Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
A sobering research report from Citi quantitative strategist Hong Li argues that the market benefits of a COVID-19 vaccine are already priced into equities,
“Value rallied in November amid the promising vaccine news. Our implied macro factors indicate that the equity market has priced in much higher 10-year yields than the bond market indicates. That suggests that risk is skewed toward the downside in the short term as factors continue to be mostly macro driven, even as we remain positive on Value… Growth rebounded strongly last week amid heightened concerns over increased coronavirus cases, and it remains the most crowded factor. We have not seen and do not expect a capitulation out of Growth into Value in the near term, where the long-term interest rate is the key driver.”
In short, the rally in economically sensitive value stocks was not confirmed by a rise in ten-year U.S. Treasury yields, and this opens the door to market weakness.
“@SBarlow_ROB Citi: “Upside of vaccine news has been fully priced in the equity market” – (research excerpt) Twitter
A George Mason economics professor excerpted a Wall Street Journal report on “Canada’s gamble” on his web site Marginal Revolution (my emphasis),
“Canada’s deficit is growing at the fastest rate among developed nations as it seeks to prop up its economy during the Covid-19 pandemic. Canadian officials are betting the aggressive approach will pay off, pointing to the number of jobs already recovered … Canada’s virus-related spending … has totaled about 382 billion Canadian dollars … roughly 19% of Canada’s total economic output. Yet data from the IMF indicate Canada’s fiscal position during the pandemic—incorporating all levels of government—has deteriorated at the fastest pace among the major economies in the Group of 20 industrialized countries as it seeks to keep the economy pumping. So far, Canada has recovered about 80% of the jobs lost in March and April because of the virus, whereas the U.S. has regained just over half of employees shed. Canada’s economy grew by a record 40.5% annual rate in the third quarter, Statistics Canada said Tuesday. However, growth is expected to grind to a halt in the final three months of 2020 as restrictions re-emerged to deal with a rise in Covid-19 infections. The federal government’s debt is also set to surpass C$1 trillion for the first time this year, or 50% of GDP.”
Ok, that sounds bad, but Deutsche Bank economist Michael Hsueh argued that Canada can afford it in a Wednesday research report,
“As the most acute phase of the pandemic’s economic shock subsides next year, governments will look to ward off potentially-long lived impacts of the pandemic. Countries such as Canada working from a more sustainable fiscal position will have more options, and face less pressure to prematurely tighten. Canada ranks near the top, and the US near the bottom, in the IMF’s fall update of its Cross-Country Database of Fiscal Space. Even after 2020′s deficits are considered, Canada will have a margin advantage of 15% less government gross debt than the US (as share of GDP), and likely a much larger advantage in terms of net debt.”
“Canada gamble of the day” – Marginal Revolution
“@SBarlow_ROB Deutsche Bank: “Canada ranks near the top, and the US near the bottom, in the IMF’s fall update of its Cross-Country Database of Fiscal Space” – (research excerpt) Twitter
BofA Securities U.S. quantitative strategist Savita Subramanian has updated her top 10 U.S. stock picks for growth and value investors, adding DexCom Inc to the growth list to replace NRG Energy Inc.
The value picks are Allstate Corp., HCA Healthcare Inc., Lincoln National, Marathon Petroleum Corp., Morgan Stanley, NetApp Inc., Principal Financial Group Inc., Progressive Corp., Parker Hannifin Corp and T-Mobile U.S. Inc.
For growth, Advance Auto Parts Inc., Amazon.com, DexCom, Facebook Inc., Alphabet Inc., Marathon Petroleum Inc., Netflix Inc., T-Mobile U.S. Inc., Twitter Inc. and Vertex Pharmaceuticals Inc.
" @SBarlow_ROB BoA: Top 10 picks for U.S. growth and value” – (table) Twitter
Newsletter: “10 stocks to buy for an expected surge in 5G consumer demand” – Globe Investor
Diversion: “The Best Movies You Haven’t Seen” – Irrelevant Investor
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