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A roundup of what The Globe and Mail’s market strategist Scott Barlow is reading today on the Web

Citi strategist Robert Buckland warned investors not to chase the recent strength in global bank stocks,

“Despite tempting valuations, low rates and slowing economies will put further pressure on business models … this latest bond rally has tracked a parallel rise in bond yields. Valuations are also sensitive to economic growth. With global economies likely to remain weak and bond yields low, bank valuations should stay cheap”

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Mr. Buckland’s accompanying chart shows that global bank stocks, including Canadian banks, are currently fairly valued in light of return on equity compared to price to book value. This implies that a sustained rally is unlikely,

“C: Don’t chase recent strength in bank stocks” - (chart) Twitter

**

Also from Citi, analyst Timm Schneider highlights research showing that U.S. companies that have consistently bought back shares have outperformed the ‘dividend aristocrats’. Importantly, both strategies have outperformed the S&P 500.

“C: buyback stocks have outperformed dividend aristocrats” - (chart) Twitter

**

Wall Street analysts are being bombarded by questions from investors who “see the rally, but don’t trust it”,

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“The stock market has a record of pricing in today what will happen to the economy in the near future. But given the weak growth outlook, this pattern is being called into question, said Alessio de Longis, a senior portfolio manager on the multi-asset investing team at fund manager Invesco. “There is a disconnect between where the market is going and where the economy is heading,” Mr de Longis said.”

“US stock market‘s new high baffles investors” - Financial Times (paywall)

**

The outlook for markets in 2020 is being further complicated by U.S. corporate profits for the third quarter which, while beating dour estimates, also include significant downward guidance for the future reporting seasons according to Merrill Lynch,

“ML: Despite better-than-expected earnings, analysts continue to slash forward (4Q-2020) estimates. 4Q consensus EPS is down 3% since the start of Oct., implying <1% YoY growth vs. >3% YoY as of Oct 1… tech is the only sector the has seen positive revisions for 4Q and 2020 while energy, discretionary and industrials have seen the biggest cuts”

“@sbarlow_ROB ML: Despite better-than-expected earnings, analysts continue to slash forward (4Q-2020) estimates. 4Q consensus EPS is down 3% since the start of Oct., implying <1% YoY growth vs. >3% YoY as of Oct 1” - (research excerpt) Twitter

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**

Goldman Sachs’ prominent U.S. economist Jan Hatzius is not concerned that weakness in capital expenditure (caused primarily by trade policy uncertainty) will feed through to the consumer spending that drives the economy,

“We find no evidence that weak Capex is associated with subsequent weakness in consumption. In fact … we find that consumption clearly and robustly leads capex rather than the other way around”

This conclusion should help alleviate concerns about an imminent U.S. recession.

“@SBarlow_ROB Hatzius: “We find no evidence that weak capex is associated with subsequent weakness in consumption” - (research excerpt) Twitter

**

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Diversion: “The biggest piece of land for sale in Canada right now” - Macleans

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