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

Citi, as a firm, has been among the most bearish while equities have surged higher. In a report released Friday, U.S. equity strategist Tobias Levkovich reassesses, and remains skeptical,

“The more than 70% probability of a down market in the next 12 months remains and some have argued that substantial Fed induced liquidity has made traditional fundamental analysis moot … We worry about the rally for several reasons including our oft-stated C&I lending standards data which leads industrial activity and thereby earnings by nine months and we think EPS will have to be incredibly impressive by 1H21 to support a 3,200 S&P 500 level. Plus, bottom-up Street consensus forecasts are roughly $130 at the moment for 2020 and are projected to jump to just north of $160 which would be near 2019 profits (illustrated in Figure 4). Yet, with the forward P/E now at 20x those hoped-for numbers, valuation leaves little to chance – note that we remain at $150 for 2021 estimates. And, all this assumes corporate tax rates do not move higher, which is dependent on the elections.”

“@SBarlow_ROB Levkovich: "What the Heck Is Going On?"’ – (research excerpt) Twitter


Credit Suisse U.S. equity strategist Jonathan Golub published a mid-term outlook that conforms very much to my personal intuition,

“Sequentially Improving Data to Warm Investors’ Hearts For the next several months there will be 2 competing narratives—a bullish focus on strengthening economics, and a bearish counter that post-shutdown improvements are simply a reflection of easy comps off a depressed base. Over the near-term, sequentially improving data will warm investors’ hearts. Over the intermediate term, by contrast, focus will shift to how long it will take to regain pre-crisis business and employment levels. This, however, is a question for another day. For now, gains in everything from retail sales to gasoline purchases and air travel will look brilliant.”

“@SBarlow_ROB Golub: "For the next several months there will be 2 competing narratives" – (research excerpt) Twitter


My favourite annual report, all 276 pages of it, was released over the weekend.

In “Quantitative Primer: Everything You Wanted to Know about Quant,” BofA Securities’ quantitative strategist Savita Subramanian updates the foundations of her data-heavy approach to markets.

There are literally hundreds of valuable insights into how markets function in the report, and the section on the importance of valuations for future equity market returns is only one example,

“Our work suggests that valuation is generally a poor market timing indicator over short periods. However, over long time horizons valuation may be the most important determinant of market returns… We estimate normalized earnings based on linear log normal regression and our analysis shows tht this measure of market valuation explains almost 80 per cent of the variability of equity market returns over the next ten years…. The S&P 500’s current normalized PE ratio of 21x suggests annualized 10-year price returns of + six per cent.”

“ @SBarlow_ROB Sample from the quant primer and why I look forward to it every year’ – (research excerpt, chart) – Twitter


Diversion: “Why do people hate the media so much?” – Marginal Revolution

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