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

There is a new trend from prominent strategists - warnings about peak growth levels.

Citi advised clients that earnings revisions looked “peak like” in a few U.S. sectors last week, and Deutsche Bank chief strategist joined the chorus Monday,

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“Very near term, we expect equities to continue to be well supported by the acceleration in macro growth, and see buying by systematic strategies and buybacks driving a grind higher. But we expect a significant consolidation (-6% to -10%) as growth peaks over the next 3 months. Our house economics forecast implies a flattening out of the ISMs [Institute of Supply Management executive surveys on business activity] at elevated levels beginning in Q2 (64) and continuing into Q3 (63). There are a number of considerations though that suggest the monthly ISMs peak more sharply over the next 3 months and slow in keeping with the historical inverted-V shaped pattern. We look for discretionary investor equity positioning to be pared with a peak in the ISMs and do not expect retail to buy the dip. We then see equities rallying back as our baseline remains for strong growth but only a gradual and modest rise in inflation.”

“@SBarlow_ROB Warnings about peak growth and pullbacks are becoming common. This is DB’ – (research excerpt) Twitter

***

BMO economist Robert Kavcic reported on the frenzied demand for housing (my emphasis),

“We’re highly sympathetic to longer-term supply-side constraints in the housing market, and have been highlighting them for almost a decade (especially in the GTA). But that is not what’s at play today. ... We’ve benchmarked new listings and sales to 2019 levels (i.e., a full year of ‘normal’ pre-pandemic activity). Despite belief that there is a dearth of inventory, new listings have been coming to market about 10-15% faster than normal. This is historically a solid flow of inventory. Sales, however, have jumped to a run rate about 60% above pre-COVID norms, and indications from Vancouver and Calgary are that the momentum only accelerated further in March (sales in Vancouver were up 126% from pretty normal year-ago levels … The real falloff last year came in April). To summarize: This is a surge in demand started by the pandemic, but now set ablaze by the promise of low-for-very-long interest rates, fear of missing out on widely expected price gains, and probably the increased speculation that those expectations bring”

“@SBarlow_ROB BMO: New home listing ‘vapourized’ by strong demand – (research excerpt, chart) Twitter

***

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Scotiabank analyst Meny Grauman sees upside in Canadian bank stocks as provisions for credit losses are reduced,

" After a much better-than-expected Q1, consensus EPS for the Big Six Canadian banks climbed by 14% in 2021 and 8% in 2022. Those are very large earnings revisions indeed, but despite those significant increases we still see potential for further upside if the coming post-pandemic economic recovery can gather steam... what we want to focus on in this report is the potential for upwards earnings revisions due to billions in reserve releases as actual credit losses turn out to be a fraction of what management teams expected when they built up their reserves last year. While we acknowledge that this boost to earnings will only be temporary, the impact on excess capital will be longer lasting and should help further boost buyback activity”

BNS’s outperform-rated stocks in the sector are Canadian Imperial Bank of Commerce, Bank of Montreal, Royal Bank of Canada and National Bank of Canada.

“@SBarlow_ROB Scotiabank: Upside for Cdn bank stocks as provisions for credit losses decline” – (research excerpt) Twitter

***

Newsletter: “Where will the money go when it leaves bond ETFs?” – Globe Investor

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Diversion: “Having weird, vivid dreams? Sleep researchers say you’re far from alone” – CBC

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