Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
The strategy team at Scotiabank believe October’s positive equity returns are mostly a bounce from oversold conditions rather than a sustainable rally (my emphasis),
“In Canada, outperformance was concentrated among Growth and Momentum. Despite the strong Momentum ranking gains from cyclicals, their Growth rankings are eroding faster than Defensives. As such, we believe October is likely a rally from oversold levels rather than a lasting upswing. Technology was also unable to follow other cyclicals higher. Short sellers have also been unfazed by this rebound, increasing their bets against Canadian Value stocks in particular. Quality at a reasonable price could thus retain an edge in such an environment. If Defensives broadly retreated again in October, Cyclicals were unable to rise in rankings either. Tech and Industrials are down, while Discretionary and Financials are flattish. Weakening Growth metrics fully offset their rebounding Momentum rankings. Among Defensives, Staples and Real Estate fared the best, while Telecoms, Utilities, and Pipelines saw the most ranking downside. Energy rankings are broadly stable near their all-time high with Growth sticking to the top decile. Miners also bounced strongly on improving Momentum and Growth stopping its downward trend. Sector-wise, Energy, Staples, and Discretionary are the highest-ranked sectors… Past cycles suggest a more enduring rebound once Defensives start losing out on Growth from a relative standpoint. Moreover, Technology’s lack of participation in this rally hints that this could be another headfake.”
The team also updated their quantitatively driven list of top 30 Canadian stocks. Boyd Group Services Inc. (BYD-T), Aritzia Inc. (ATZ-T) and Element Fleet Management Corp. (EFN-T) were added to the list. Westshore Terminals Investment Corp. (WTE-T), Canfor Corp. (CFP-T) and BRP Inc. (DOO-T) were removed.
Also on the list are Advantage Energy, Tourmaline Oil, Birchcliff Energy, Enerplus, Crescent Point Energy, MEG Energy, Whitecap Resources, Nutrien, Winpak, West Fraser Timber, Mullen Group, Russell Metals, TFI, Ritchie Brothers Auctioneers, Exchange, Dollarama, Spin Master, Gildan Activewear, Alimentation Couche-Tard, Loblaw Co, George Weston, Empire, Fairfax Financial, Celestica, Capital Power, Altagas and Boralex.
“Scotiabank’s updated, quant-driven SQore Top 30 list of top picks” – (table) Twitter
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CIBC’s Benjamin Tal noted that in terms of domestic wage growth, the labour market is not following the laws of economics,
“Economics 101 and common sense suggest that if the labour market is experiencing a significant shortage of low[1]skilled workers, wages in those occupations should rise notably faster than occupations that do not suffer from the same shortage. But that’s not happening. That might have important implications for the future trajectory of inflation and the Bank of Canada’s response. .. , the labour market seems largely back to normal: the unemployment rate is lower than it was in 2019 and participation rates are largely in line with pre[1]pandemic trends. But the share of low paying jobs is still at a record-low level…Why are we not seeing higher wage growth in low-paid jobs despite high demand? On this, we may only speculate … First is the data itself. Wage data comes from surveys and is therefore prone to measurement issues … The pandemic has induced a change in what workers demand from their employer, with the importance of wages falling in many sectors … In addition, this could reflect the inability of employers to raise wages sufficiently as they face pressure on their margins – particularly following the 2017-2018 notable increase in minimum wages in many provinces. Most of the sectors at the bottom of the wage distribution are very labour intensive, which means that the wage bill represents the majority of costs … Finally, as they emerge from turbulent times, employers may fear the extent of the slowdown to come”
“Elevated low-wage vacancies not triggering proportional wage response” – CIBC Economics
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The strategy team at Citi is not expecting a Santa Claus rally this year,
“Some investors are hoping resolution of political uncertainty (via the US mid-terms) and a likely gridlocked Congress will help ignite a Santa Claus rally. Our work shows that any year-end rally is predicated on the prior Jan-Oct returns. Poor returns so far this year mean investors expecting a holiday season gift will likely be disappointed.”
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Diversion: “Ten Movies to See Right Now. Plus, James Gray Returns!” – The Ringer (podcast)
Tweet of the day:
Editor’s note: An earlier version of this story incorrectly listed the changes made to Scotia's Canadian stock list. This version has been updated.
Scott Barlow