX, DBX, ESTC, FSLY, GEN, MODN, NABL, NTNX, OLO, PD, QLYS, RPD, SMAR, SWI, TDC, TWLO, ZI and ZM as some of the more likely strategic and PE-based M&A targets… : We expect to see early, but minimal signs of GenAI monetization in 2024 - Based on our conversations with public and private software companies, channel partners, and industry experts, most customers are likely to remain in GenAI exploration mode in 2024 and therefore modeling immaterial revenue contribution is necessary conservatism. In our view, only a handful of vendors could see GenAI tailwinds directly or indirectly contribute a few points of growth, including ADBE, COUR, CRWD, CVO, ESTC, GTLB, MP1, MSFT, MDB, NICE, NOW and PME”

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BMO Capital Markets real estate analyst Michael Markidis provided top picks for 2024 in a report titled Realistic Optimism,

“The S&P/TSX Capped REIT Index is up modestly (4.3 per cent) year-to-date; however, the sector has rallied significantly over the past several weeks as enthusiasm for the emergence of a new rate cutting cycle continues to build. We think the backdrop for funds flow is positive in the short-term; however, we also see risk that sector valuation might get ahead of itself. In terms of asset class, multifamily REITs are at the top of our pecking order. Our best ideas are KMP, GRT and CRR… Market momentum should carry into early-2024; our performance expectation for the remainder of the year is relatively muted. The significant decline of the 10-year GoC (down 80 basis points, to 3.16 per cent), coupled with growing investor confidence that we are on the cusp of a new rate cutting cycle, has sparked a 20-per-cent rally in the S&P/TSX Capped REIT Index since the end of October … Multifamily is our preferred asset class. We expect population growth and household formation will eventually normalize; however apartment fundamentals should continue to be characterized by a significant imbalance between supply and demand . Our conviction toward industrial has waned. We rank industrial second; however, our confidence in the asset class has declined compared to the beginning of the year”.

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Vanguard’s look ahead to next year included a warning about Canadian economic growth,

“Consumer spending remained robust due to elevated savings (boosted by pandemic effects and fiscal support), strong wage growth in tight labor markets, and record high population growth (driven by immigration policy to address labor supply shortages). Strong population growth also buffered house prices from the impact of higher rates by bolstering demand for housing in a market already struggling with undersupply. Thus, inflation has been slow to decelerate … However, as offsets fade, we expect the effects of higher interest rates to be felt more acutely in Canada relative to the U.S., as households in Canada did not de-lever in the post global financial crisis period while US consumers did. Debt service payments for Canadians as a percent of income rose to 14.1 per cent (up 0.8 percentage points from its global financial crisis highs). This is nearly double that of the U.S., which has seen a decline of 3.9 percentage points from its global financial crisis peak to 7.7 per cent ... Even if the Bank of Canada cuts rates in response to a recession early next year as we expect, interest rates are likely to settle at a level higher relative to post global financial crisis averages”

Vanguard expects Canadian GDP growth of between 0.75 and 1.25 per cent for 2024.

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Diversion: “The Top 10 TV Shows of 2023″ – The Ringer (podcast)

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