TD’s chief economist answers all of investors’ most important questions

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

A terrific report from TD featured the firm’s chief economist Beata Caranci as she answered the “Top Questions From Our Clients In A Turbulent Time,”

“We need a new economic vocabulary that goes beyond the “R word,” to appropriate capture depth, duration and breadth … Most [economist forecasts] do not reflect large scale job losses across the country over a longer period of time. ... In December 2018, we produced analysis to argue against fearing stock market volatility … However, our eyebrows have been raised at the broadening of financial stress across multiple bond, credit, liquidity and corporate indicators. This is a cause for concern of a possible larger negative credit-event. … The less firing power [central banks] have, the more important it is to react promptly at the onset of a shock to limit negative financial and economic dynamics from taking root. ..

I highly recommend reading the full report, available at the link below.

“Top Questions From Our Clients In A Turbulent Time” – TD Economics

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Scotia strategist Hugo Ste-Marie isn’t looking for a meaningful corporate profit recovery until 2021,

“With Europe almost shutdown and the rapid rise in the number of confirmed cases in the U.S., stimulus measures are unlikely to boost sentiment in the very near term. As we indicated recently, any lasting equity bounce will depend on the virus contagion rate peaking, especially in the U.S.. On that front, it seems that the worst has yet to come. Longer term, however, we believe the current round of fiscal and monetary easing around the world should help activity levels/earnings to recover in 2021… it seems unlikely that earnings will escape unscathed this year. We’re taking our 2020 EPS expectations down, expecting a 6% contraction in the US and 17% decline in Canada. Consensus is too high and will have to come down”

“@SBarlow_ROB Scotia: "any lasting equity bounce will depend on the virus contagion rate peaking, especially in the US. On that front, it seems that the worst has yet to come"” – (research excerpt) Twitter

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Citi strategist Andrew Hollenhorst stressed the importance of U.S. job losses in the second half of the year, although he remains confident in a bounceback,

“The US economy has never experienced a similar magnitude contraction and not subsequently experienced multi-quarter weakness. Our base case (about 60% likely) is for a return to more normal activity in Q3 but we are increasingly concerned that a more prolonged disruption (around 40% probable) will lead to job loss, lost incomes and depress demand into Q3 and beyond.”

“@SBarlow_ROB C: "The US economy has never experienced a similar magnitude contraction and not subsequently experienced multi-quarter weakness"” – (research excerpt) Twitter

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Also from Citi, strategist Jason Bazinet attempts to uncover travel and entertainment stocks that have been overly-punished in the recent sell-off,

“Our analysis suggests that the following firms are tactically over-bought: Netflix, Activision and Omnicom. Conversely, the following firms are tactically over-sold: SeaWorld, Houghton, Gannett and ViacomCBS”

“@SBarlow_ROB C: Overbought/oversold stocks within travel and entertainment sectors” – (full chart) Twitter

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The oversupply situation in global oil markets is stunning.

Here’s Morgan Stanley analyst Martijn Rats,

“Oil market outlook has continued to deteriorate: Over the last few days it has become clear that our forecasts for OPEC and Russia production - raised sharply only nine days ago - are substantially too low. At the same time, we lower our oil demand expectations once again… we now foresee oversupply reaching 3.5 mb/d this year, up from our previous estimate of ~1 mb/d. On this new trajectory, inventories build by close to 1 bn barrels this year … we lower our average 2Q Brent forecast further from $35 to $30/bbl, recognising that temporary sell-offs to even lower levels are possible… We also delay our forecast for recovery back to $40- 45/bbl into 2021, given the inventory builds that lie ahead.”

“@SBarlow_ROB MS: "On this new trajectory, [crude] inventories build by close to 1 bn barrels this year” – (research excerpt) Twitter

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Newsletter: “Markets face another type of systematic heart attack” – Globe Investor

Diversion: “Video Games To Play While You’re Not Leaving The House” – Kotaku

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