Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
CIBC economist Benjamin Tal published Where have all the workers gone? Surging job vacancy rates post-pandemic Tuesday, providing valuable insight,
“In the U.S., employment is still 7.5 million below pre-crisis levels. That’s despite the fact that the economy is opening up quickly and growth is projected to be close to a dazzling 10% annualized this quarter … One of the most significant observations from the US job market has been the meteoric ascent of the job openings rate, which is currently standing at a record high of 5.3% … Many suggest that the lack of day care options for parents (particularly mothers) has made it unfeasible for them to return to work. However, the data suggests that is only a small part of the story. An analysis by PIIE suggests that, overall, parents of young children did not leave the workforce substantially more than other comparable individuals during the crisis … What translates that fear into a decision to stay at home is in many cases the availability of government support that buys time … What will the Canadian experience be? … We have learned that heavy reliance on income support led to increased vacancies in low-paying occupations, while vacancies in countries that adopted the wage-subsidy model are simply a continuation of the trend seen before the crisis — made-worse by increased demand for skilled workers in manufacturing and technology as well as reduced numbers of new immigrants.”
“Where have all the workers gone? Surging job vacancy rates post-pandemic” – CIBC Economics
See Also: “@SBarlow_ROB BoA from “Labor by the numbers for US stocks” – (research excerpt) Twitter
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Morgan Stanley strategist Andrew Sheets published his top trade ideas for the second half of 2021. Unfortunately, most are either too esoteric or difficult to execute for most investors, but there is still guidance to be gleaned,
“Mid-cycle conditions colliding with late-cycle valuations means capped upside for risk assets. We cut credit to EW [equal weight] and prefer HY > IG, Europe > US & Asia. We maintain an OW[overweight] in equities, which still sees a boost from the cycle and better 12-month returns, but trim US, and now prefer Europe and Japan > US. We’re neutral on duration and expect yield curves to steepen modestly. Longer term, we see modest USD strength but no break in the range.
“We like US financials and European equities, US 5s30s [yield] curve steepeners, long NZD/JPY [New Zealand dollar versus Indonesian rupiah] and short USD/IDR, buy US loans vs. HY as reflationary trades. We use high vol premium in S&P 500 (buy put spread collars) and crude (sell strangles) but hedge with credit.”
I’m posting this in part to provide an example of the complexity of hedge fund-facing trade ideas.
For domestic readers, the key takeaways are that Mr. Sheets expects European and Japanese equities to outperform the S&P 500 and expects rising volatility in U.S. equities and crude prices.
“@SBarlow_ROB MS’s top 2H macro trade ideas” – (research excerpt) Twitter
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Scotiabank strategist published Quant Lessons from the 70s – Avoid Quality if Inflation Soars Tuesday (my emphasis),
“For the first time since the 1970s, the macro backdrop could lead to a period where growth and inflation surprise to the upside. High consumer cash balances, low interest rates, a Fed signalling its willingness to tolerate higher inflation, multiple economic sectors coming back online at a time of labour shortage, and supply chain disruptions could maintain inflation on the high side of the 2010s average. Investors thus need to focus on styles that offer a better risk profile at times of unexpected inflation, especially if growth surprises to the upside as well. … U.S. results are clear: avoid Quality, stick to Value/Momentum... avoiding Quality – especially low-volatility and low-beta strategies – while having a Value and Momentum tilt (reacts well to growth surprises and inflation surprises, respectively) gives positive exposure to inflationary surprises while being more agnostic on growth. Sector wise, overweighting Industrials, Financials, and miners at the expense of underweighting Technology and Utilities would also offer the highest odds of outperformance.”
Scotia also noted that dividend strategies underperform in inflationary environments, which is not good news for a lot of Canadian investors. For what it’s worth, I’m not convinced inflation pressures will last beyond early 2022, but I’m following developments closely.
“@SBarlow_ROB BNS: “overweighting Industrials, Financials, and miners at the expense of underweighting Technology and Utilities would also offer the highest odds of outperformance” – (research excerpt) Twitter
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Diversion: “Man Found Inside Stegosaur Statue Most Likely Died Trying to Retrieve Phone, Spanish Police Say” – Gizmodo
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Scott Barlow