Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
BMO strategist Brain Belski reminded investors that Canadian stocks tend to outperform during periods of rising North American bond yields, but with important exceptions,
“Given the traditionally yield-centric nature of the Canadian stock market, many investors are becoming increasingly concerned about the recent rise in US and Canadian interest rates. While the higher yielding sectors do tend to underperform during periods of rising rates, our work shows that higher US interest rates are not an impediment to broader TSX performance. In fact, we found that some of the strongest periods of S&P/TSX performance have coincided with rising interest rates over the past few decades, especially when rates increase from below-average levels. Thus, while the broad market is likely to continue to rally as interest rates rise, there are potential areas where caution is warranted … Higher yielding (“bond proxy”) sectors carry the most risk from a rising rate environment, with both Utilities and Communication Services significantly underperforming through periods of rising interest rates”
“@SBarlow_ROB BMO: Rising yields good news for Canadian investors, but less so for dividend-focused” – (research excerpt) Twitter
Related: “Canadians’ fondness for U.S. stocks comes back to bite them” – Barlow, Inside the Market
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National Bank economist Daren King detailed the ongoing ramp higher in domestic home prices,
“Price growth accelerated in all 32 markets covered by the Teranet-NBC Home Price Index in January compared to the same period a year earlier, a first since August 2010 … the home price growth is 10 per cent or more in a record high proportion of markets covered (69 per cent in January) … this wealth effect observed everywhere across Canada rather than in certain markets.”
“@SBarlow_ROB NBF: “Canada: Home price growth is accelerating everywhere” – (chart) Twitter
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BofA Securities economist Carlos Capistran described Canada as “The Five Per Cent Economy” in a Wednesday research report,
“We expect GDP growth at 5% in 2021 and 5% in 2022 driven by strong US growth, a supportive domestic policy mix and relatively high commodity prices (previous: 5.0% and 3.0%). The economy started the year with weak data due to lock-downs and slow progress in the vaccination process, which made us downgrade 1Q to a slight negative figure. But the outlook improves significantly starting in 2Q and we now expect a much stronger 2H and 2022. The main driver of our constructive forecasts are our house expectations of strong US growth at 6.5% in 2021 and 5.0% in 2022 … The Canadian economy and the US economy are highly correlated with the US leading the way. Stronger US growth should drive stronger Canadian growth, especially in the context of a renewed trade agreement (USMCA) and much less trade policy uncertainty in the horizon.
“@SBarlow_ROB BoA: ‘Canadian economy and the US economy are highly correlated with the US leading”” – (research excerpt, chart) Twitter
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Diversion: “10 Breakthrough Technologies 2021” – M.I.T. Technology Review
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Scott Barlow