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

The Pavlovian certainty with which equity investors are buying any dip is making me uneasy as an indicator of extreme, risk-insensitive bullishness.

Here’s BofA Securities with a rundown of client activity last week,

“Clients bought the dip last week: $2.8B of equity inflows by our clients were in the 95th percentile of weekly flows (since 2008), with net purchases of single stocks and ETFs each in excess of $1.5B. Specifically, clients bought the Tech dip, with net buys of Tech stocks the largest of any week since Nov. 2019 and with inflows across all three client groups (institutions/hedge funds (HFs)/private clients). Private clients led the buying of US equities last week, where inflows were the sixth-largest in our data history (since ’08) and the largest since the mid-Jan buying frenzy (concentrated in Consumer Discretionary and Tech)”

“@SBarlow_ROB Risk? What risk? (BoA)’ – (risk excerpt) Twitter

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Scotiabank strategist Hugo Ste-Marie is recommending clients add to specific Canadian financials (my emphasis),

“Pre cash adjustment, our equity signal for March stands just under an 11-year high hit in late Q4/20. Technicals, Consumer Confidence, and Jobless Claims are all pushing for maximum equity exposure. The ISM Manufacturing and Earnings Revisions are at or near multi year high, which is also extremely positive. Finally, high Valuation levels are offset by earnings back on a growth path. Government bonds remains UW[underweight], while Corporate bonds maintain a small OW [overweight]. Portfolio positioning: We’re adding to Financials/Banks after a stellar reporting season. As we indicated recently, we believe the stars are aligning for the sector. We are further trimming our gold exposure (UW). Overall, our sector positioning in unchanged as we remain OW Financials, Industrials, Discretionary, and Resource sectors (Base Metals, Lumber & Energy). Line-up: We are adding to NA, BMO, and CM in Financials, while swapping RBA for RUS in Industrials. We reduce further our gold weighting (ABX) and our cash goes to zero from 0.4% a month ago.”

“@SBarlow_ROB Scotiabank: “We are adding to NA, BMO, and CM in Financials, while swapping RBA for RUS in Industrials” – (research excerpt) Twitter

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BMO economists highlighted the disquieting degree that the domestic economy is dependent on housing construction (my emphasis),

“Canada’s housing market has been on a roll for the better part of two decades and took flight in the pandemic. Real residential structures surged 14.4% through 2020, trouncing every other major spending group. In current dollars, its share of GDP now towers at a record 9.3%. That’s well above the long-run mean (5.9%), the current U.S. share (4.6%), and even the peak of the U.S. housing boom (6.7%). More concerning for the economy is that it’s also above the share of business spending on structures and M&E. That’s probably not the best mix for productivity, global competitiveness, and long-term growth.”

“@SBarlow_ROB Canadian GDP alarmingly dependent on housing (BMO)” – (research excerpt) Twitter

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Citi quantitative strategist Hong Li thinks equities are ahead of themselves with risks indicating short-term downside,

“Our implied macro factors indicate that the equity market continues to price in much more optimistic outlook on the U.S. economy than the bond market, even as the 10-year yield briefly rose to above 1.5%. That suggests risk is skewed towards downside in the short-term for the market and Value performance, even with more positive news on vaccines and the potential of a large stimulus package… More importantly, our equity implied 10-year yield also jumped and the gap between implied and actual 10-year yield widened further in February. That suggests that either 10-year yield has much more to catch up, or the equity market is too optimistic on the economic recovery … Our US rates strategist, Jabaz Mathai, suggests that the bond selloff may have run its course for now. Overall, it continues to point to the short-term risk for the broad equity market and value performance.”

“@SBarlow_ROB Citi: “our equity implied 10-year yield also jumped and the gap between implied and actual 10-year yield widened further in February” – (research excerpt) Twitter

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Diversion: “Causes of the sex drought” – Marginal Revolution

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