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

CIBC analyst Dean Wilkinson sees a volatile year ahead for the REIT complex,

“We believe the back end of 2023 mirrored the early 2023 run-up on the expectation of rate cuts and while it’s not our expectation that Lucy pulls the football again (causing another rapid decline), we do believe that much of 2024′s returns were brought forward into 2023 and a continuation of the current trajectory would require a reduction in long bonds well beyond the expectations of our Economics team … Given the sector’s recent significant run-up on rate cut expectations, we see a path to a more historical 5-15-per-cent range within the sector for 2024. Underlying this range are our expectations for: 1) moderate FFO [funds from operations] growth for the foreseeable future (6 per cent year-over-year for 2024); 2) flat valuation levels—the REIT sector is trading slightly below the five-year pre-pandemic average on a NAV basis; 3) a mid-single-digit distribution yield (the sector currently offers a 5-per-cent yield); and, 4) an economy that finds a delicate balance between a soft landing and a mild recession… Top Picks: Within the ‘safety trade,’ our top housing picks include Killam (Canada) and Tricon (U.S.) while our preferred retail pick is Crombie. Within the ‘recovery trade,’ our top picks include Dream Industrial and we continue to view BN as a long-term core holding.”

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RBC Capital Markets analyst Darko Mihelic summarized the findings from the firm’s recent Canadian bank CEO conference,

“Generally, we were expecting an upbeat tone as we thought NIM/NII [net interest margins/net interest income] growth would be “decent”, capital markets would rebound, costs were under control, and PCLs would normalize. While many of these positive sentiments were echoed, there was some caution on loan growth and capital markets “rebound”. We were encouraged on capital but many CEOs wanted time (Q2/24-ish) before committing to significant capital actions … The Canadian banks continue to expect mortgage renewal shocks to be manageable for their customers, citing strong FICO scores, low LTVs, and deposit buffers. Most CEOs suggested that higher unsecured losses should be expected, but even here, a spike in losses was viewed as unlikely given the current economic outlook. General impression by bank: Based on everything we heard, if we had to put banks on a spectrum of “optimism” toward “caution” (relative to our expectations) it would be in the following order .. .CM, BNS, CWB, BMO, TD, and finally NA”

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BofA Securities’ Research Investment Committee (RIC) published ten potential surprises for investors in 2024,

“This month, we offer some plausible surprises that could affect markets in 2024: 1. High bond taxes push investors back to stocks 2. Companies survive 5-per-cent rates without a surge in bankruptcies 3. IPOs come roaring back 4. The worst developed market of the past 40 years is this year’s best 5. Suddenly, geopolitical risk is factored into the Magnificent Seven 6. Biotech & pharma push to record highs 7. Investors get pragmatic about energy 8. One path to 2-per-cent inflation, one hundred paths to 5 per cent 9. Government debt buyers demand a premium 10. Investors fall in love again with free markets”

In the case of No. 4, that market is Japan where BofA strategists see 13-per-cent upside. For number seven, the pragmatism would be the acknowledging that crude producers are are necessary in the short term and sector valuation levels rising.

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Diversion: “LG Just Announced a Fully Transparent TV” – Gizmodo

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