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Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow

Goldman Sachs economist Daan Struyven reduced his forecast for Canadian inflation,

“We downgrade our inflation forecasts to incorporate August’s miss, our slight downgrade to the home price outlook, and the continued decline in energy prices. We now expect headline inflation to fall to 6.8% by the end of the year, and 2.7% by the middle of next year. Despite this downgrade, our thesis remains that broad-based price pressures, a strong underlying inflation trend, additional price increases in services reopening categories, and elevated wage growth will keep sequential inflation above 2% until the start of next year. That is why we continue to expect a 50bp BoC hike in October, and a 4¼% peak policy rate. Given the BoC’s data dependence, the labor market and inflation reports (7th and 18th October, respectively) and the Q3 Business Outlook Survey (17th October) will be very important. We see more risk of a 25bp hike in October than 75bp given recent misses in activity and inflation data”

“GS lowers Cdn inflation forecasts” – (research excerpt) Twitter

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Scotiabank strategist Jean-Michel Gauthier is recommending affordable quality stocks as the market outlook worsens,

“The relative increase in bond volatility dwarfs that of equities. Risk-targeting strategies are thus likely to keep paring down bond exposure into the fall . Meanwhile, short selling and insider activity would suggest it’s too early to buy equities. Resilient Energy rankings in particular are at a crossroad, as they could soon face negative revisions . Favoring high Quality at an affordable price could give an edge in such an environment … Pure Value is certainly looking tired and vulnerable to a pull back due to its reliance on Energy/Financials. However, Quality has not offered the level of outperformance that would be more typical of the style. As we highlighted in the past, high valuations and poor growth have hurt its performance. For investors looking to increase defensiveness/upgrade Quality, we would point to the following list. It includes the top names with high Growth/Quality rankings while being decent on Value (30+), irrespective of their current Momentum. We also screen out Energy, miners, and lumber names which, while possessing all of the above characteristics, are unlikely to keep them in a recession.”

The stocks on the “High Quality/Growth Names with Decent Value” list are, ranked by Scotia’s quality score, Metro Inc., Capital Power Corp., Loblaw Companies Ltd., Intact Financial Corp., Spin Master Corp., Canadian National Railway Co., Pason Systems Inc., Russel Metals Inc., Winpak Ltd., Bank of Montreal, Richelieu Hardware Ltd., Nutrien Ltd., Altagas Ltd., Gildan Activewear Inc., Transalta Renewables Inc., Great-West Lifeco Inc., Pembina Pipeline Corp., Smartcentres REIT, Empire Co. Ltd., Keyera Corp., TFI International Inc., Mullen Group Ltd., Saputo Inc., Element Fleet Management Corp., BRP Inc., Canadian Tire Corp. Ltd., Uni-Select Inc., Sleep Country Canada Holdings Inc. and Gibson Energy Inc.

“Scotiabank: “High Quality/Growth Names with Decent Value”” – (table) – Twitter

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BMO chief investment strategist Brian Belski remains adamant that the S&P 500 will finish the year higher than current levels,

“The decline in US stocks since mid-August has been more severe and longer lasting than we had anticipated, and we are closely monitoring developments to see if changes to our S&P 500 year-end targets are warranted. That being said, we advise investors to stay calm and disciplined and refrain from going into panic mode amid this selloff. Yes, the market has been volatile and the path of least resistance has been to the downside in recent weeks, but we continue to firmly believe that the S&P 500 will finish the year higher than current levels. Seasonality remains supportive of US stocks heading into Q4 with the >20% loss during the first nine months of the year only adding to the strength in seasonal price trends for the final quarter according to our historical analysis. In addition, Q3 corporate earnings is set to kick off soon and we believe another quarter of better-than[1]feared results could help convince investors that an earnings collapse is not an inevitability, and instead the earnings resilience can persist. We believe it is also important to note that while there is still plenty of uncertainty in the market, there is now also plenty of value beneath the surface for investors focused on stock picking, with roughly two-thirds of S&P 500 stocks carrying below-average NTM [ next 12 months] P/E multiples”

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Diversion: “Our ancestors ate a Paleo diet. It had carbs” – Arstechnica

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