Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
Scotiabank strategist Jean-Michel Gauthier still prefers U.S. equity markets over Canada’s, and for interesting reasons (my emphasis),
"In July, Global Value suffered one of its worst underperformance stretches since 1987 (second percentile). Momentum outperformed significantly, while Growth/Quality also delivered solid beats. Cyclicals and Resources saw broad gains on Growth metrics as the earnings season unfolded, which helped increase the Momentum shift away from Defensives. Our global model has been re-calibrating away from a heavy defensive tilt quite slowly. Still, only Healthcare remains OW among Defensives. Technology and Materials/Gold have been rising fast in the rankings, although Energy, Discretionary, and Industrials remain at large UW.
“U.S. over Canada. The model maintains a small U.S. preference. Canada significantly lags behind the U.S. in the key sectors of Technology, Communications, and Energy. Canadian Financials and Materials do keep an edge. Overall, Canada remains a Value play relative to the U.S. The U.S. enjoys a visible Momentum and Quality advantage over Canada.”
The idea that Canada is a value market relative to the U.S., while value investing strategies continue to underperform interests me.
“@SBarlow_ROB Scotia still prefers U.S. markets over Canada” – (research excerpt) Twitter
Citi global economist Catherine Mann explains the recent strength in gold prices,
“Market pricing of inflation risk is low. So Gold is not presaging inflation … Some suggest that the gold rise traces the trend depreciation of the dollar, presaging its decline as the premier international reserve asset. But, no other currency or country is ready or willing to take on the dollar’s role … Uncertainties are rising — health, economic, political — yet so too are equity markets, even as real economies swoon. The negative correlation between equity and gold in the past is reflected in increased gold hedges operationalized via ETFs . So indeed gold is a metric both of uncertainty and the value of a hedge … Gold prices are being driven by Central Bank actions that yield negative real yields, which dial down the opportunity cost of holding a zero-coupon asset such as gold. The ongoing gold bull rally is the result of a confluence of all the above factors and a few more, along with dash of momentum in precious metals.”
BMO equity strategist Brian Belski advises income-oriented investors to favour Canadian real estate over utilities stocks,
“Our work shows this thirst for yield often manifests once cash flow uncertainty subsides… while both Real Estate and Utilities tend to outperform when interest rates are low and declining, Utilities’ outperformance historically occurs during the earlier part of recessions when interest rates are declining rapidly… Real Estate does benefit from bond proxy characteristics, it traditionally has posted its best relative performance during more moderate growth environments and range-bound interest rates… such, while we remain market weight Utilities given the low interest rate environment but high valuations, we continue to favour Real Estate given its historical ability to continue to outperform in more range-bound interest rate environments.”
“@SBarlow_ROB BMO likes real estate over utilities for yield-hungry investors” – (research excerpt) Twitter
Diversion: “The Tragic Physics of the Deadly Explosion in Beirut” – Wired
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