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

Goldman Sachs strategist Dan Snider highlights “unprecedented” wage growth pressure on U.S. profit margins but then puts the potential damage in context,

“Our economists’ Wage Tracker shows wage growth running at 3.2%, the fastest pace since 2008, and their Wage Survey Leading Indicator sits at the highest level since 2000 … Labor costs represent just 13% of the median S&P 500 company’s revenues, and historical correlations support the conclusion that the large-cap index is relatively insulated from wage pressures. However, the sensitivity of earnings to labor costs varies across the market. We use public filings to estimate labor costs for US stocks at the company, sector, and index levels. Our analysis suggests a 100 bp acceleration in wage growth would reduce S&P 500 EPS by just 1%, all else equal, in line with the historical relationship between earnings and wages. Among sectors, Industrials and the Consumer sectors appear most vulnerable to rising wages.”

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“@SBarlow_ROB GS: rising wages not that big a threat to profit margins” – (research excerpt) Twitter

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Bank of America’s popular monthly survey of global fund managers (FMS) uncovered “tanking” optimism on economic growth,

“FMS bottom line: tanking macro optimism = lower-for-longer rates = everyone “long stocks-short bonds”; inability of fiscal frenzy to sustain “boom” means portfolios have flipped” from long cyclicals to long barbells; [cyclicals and defensives overweight] few positioned for credit events, recession or stagflation. FMS on macro: expectations for global growth [number of respondents expecting the economy to strengthen] slump to 13% (lowest since May’20, was 75% in Jun’21), for rising profit to 12% (was 89% in Mar’21), for rising inflation to negative for 1st time since May’20; that all said just 6% of respondents expect recession … FMS on AA: rare FMS disconnect between asset prices & fundamentals growing (Chart 1); net 50% long stocks vs 20-year average of 29%; net 69% short bonds (vs 43% avg).”

“@SBarlow_ROB BofA fund manager survey: “rare FMS disconnect between asset prices & fundamentals growing” – (research excerpt, chart) Twitter

“Investors turn bearish on global economy, but positioning in asset markets remains upbeat: BofA survey” - Reuters

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Citi analyst Scott Chronert has updated his list of “value creators” – his top picks in U.S. small and mid-cap stocks ,

“We are adding Petco Health and Wellness Company (WOOF) to our Value Creators SMID Focus List. Although still early in its “new” public market lifecycle, Petco has a longer track record as a public company. This move follows its recently announced results, which reflect solid fundamental tailwinds. Citi’s analyst, Steve Zaccone, makes the point that WOOFs fundamental look solid from either a stay-at-home or reopening perspective. As a reminder, WOOF is a leading pet specialty retailer, with roots back to its inception in the mid-1960s. Under new management, the company has transformed from a more traditional box retailer to an integrated, digitally focused provider of pet health and wellness offering. No doubt, the stock is a play on increased pet adoption during the pandemic.”

Petco Health replaces CVR Energy after the latter was downgraded by the analyst covering the stock. The full value creators list is now TripAdvisor, PulteGroup, Boot Barn, Albertsons Co.s, LPL Financial, Reata Pharmaceuticals, Tandem Diabetes Care, Oshkosh, Upwork, Mas Tec, Billtrust, Logitech International, Entegris, Jabil, Rackspace Technology, Canadian Solar, Berry Global, Eagle Materials and Hudson Pacific Properties.

" @SBarlow_ROB Citi’s ‘value creators’ list of top U.S. small and mids” – (table) Twitter

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Newsletter: “Why rising interest rates are such a threat to Canadian household finances” – Globe Investor

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Diversion: “2021′s Best Photos of the Microscopic World” – Gizmodo

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