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

Credit Suisse U.S. equity strategist Jonathan Golub points out that small and mid cap stocks have far more exposure to a recovering U.S. economy than large caps,

“In theory, Discretionary stocks should reflect the breadth of consumer purchases including Hardline, Softline and Internet Retail, Restaurants and Leisure, and Autos. Today, 3 companies—Amazon, Tesla, and Home Depot—make up 54% of the sector… At its peak in 1993, Discretionary represented 16.5% of the S&P 500 versus 12.6% today. This decline is almost exclusively the result of two changes to the sector classification scheme—Walmart and Costco to Staples in 2003, and Media to Comm Services in 2018 … SMID [small and mid cap] Discretionary is far more exposed to Brick-and-Mortar Retail, Durables, and Restaurants & Leisure, than the large cap benchmark, and much less to Internet Retail. As a result, SMID Discretionary has far more operating leverage and is especially well positioned as the economy reopens. By contrast, Amazon and Home Depot face more challenging comparables in 2021. TSLA’s P/E has increased to well over 100x during the past 12 months.”

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“@SBarlow_ROB CS: U.S. “Large Cap Discretionary Does Not Reflect Consumer Behavior” – (research excerpt) Twitter

***

Scotiabank strategist Hugo Ste-Marie is among many pundits expecting economically-sensitive companies to lead the market in 2021, but he puts a bit more stress on U.S. financials,

“We believe the economic revival should provide more support to “old economy” stocks/sectors relative to their “digital” peers. Granted, cyclical sectors have enjoyed solid gains so far in November, but .... some remain down on a YTD basis. Taking a longer-term view, it’s worth highlighting that U.S. Financials are lagging Tech by 46% YOY, which still appears quite extended to us. If growth is visible, cyclical-value sectors appear well positioned to lead next year.”

" @SBarlow_ROB BNS: ‘U.S. Financials are lagging Tech by 46% YOY, which still appears quite extended to us” – (research excerpt) Twitter

***

As much as I like to read as many credible sources of analysis as possible, I have used Michael Batnick’s Irrelevant investor blog a lot in 2020. Mr. Batnick recently reviewed his most popular posts of the year and summarized the most important lessons he learned,

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“My hypothesis… before Nick Maggiulli ran the numbers, was that if you added more money every time the market dips, then you would come out ahead. To my surprise, although it really shouldn’t have been surprising in hindsight, this strategy [when looking at the past 30 years] actually lagged behind a simple dollar-cost-average approach. The reason, as I wrote, is fairly straightforward: “If something goes up over time, then the longer you delay investing, the worse off you are.””

“Posts of the Year” – Irrelevant Investor

***

Diversion: " Why Do We Dream? A New Theory on How It Protects Our Brains” – Time

Tweet of the Day: " @SquawkCNBC Markets sit at record highs, but what’s driving the momentum? @michaelsantoli breaks down the charts: " – Twitter

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