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

Scotiabank analyst Meny Grauman has re-opened the firm’s coverage of Canadian bank stocks, recommending a barbell approach to the sector featuring some stocks with exposure to potential upside in the sector and also safe picks with the financial strength to withstand higher than expected losses,

“The COVID-19 pandemic has triggered the first recession the sector has had to face since the 2008/2009 global financial crisis and the most significant credit cycle since the early 1990s. For the time being, the damage appears to be limited, but we recognize that the impact is being buffered by an unprecedented amount of government and private-sector support. The big test will come in the fall and early winter, when many of these programs are reduced or eliminated. In our view, this heightened level of uncertainty suggests that a barbell approach to the space remains the most prudent strategy”

Mr. Grauman does not state his top picks outright, but it seems to be CIBC – “Given its aggressive provisioning in Q2 and an overweight in personal secured lending, we have growing confidence that the bank will pass this test” – and Royal Bank. In the latter case, the analyst writes, “RY has a number of important attributes that have made this the bank to own through the COVID-19 pandemic. These factors include dominant scale to better manage expenses; conservative provisioning; a diversified business mix with less reliance on one specific business or region; a good balance of fee income and net interest income; and a peer-leading capital ratio (tied with CM)”

“@SBarlow_ROB Scotia likes Royal Bank” – (research excerpt) Twitter

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BMO economist Doug Porter notes that U.S. inflation expectations have recovered to pre-pandemic levels,

“The implied five-year forward U.S. inflation rate is almost right back to pre-pandemic levels. (The rate looks at the difference between nominal and real Treasury yields, for both the 5- and 10-year terms, and is regarded as a relatively pure measure.) After bottoming out below 1% in mid-March, this metric has climbed steadily back to around 1.8% in recent days. That’s almost precisely where it stood in the opening weeks of the year. No coincidence, the Dow has largely tracked these expectations”

The inflation or no inflation debate, with its significant implications for bond yields and equity sector performance (higher bond yields likely mean value stock outperformance), is fast becoming the most important for investors.

" @SBarlow_ROB BMO: U.S. inflation expectations back to pre-COVID levels” – (research excerpt) Twitter

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Also from BMO, equity strategist Brian Belski sees little or no upside for the S&P 500 for the coming months,

“we see limited upside for US stocks overall in the coming months as we believe the host of uncertainties investors will be forced to contend with in the current market landscape will likely lead to elevated levels of volatility and a sideways market for the foreseeable future… Even When the Market Moves Sideways, Certain Stocks Can Still Produce Attractive Returns: Growth-at-a-reasonable-price (GARP) attributes are common among stocks posting solid gains during range-bound market periods. Quality and momentum characteristics also tend to be rewarded "

“@SBarlow_ROB BMO’s Belski sees flat, volatile U.S. equity markets ahead” – (research excerpt) Twitter

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Diversion: “U.S. Air Conditioning Use Could Surge Nearly 60 Percent by 2050” – Gizmodo

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