A roundup of what The Globe and Mail’s market strategist Scott Barlow is reading today on the Web
Merrill Lynch quantitative strategist Savita Subramanian noted that the momentum investment strategy – buying the stocks with the strongest upward price moves and earnings growth – ‘broke down’ in June. This, combined with Netflix’s disappointing results and subsequent 14 per cent stock price plunge in afterhours trading, could mark an important change in market leadership.
“Netflix had forecast that it would add 1.2 million new United States subscribers in the second quarter, but it signed up only 674,000. As a result, the company’s stock plunged 14 percent after the close of regular trading” – New York Times
“@SBarlow_ROB ML: Momentum broke down in June” – (research excerpt) Twitter
“Tech stocks contributed 98% of the S&P 500’s 2018 gain” – Reformed Broker
“Lately, investors in tech and U.S.-oriented stocks seem to have been saying, “I’m sorry, I need to do some hedging trades”” – Bloomberg
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A research report from Deutsche Bank notes that global asset flows are doing ‘no favors for CAD’,
“foreign demand for Canadian securities has risen off the lows, it remains considerably weaker (~C $5bn per month) compared to the 2016-17 average (~C$11bn per month). This has been driven primarily by reduced US investor demand for Canadian bonds since the US-Canadian 10y yield differential rose from a mere 24 bps in mid-2017 to between 58-65 bps since February … We see no reason why Canadian yield differentials will improve versus the US in the near term, and continued lukewarm demand for Canadian securities would contribute to a difficult environment for CAD.”
“@SBarlow_ROB DB: Portfolio flows do no favours for CAD” – (research excerpt) Twitter
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Crude prices took a beating Monday,
“Brent crude hit a three month low on Tuesday after slumping 4 percent on Monday, as Libyan ports reopened and traders eyed potential supply increases by Russia and other producers. The number of fund managers believing oil to be overvalued is now at its highest level since April 2012, according to a survey by Bank of America Merrill Lynch released on Tuesday.”
“World stocks slip on oil as focus turns to Fed” – Reuters
“Investment in energy fell again in 2017, raising fresh concerns about security and climate change” – CNBC
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My strong suspicion is that after more than a decade of loose monetary policy, the end of the equity rally will first be visible in credit markets. In light of this, the UBS research report detailing ’three key areas of [credit market] excess was useful,
“We see 3 key areas of excess: 1) 100% increase in triple C rated firms, 2) 150% surge in long-dated, triple B debt, and 3) rise in FHA, student and auto loan debt tied to ‘stressed’ US households. We estimate non-banks have originated $3.4tn or 67% of all debt, and 70-100% of riskier credit. And nonbank fragility is a key risk given materially weaker quality.”
“@SBarlow_ROB UBS: “we see three key areas of [credit] excess”” – (research excerpt) Twitter
Tweet of the Day: “@tbiesheuvel This is nuts. China is set to dominate EV production “ - (chart) Twitter
Diversion: “The Battle for the Best Movie Trailer Since 1990” – The Ringer
Scott Barlow