Research and analysis roundup from The Globe and Mail’s market strategist Scott Barlow
Markets have been sentiment driven this week, and for good reason. The expanding epidemic has created considerable anxiety about the future of global supply chains, economic growth and corporate profitability.
Nomura strategist Masanari Takada, who follows investment flows the world’s most aggressive speculative hedge funds, sees optimism beneath the surface of market volatility,
“It looks like the violent share price corrections triggered by speculative investors unloading their positions are subsiding … Global equity sentiment has of course not recovered, but signs of patterns in sentiment pointing to a selling climax are emerging already. Based on past patterns of sentiment, during panic selling episodes, low-vol and quality factors tend to outperform initially. However, after a month or after three months, repurchasing activity tends to emerge for cyclical and value factors. We think factors such as low-vol may be in the ascendancy for only around a month or so … If the US economy can avoid a downturn, contrarians are likely to see any further reductions in US equity long positions by CTAs as overselling.”
“@SBarlow_ROB Nomura : "We view it as a spot of optimism that a sudden increase in pair-wise correlation between global stocks is being reined in” – (research excerpt) Twitter
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Strategists at Goldman Sachs and Citi are much, much less optimistic about the near future for risk assets,
“While the S&P 500’s average correction has lasted for four months, this pullback is likely to be longer because of the lingering uncertainty over the coronavirus and the constraint facing Federal Reserve policy makers, according to Christian Mueller-Glissmann and Alessio Rizzi at Goldman Sachs Group Inc. That means the retreat that started last Thursday might not find a bottom until at least July … To illustrate where risky assets may become attractive, [Citi] pointed to the S&P 500 falling to 2,730, 10% below its 200-day moving average. Reaching that level would require the index to drop an additional 12% from its current level.”
“Goldman, Citi Strategists Say S&P 500 Rout Is Bound to Worsen” – Bloomberg
“@SBarlow_ROB C’s Hale: “Things may have to get worse before they get better for the COVID-19 driven risk asset sell-off” – (research excerpt) Twitter
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BMO economist Doug Porter warns Canadians that growth estimates are about to be slashed, but there’s no real way to know by how much (my emphasis),
“Prior to this week, consensus growth estimates for the U.S. and Canada had not budged since the start of the year; that seems poised to change. Specifically for Canada, watch for some significant revisions following Friday’s 2019Q4 GDP results, which are expected to reveal nearly no growth at the end of last year — even before the virus was an issue … We looked at 17 different pandemic scenarios (and removed the two extremes), from eight different authors from a variety of countries. Estimates to the economic growth hit ranged from as low as 0.6 percentage points in Year 1, to as high as 6.8 percentage points.”
“@SBarlow_ROB BMO: "Prior to this week, consensus growth estimates for the U.S. and Canada had not budged since the start of the year; that seems poised to change" – (research excerpt) Twitter
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Newsletter: “The best advice for investors amid the coronavirus scare” – Globe Investor
Column: “Why investors should take a closer look at the Canadian miner at the centre of a political firestorm this week” – Barlow, Inside the Market
Diversion: I’m really enjoying The Rewatchables podcast from The Ringer. A small group watches an older movie – usually from the 80s – and discusses any impact it still has,
“‘Vision Quest’ With Bill Simmons, Chris Ryan, and Ryen Russillo” – The Ringer
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