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

Wells Fargo U.S. equity strategist Christopher Harvey noted that investor sentiment is terrible, a positive contrarian signal for equity markets,

“Prior to yesterday’s rally, our EMEA Head of Equities informed us that net investor sentiment (as measured by the difference between the AAIIBULL and AAIIBEAR weekly indices) had reached its lowest net reading since early March 2009. The only other time it had been that low was in H2 1990. In hindsight, both periods turned out to be outstanding long-term opportunities to add equities.”

“Wells Fargo: Sentiment is terrible and that’s good” – (research excerpt) Twitter


Morgan Stanley strategist Michael Wilson has been correctly cautious on markets in 2022 and is now turning even more pessimistic,

“Last week, we suggested the bear market was entering the phase when virtually nothing would work, even defensives. Based on the price action, that seems to be exactly what’s happening … Stocks always lead the news … With stocks trading terribly since last fall, they were warning of bad news to come. First were the high multiple stocks getting kicked around in November and December as they sniffed out the Fed’s aggressive pivot on policy in January. Now, they are figuring out that 1Q may be the last good quarter of earnings as higher costs and increased recession risks weigh on future growth … S&P 500 real earnings yield is the most negative since the 1950s. With inflation so high and earnings growth slowing rapidly, stocks no longer provide the inflation hedge many investors are counting on. Real earnings yield tends to lead real stock returns on a year-over-year basis by about 6 months. It suggests we have meaningful downside at the index level as investors figure this out. We think the S&P 500 has minimum downside to 3800 in the near term and possible as low as 3460, the 200 week moving average if forward 12 month EPS start to fall on margin and/or recession concerns.”

Mr. Wilson also addressed the poor sentiment issue but doesn’t see sentiment as quite negative enough to provide a technical buy signal.

“MS: “1Q may be the last good quarter of earnings”” – (research excerpt) Twitter


Citi strategist Robert Buckland published some helpful advice on portfolio construction, recommending a highly defensive positioning,

“We suggest a global equity strategy that should hedge against the three main stagflation themes: high inflation, weaker growth, higher rates. It is long commodity stocks, long defensives, and short (real) rate-sensitive Growth stocks. Performance has been robust this year. Investors fearing that commodity prices are rolling over should switch into Financials, in our view … Growth stocks are especially sensitive to higher real rates. An increase in the US 10y TIPS yield (currently -0.1%) to +1.0% would imply the MSCI US Growth index (NASDAQ proxy) derating from the current 28x to 18x. Value trades are less rate-sensitive… "

A commodity rally leading to financials outperforming is a clear positive for the TSX performance relative to U.S. stocks, particularly If the Nasdaq rolls over.

“Citi’s Buckland on how to protect portfolios from the three biggest market risks” – (research excerpt) Twitter


Diversion: “Tennis great Boris Becker sentenced to 2-½ years in prison for bankruptcy offences” – CBC

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