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

The last hour of trading Wednesday was extremely unpleasant, and it looks for now like the market will be under pressure with every new American outbreak of the coronavirus.

Citi strategists took the opportunity to slash global growth and profit forecasts,

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“The weakening outlook for the global economy means we now expect flat global EPS in 2020, down from our previous +4% forecast. We cut our MSCI AC World target to 660 (from 690). Our global Bear Market Checklist (5.5/18 red flags) still says “buy this dip” although our US Panic-Euphoria indicator says “not yet”… Citi’s 2020 Global GDP forecast is already down to 2.5% from 2.7% at the start of the year. Our China GDP forecast is down to 5.3%, but that could be 4.4% if the virus is not contained until May”

“@SBarlow_ROB C: "Our global Bear Market Checklist (5.5/18 red flags) still says “buy this dip” although our US Panic-Euphoria indicator says “not yet”” – (research excerpt) Twitter

“@SBarlow_ROB Levkovich: “Seems a Bit Too Early for All Clear Signs”’ – (research excerpt) Twitter

“Frenzied trading sends Dow down more than 1,100 points, activity halted early on TSX amid technical snag” - Berman, Inside the Market

“S&P slump fastest correction ever, says Deutsche” – FT Alphaville (free to read with registration)

**

National Bank economist Warren Lovely published a depressing report on the fragility of the loonie Thursday, one that helps explain the domestic currency’s weakness in recent days (my emphasis),

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“Canada has run a [current account] deficit for 45 consecutive quarters now (dating back to the end of 2008), racking up a combined shortfall of C$628 billion along the way… a structural trade/current account deficit means Canada must continue importing capital from abroad, akin to drawing on a heavily used credit line supplied by non-resident investors … make no mistake, the C$ is no safe haven … not now, not ever. And the combination of heightened global policy uncertainty and some made-in-Canada challenges (including on resource development and related infrastructure) has led to a sea-change in how investors approach Canada. No more are they indiscriminate buyers of our paper. Last year, Canadian equities saw their first net divestment by non-residents since 2007. Meanwhile, foreign holdings of C$-denominated bonds have been cut almost C$40 billion (or 7.5%) from their late-2017 peak.”

“@SBarlow_ROB NBF: "make no mistake, the C$ is no safe haven… not now, not ever"” – (research excerpt) Twitter

***

Fund manager and former Treasury Department economist Mark Dow provided a template for market sell-offs that might help investors determine when the downward pressure on equities will abate,

“Once the selling starts, it almost invariably shows up in the sectors and assets where the optimism was most vigorously expressed …This is what I call Phase I … As the selling intensifies and the [portfolio] pain starts to mount, the selling spreads into other areas and starts to slow in the sectors/names that got hit so hard in Phase I. The names and sectors that outperformed in Phase One effectively ‘catch down’ with the names that were at the center of the storm. In this case, you would start to see the S&P underperform the NASDAQ 100 (as we saw yesterday). This would be Phase II… In Phase III, you typically see the hedges that you hastily slapped on late in Phase I stop working, even as the names/sectors/assets you held on to continue to get liquidated and go against you … in this phase there are still people who haven’t finished de risking … investors and traders sell hard into those jumps and squeezes, making the intraday tape more two-way volatile.’

“The anatomy of a sell off: the three phases” – Behavioural Macro

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“How Does the Stock Market Bottom?” – Irrelevant Investor

***

New resource for dividend investors: On Thursday I published a table ranking S&P/TSX Composite stocks by dividend yield that also included data like credit ratings and payout ratios to assess risks,

“Dividend hunter? This will help you sort through the best candidates right now on the TSX” – Globe Investor

Diversion: “No, China Is Not Sending a Giant Duck Army to Defeat Pakistan’s Locusts” – Gizmodo

Tweet of the Day:

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