A roundup of what The Globe and Mail’s market strategist Scott Barlow is reading today on the Web
Maclean’s magazine cited a number of sources to argue that the domestic housing market isn’t ramping higher any time soon,
"Real estate has lost its sizzle, thanks to the implementation of foreign buyer taxes, higher interest rates and stricter mortgage qualification rules … ‘[February was] an ugly month for the housing market,’ RBC senior economist Andrew Agopsowicz wrote in his latest housing analysis. He noted that resales fell 9.1 per cent nationally, the biggest drop since stricter mortgage rules were introduced last year… [National Bank economist] Desormeaux said the B.C. market appears to be struggling under a stricter foreign buyer tax imposed last spring. The current lack of demand has placed the formerly hot market firmly in “buyer’s territory”—there have been more new homes listed than sales in the past few months.’
“Why house prices are unlikely to rise any time soon” – Maclean’s
***
Lithium mining stocks have been a popular investment theme based on future popularity of electric vehicles, which use the mineral as a primary ingredient in their batteries. Citi analyst P.J. Juvekar threw a bit of cold water on this optimism by downgrading two of the larger companies in the sector,
“We downgrade Livent Corp to Neutral and reduce our target price by 13% to $13. We also reduce our target price on Albemarle Corp to $88/share (from $92)… we get the sense that the lithium market has become a buyer’s market. Chinese buyers seem have become more aggressive [on pricing] and China’s [electric vehicle] subsidy cuts may weigh on the market beneginning in 2H19. While ALB and LTHM’s volumes are secured under multi-year terms, we think pricing for future volumes could come under pressure as new conversion capacity ramps up in 2019-20.”
“@SBarlow_ROB C downgrades lithium stocks” – (research excerpt) Twitter
***
Also from Citi, U.S. equity strategist Tobias Levkovich has made some changes to his sector recommendations as he uncovered a positive turn in earnings revisions in health care stocks,
“The changes to our weightings … imply a more cyclical posture which is reasonable given our sense that inflation is set to increase in 2019 … Importantly, higher oil prices often push up those expectations and also support our upbeat Energy sector views. we have maintained a barbell approach this year given expected volatility. In this context, we have added three names to the Citi Recommended List; HCA Healthcare, Accenture and Dow Inc… raising the profile for Health Care Equipment & Services to Overweight is much easier after more than 1,000 bps of underperformance in thus far in 2019, especially as our trading momentum strategies model has improved”
“@SBarlow_ROB C: most/least favoured sectors” – (research excerpt) Twitter
***
The next few weeks are likely to feature U.S. equity market volatility as earnings season continues. Current estimates point to a year over year profit decline for the S&P 500 in both the first and second quarters and, as companies report, corporate guidance for the rest of the year will be vital – assumptions for a strong earnings recovery for the second half of 2019 remain.
The Financial Times published “Wall Street braces for U.S. earnings recession” on Monday,
“Wall Street analysts are predicting shrinking profits for companies in the S&P 500 for the second quarter, setting up the prospect of an earnings recession in the US.
"Consensus forecasts now point to a 0.4 per cent drop in earnings per share for the three months to June compared to the same period last year, according to FactSet. That follows estimates of a 4.6 per cent decline in the first quarter…
“'In the US and globally, the business cycle is maturing,' said Michael Underhill, chief investment officer at Capital Innovations. ‘This is late cycle activity, which is characterised by growth moderating, credit tightening and earnings slowing. The next phase is contraction or recession.’”
“Wall Street braces for US earnings recession” – Financial Times (paywall)
***
Tweet of the Day:
Diversion: Remarkable interview with M.I.T. neuroscientist Ed Boyd, “Ed Boyden on Minding your Brain” – Medium
Scott Barlow