Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
BMO senior economist Robert Kavcic details some interesting details under the surface of recent market volatility,
“Equities were under pressure again Wednesday, with investors grappling with rising COVID cases. France and Germany are rolling out new containment measures, while new U.S. cases have jumped to record highs in recent days. Note that the S&P 500 is again below its pre-COVID high, but still comfortably above the 200-day moving average after the big run through the summer. Also note that most of the downdraft over the past week has been at the hands of large-caps and technology/energy/industrials. Small caps and banks (i.e., bigger COVID impact during the first wave) have held up relatively well. So, there’s probably more going on too— profit-taking ahead of an uncertain election, perhaps.”
The resilience of small caps is notable here – market is not going entirely risk-off.
"@SBarlow_ROB BMO: “Equities Recalibrating COVID Risk”' – (research excerpt, chart) Twitter
Josh “The Reformed Broker” Brown from Ritholtz Wealth Management highlighted the apparent deep distress in New York City office space,
“The sublease offers are flooding into my inbox. 12,000 square feet on Lex in the 50′s. Tenant probably just handed the landlord the keys. No thanks. I’m already lighting thirty grand a month on fire for my own midtown lease … This has to be happening on a massive scale. None of these spaces are worth what anyone thought they were – and they won’t recapture prior highs for a generation in my opinion. Office space usage and demand will not be returning to the prior peak even after the vaccines have become widely available. We’re creating a new working paradigm now that features self-reliance, independence, portability, remote accountability and employee flexibility. It’s going to become the norm, not a novelty… Welcome to Hell. Lenders are going to busy making adjustments for years to come. Manhattan office lease prices have to be rationalized given this new reality. What about in your city?”
I haven’t heard anything except reassuring noises from Canadian office REITs so far.
“Welcome to Hell” – Reformed Broker
Bespoke Investment Group published what amounts to a stock list for the second wave of the pandemic,
"The rise of COVID cases as winter approaches has been impacting equity markets again, and with new lockdowns in Europe and the thought of new lockdowns in various parts of the US, investors should re-visit our initial list of Stocks for the COVID Economy that we first published back in early March. Below is an updated look at our list of COVID stocks with performance numbers since March 11th (or later date for stocks added after 3/11). Our COVID stocks are up 89% on average since inclusion, and they’re only down 0.68% this week (through yesterday’s close) with the S&P 500 down 2.19%. "
Stocks in the table below include Diageo PLC, Clorox Co., Teladoc Health Inc., Slack Technologies Inc., FedEx Corp., Home Depot Inc., Callaway Golf Co., Twitter Inc., Johnson & Johnson, Activision Blizzard Inc., and Take Two Interactive Software Inc. The report also warns investors to ignore Gilead Sciences Inc., which is also on the list.
"@SBarlow_ROB Bespoke with what amounts to a ‘stocks for the second wave’ list' – (full table) Twitter
Scotiabank analyst Orest Wowkodaw’s review of Canadian miner First Quantum Minerals earnings report is titled, “Q3 Results Crush Expectations,”
“The Q3/20 adjusted EPS of $0.09 was well above our estimate of ($0.11) and consensus of ($0.04). Moreover, adjusted EBITDA of $641M was 16% above our estimate of $551M and 14% above consensus of $563M. Total Cu [copper] production of 211kt was 9% above our estimate of 193kt, driven by a stronger performance at both Cobre Panama and Sentinel (both mines achieved record output). Cu production increased by 25% QoQ and by 10% YoY… 2020 operating guidance improved. 2020 consolidated Cu production guidance was increased to 750-785kt (vs. 725-770kt previously) or by 3%. 2020 Au output guidance was increased to 245-260k ozs (vs. 230-250k ozs previously) or by 5%”
Metals miners, particularly copper producers, are increasingly favoured by global equity strategists as a way to play a post-pandemic economic recovery. In addition, stronger copper prices have been highly correlated to the value of the loonie in recent months.
“@SBarlow_ROB BNS: First Quantum results ‘crush expectations’” – (research excerpt) Twitter
Newsletter: " Don’t trust the buzzwords ‘innovation’ and ‘disruption.’" – Globe Investor
Diversion: “Children’s soccer club hires security firm after parents rage against COVID-19 rules” – CBC
Tweet of the day:
Energy junk bonds lost 1% yesterday, with spreads on the notes rising the most since June. pic.twitter.com/65USbcx5L6— Lisa Abramowicz (@lisaabramowicz1) October 29, 2020
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