Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
BMO economist Doug Porter sees good reason to expect a sharp ramp-up in the domestic economy for the third quarter.
“The early read on Q3 continues to point to a big, big reversal from the massive Q2 slide. The latest example was StatsCan’s flash estimate for July manufacturing sales of an 8.6% gain. True, that pales in comparison to the spikes in May and June (of 11.6% and 20.7%, respectively). And, true, it still leaves sales down almost 6% below February levels. But, even with those caveats, it’s fair to say that factory activity has come back faster than consensus expected. And, again, because of the extreme weakness in the depths, we’re going to see some wild numbers ahead. Factory sales fell at a 65% annual rate in Q2. But, July’s level is already up at a 159% annual rate above Q2. Yes, 159%.'
“@SBarlow_ROB Big surge on tap for Canadian economy (BMO)’ – (research excerpt) Twitter
" @SBarlow_ROB BMO: “how many of these folks were calling for a full and fast snap-back in retail activity a few short months ago? Precisely zero” – (research excerpt) Twitter
Citi’s U.S. equity strategist Tobias Levkovich has been a skeptic about the market rally but is raising his S&P 500 target anyway, thanks to central bank support,
“Is the S&P 500 Ready to Drop 500 Points? No... Despite euphoric readings on our sentiment metric and less attractive valuation, equities continue to advance and may appreciate more if investors want to chase the tape. Indeed, we see shades of 1999 but the Fed started tightening then and there’s no hint of a repeat now. Thus, one could argue that stocks can edge higher even if we have our reservations… First half earnings have surprised to the upside by roughly $7.80 forcing up 2020 EPS estimates from our prior $125.00 to $131.50 … We still think the market may be ahead of itself but the Fed will do “whatever it takes” to prevent US stocks declining by teen-like percentages. In this context, we feel that 3,300 by December 2020 is more probable now and 3,600 could develop by mid-2021.”
Morgan Stanley U.S. equity strategist Michael Wilson is expecting a rally in laggard stocks with strong earnings outlooks relative to the benchmark,
“We screened for stocks that (1) have historically had a strong link between relative performance and the outlook for forward EPS vs the market and (2) where recent performance has materially deviated from that historical relationship on the downside. The divergence from history looks compelling to us as a catch-up trade … we highlight Amcor PLC, , Booz Allen Hamilton Holding Corp, Graphic Packaging Holding Co, Paramount Group Inc., and Vistra Corp. among the stocks in our screen as rated OW [overweight] by our analysts.”
“@SBarlow_ROB MS looking for a “catch-up trade in earnings-driven outperformers” – (research excerpt) Twitter
Diversion: " How to Identify Any Song or Movie Using Your Phone” – Gizmodo
Tweet of the Day: " @JKempEnergy PHYSICAL OIL MARKET is softening, with dated Brent’s five-week calendar spread falling to 28 cents contango, the lowest since Jun 3, and in just the 37th percentile for all trading days since 2010″ – Twitter
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Scott Barlow