A daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
BofA Securities chief investment officer Michael Hartnett has been so bearish in recent months that I didn’t know what to do with his research - citing it felt like clickbait tactics.
Thursday’s sell-off vindicated his view somewhat but has not tempered his bearishness at all,
“19 bear markets past 140 years … avg price decline = 37.3% & avg duration = 289 days; past performance no guide to future performance, but if it were, today’s bear market ends Oct 19th ‘22 with S&P500 at 3000, Nasdaq at 10000; good news is many stocks already there, e.g. 49% of Nasdaq >50% below their 52-week highs, 58% of Nasdaq >37.3% down, and 77% of index in bear market, i.e. down >20%; good news is bear markets are quicker than bull markets… base case remains equity lows, yield highs yet to be reached. Wall St to spend much of ‘22 working through “inflation shock”, “rates shock”, “recession shock” = negative, volatile returns in absolute terms … lead indicators of bear market were trough in yields & US$ + peak in EM, crypto, speculative tech (e.g. biotech) in Q1′21; only once yields & US$ peak, and floor in EM, crypto, speculative tech follow, should risk be added, first and foremost in corporate bonds – we are not there yet”
“Hartnett ... still bearish” – (research excerpt) Twitter
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Ritholtz Wealth Management director of research Michael Batnick raised the troubling prospect that “buy the dip” in equity markets is dead in a post called This is Where Dragons Lurk ,
“The investor’s mentality over the past decade can be summed up in three words: buy the dip. This behavior was rewarded innumerable times, so this was ingrained in our psychology. Buy dip, make money. It takes a while to unlearn this behavior and by definition, that doesn’t happen when the market is going up. To be very clear and again abundantly obvious, this happens when stocks are going down. Investors lose confidence in the market slowly, then very quickly. Each successive bounce gets weaker and weaker until the dip buyer’s confidence is exhausted… We can see investors’ changing mentality on the charts, and it’s a violent transition. Investors don’t go quietly into the night. You see bright green days and dark red days occurring back-to-back over a long period of time … Back to my earlier point about bad things happening in bad markets; Of the 25 best and 25 worst days going back to 1993, 47 of them happened below the 200-day moving average.* This is where dragons lurk.”
I would add that buy the dip worked often because central banks could be relied upon to cut interest rates and this isn’t going to happen this time, at least in the next few months.
“This is Where Dragons Lurk” – Batnick, Irrelevant Investor
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BMO chief strategist Brian Belski provided detail on recent Canadian market weakness and offered advice to investors (my emphasis) ,
" The S&P/TSX declined 5% on total return basis in April, this first monthly decline of 2022. In fact, only eight of the 57 individual factors we track posted positive returns in April, and this was made up of only momentum and trailing growth factors. Interestingly, forward growth was easily the worst performing category with all six of the individual forward growth factors underperforming. Indeed, the market appears to have lost some confidence in growth expectations as it struggles with slowing earnings momentum. Meanwhile, despite falling confidence in expectations, our trailing growth, valuation and capital usage factors continued to outperform and remain positive year to date. Overall, we continue to believe the transition to more normalized earnings growth environment will likely remain bumpy and favour a more selective approach to investing. As such, we believe investors should remain focused on capital deployment strategies, including dividend growth, cash flow, and even GARP style strategies.”
Mr. Belski helpfully provided a list of domestic stocks with the highest one year increase in dividend yield to make his recommendation actionable. The outperform rated companies on the list are Barrick Gold Corp., ARC Resources Ltd., Artis REIT , Birchcliff Energy Ltd., Cascades Inc., Canadian Natural Resources Ltd., Crescent Point Energy Corp., ECN Capital Corp., goeasy Ltd., H&R REIT, Methanex Corp., Pan American Silver Corp., PrairieSky Royalty Ltd., Quebecor Inc., Sun Life Financial Inc., Suncor Energy Inc., Teck Resources Ltd., and Whitecap Resources Inc.
“BMO: SPTSX stocks with highest One-Year Growth Rate in Dividend per Share” – (table) Twitter
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Diversion: “What happens in India doesn’t stay in India. Why this deadly heat wave has a wide reach” – CBC
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Scott Barlow