Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
BofA Securities U.S. quantitative strategist Savita Subramanian manages a high quality dividend screen that includes companies with credit ratings of A- or higher, return on equity ratios larger than the S&P 500 average, debt equity ratios lower than the index average, free cash flow above total dividend payouts and dividend yields higher than the benchmark. The list is very small at present after Accenture was removed for having a dividend yield lower than the index. Only five stocks meet the criteria – General Dynamics, Genuine Parts, Northrop Grumman, Procter & Gamble and Packaging Corp. of America.
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BMO’s Canadian rates and macro strategist Benjamin Reitzes’s latest report is titled “Canadian economy going nowhere”:
“Just ahead of the holidays, Statscan revealed that Canadian GDP growth flatlined for a third consecutive month in October. Worse still, that streak follows back-to-back contractions in June and July. That pulled the five-month annualized change into negative territory for the first time since 2015 (excluding the pandemic). This metric doesn’t often turn negative, but isn’t necessarily indicative of how deep the slowdown will be. We’ll be watching to see how the rest of 2023 evolved and whether conditions improved in early 2024. Spoiler: We don’t see much improvement with zero GDP growth forecast for both Q4 & Q1. Don’t forget, the deceleration in activity comes despite surging population growth, suggesting that per capita growth is materially weaker. For the BoC, this points to a further cooling in inflation, but isn’t enough to prompt rate cuts just yet.”
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Wells Fargo’s head of global asset allocation strategy Tracie McMillion published a list of top five portfolio ideas for 2024:
“1. Stay defensive, but prepare for early cycle recovery… At a portfolio level we favor fixed income modestly over equities. Within asset groups, we favor equities with more stable earnings and higher-quality bonds. 2. Anticipate a pivot to riskier asset classes early in 2024, we anticipate a slowdown in the economy and a pullback in equities. We think that will be a signal to reallocate portfolios toward asset classes that tend to perform well when the economy reaccelerates … 3. We are urging investors to use cash to lock in higher yields in the 4.5% 5+% range on short-term and long-term high-quality bonds. We believe yields at these levels will serve investors well relative to our long-term inflation assumption of 2.5% … 4. Position for potential correlation spikes by using alternative investments… we suggest holding allocations to alternatives such as hedge funds and private capital to help moderate the overall portfolio declines. We especially like Macro and Relative Value strategies for this purpose … 5. Use pullbacks to add to commodities. Commodities historically have been an effective inflation hedge and tend to perform well over the full bull supercycle. At this point in the cycle, consider rebalancing commodities back to target allocations. The commodity bull super-cycle is in a consolidation phase and that means opportunities to accumulate this asset class ahead of what we think will be a pivot higher for commodities in the coming year.”
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Morgan Stanley’s wealth management team continue to warn about minimal returns for U.S. equities this year:
“Equities, as measured by the S&P 500 Index, are flirting with recovering their January 2022 high, erasing the bear market associated with the Federal Reserve’s post-COVID hiking cycle. For the Nasdaq Composite and small-cap Russell 2000 indexes, respectively, 2021 all-time highs are approximately 6% and 16% away. With gains paced almost entirely by expanding multiples, and valuation multiples again flirting with 22 times current earnings, investors will have to contend with how to value a market now presumed to be midcycle, having nailed the soft landing. The bar has been set high for what constitutes an upside surprise in 2024, potentially limiting percentage gains for equity markets to modest single digits.”
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Diversion: “How Many of These Stupid-Hard Puzzles Can You Solve?” – Gizmodo
Scott Barlow