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

Goldman Sachs U.S. equity strategist David Kostin detailed the dramatic underperformance of the mega-cap technology sector,

“Stock performance during 2022 has been almost entirely a function of interest rate and valuation moves but has shifted to corporate fundamentals. Investor euphoria over the prospect of a ‘Fed pivot’ contrasts with the deteriorating profit margins and darkening business outlook expressed by many S&P 500 firms. Nowhere is this development more evident than in the case of ‘Big Tech.’ The ability of these leading stocks to maintain their premium sales growth rates relative to the rest of the market is being met with skepticism by some portfolio managers. 4Q 2022 is on track to be the 11th quarter in the past ten years in which the four mega-cap tech stocks (AAPL, GOOGL, AMZN, and MSFT) have collectively underperformed the S&P 500. Lackluster earnings reports led to sharp sell-offs at the end of October. Microsoft was affected by weakness in its PC segment and Azure, Alphabet faced headwinds within its digital ad business, Amazon’s growth within eCommerce was impacted by the economic headwinds in Europe, and Apple reported a slowdown in iPhone sales despite a headline revenue beat. After its 67-per-cent year-to-date decline, Meta no longer ranks among the 20 largest S&P 500 constituents. "

“GS: Mega cap tech’s dramatic underperformance” – (research excerpt) Twitter


BMO senior economist Robert Kavcic believes the housing market correction is about halfway done,

“Are we there yet? Nope. Canadian house prices continued to decline in October to the tune of 13.6% annualized from the prior month. That’s not quite as steep as the declines seen during the summer, but it tells you that the discovery process is ongoing to the downside. As it stands now, the benchmark national price is down exactly 10% from the February high, which maybe puts us about half way there given our other economic assumptions. How much further we have to go ultimately depends on how high interest rates go, how long they stay there, and how well the job market holds up next year.”

“BMO sees housing market correction as 1/2way done” – (research excerpt) Twitter


The portfolio strategy team at Scotiabank don’t believe the Liberal government’s plan to tax corporate share buybacks will affect stocks, and the team also provided a list of companies most likely to repurchase shares,

“Net Buybacks Not So High Outside of Resources. The volume of gross buybacks has been making new highs, but is a misleading figure. Net buybacks yield (gross buybacks less issuance, scaled by market cap) is actually below trend in the US. In Canada, a historical reversal in Resource companies’ financial situation has indeed led to the highest net buyback yield in at least 20 years. New Tax Unlikely to Hit Goals. The tax will only raise minimal revenues for the government, and it won’t discourage buybacks to spur investments, in our view…Some front-running of the tax may occur in late 2023. Lowering debt may also be another option. Still, over the long-term, buybacks even at a 2% tax rate remain the most tax efficient way to return money to shareholders”

The 70-company list of stocks where buybacks could occur includes Advantage Energy, NuVista Energy, Enbridge, Teck Resources, Endeavour Mining, Nutrien, West Fraser Timber, Stelco, Brookfield Business Partners, Canadian National Railway, TFI International, Finning, Magna International, Dollarama, Alimentation Couche-Tard, Loblaw, Scotiabank, CIBC National Bank, RBC, Manulife Financial, Power Corp., Onex, Descartes, CGI and Granite REIT.


Diversion: “I’ve been a headhunter for 25 years and I’ve never seen a job market like this” – Maclean’s

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