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Inside the Market Scotia analysts really bearish on cannabis stocks ahead of profit results

A roundup of what The Globe and Mail’s market strategist Scott Barlow is reading today on the Web

Scotia analysts are very bearish on cannabis stocks ahead of earnings reports,

“Most industry observers we have spoken with agree that cannabis sales have been tepid post — legalization. But given this has been largely due to teething pains the market has been willing to give negative data points a pass… in January, less cannabis was sold than in December. We expect this trend to continue … The result is that we see Street estimates [for industry revenue] being far too high, which we expect to result in large earnings misses next quarter”

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“ @amberkanwar Scotia warns estimates for marijuana companies way too high, expects them to fall "sharply lower" on earnings day #NotableCall” – (research excerpt) Twitter

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CIBC interest rate strategist Ian Pollick has a contrarian view on domestic borrowing costs – he thinks they are likely to head higher,

“There are also some bubbling macro forces that could come as a shock to those not looking closely. Consider that the beat in the January GDP report (industry-level GDP printed with a strong 0.35%) now means that even with no growth in February or March the level of Q1-19 GDP is trending some 1.10% above the Q4-18 level. Relative to the Bank's 0.8% forecast, this is a considerable positive forecasting error… We suggest investors begin to rotate into some high quality credit (CMBs) and slowly begin to get underweight [bonds] .”

“SBarlow_ROB CM posits a stop (declining) and reverse (higher) for Canadian rates” – (research excerpt) Twitter

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Other reasons have been given, but I firmly suspect the leveling off of the S&P 500 rally in the past few trading sessions was caused by concerns about the upcoming earnings season.

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I wrote a long column on the issue for today’s print (link below) and The Financial Times added more details Thursday morning,

“The S&P 500 is expected to report a blended rate of actual and estimated earnings decline of 4.2 per cent in the first quarter from a year ago, according to data provider FactSet. If that plays out, it would mark the first year-on-year earnings contraction for the S&P 500 since the second quarter of 2016 … “The lift from tax cuts and higher government spending that boosted economic and profit growth in early 2018 is now fading,” note analysts at UBS. “In addition, activity in the first quarter was likely further dented by the lengthy government shutdown and poor weather — flooding and extreme cold.”’

“US earnings scorecard: S&P 500 eyes first earnings decline since 2016” – FastFT (paywall)

“Investors could be in store for a rude awakening this earnings season” – Barlow, Inside the Market

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The Credit Suisse research team initiated covered on one of my two favourite market sectors, cloud computing (health care is the other).

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The FT Alphaville site (free to read with registration) recently warned about high valuations in the sector but the dangerously expensive cloud stocks are generally small caps and not those Credit Suisse likes. I’ve included links to definitions for industry terms in the links below,

“ We firmly believe Hybrid Cloud architectures represent the future of enterprise IT. A hybrid-first approach allows customers to take advantage of the agility and flexibility provided by the public cloud, while seamlessly integrating with the 80% of enterprise workloads that have yet to migrate. Consistency across on-premise and off-premise will be critical to organizations’ ability to dynamically move workloads to best fit the current needs of a particular application. Public Cloud continues to experience rapid growth… The Public Cloud, including SaaS, PaaS, and IaaS, will reach more than $275bn in CY21, per IDC. Adoption is still ramping; majority of respondents to the CS CIO Survey indicated Public Cloud accounts for less than 10% of their current IT budget, with nearly 35% expecting it to be >30% of spend within 3 years.”

“@SBarlow_ROB CS initiates on IT hardware, likes IBM, NTAP” – (research excerpt) Twitter

@SBarlow_ROB CS likes NTAP, IBM in cloud space” (research excerpt, company specific) - Twitter

“Amazon, Microsoft chosen to compete for Pentagon cloud computing contract” - Reuters

“@SBarlow_ROB CS: Public, private, hybrid cloud definitions” – (research excerpt) Twitter

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“ SaaS vs PaaS vs IaaS: What’s The Difference and How To Choose” – BMC

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Tweet of the Day:

Diversion: “When Gut Bacteria Betray Their Hosts” – The Atlantic

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