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

Goldman Sachs U.S. equity strategist David Kostin published six reasons why the market rally should stall,

“Our forecast for the S&P 500 shows 2% upside to a year-end 2020 target of 3000 but 18% downside to our three-month target of 2400 … First, COVID-19 infection rates outside of New York continue to grow … Second, the re-start process will take time … Third, bank loan loss reserves in 1Q totaled $46 billion vs. $49 billion for fullyear 2019. All of the banks ‘marked to market’ their provision estimates assuming a 9.5-10% unemployment rate. The jobless rate spiked to 14.7% [Friday] … Fourth, dividends are also at risk. Fifth, domestic politics. The presidential election is six months away … Sixth, global politics. As our Asia strategy colleagues wrote this week, investors may need to contend with another twist in US-China trade/strategic development … “

“@RobinWigg Here are six risks to the stock market recovery identified by Goldman's chief US equity strategist David Kostin” – (research excerpt) Twitter

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Citi U.S. equity strategist Tobias Levkovich believes the “S&P 500′s rebound has been too much, too fast” and he argued against his major clients’ bullish cases in a Monday research report (my emphasis),

“By cutting expenses quickly, one should expect better incremental margins on the other side and thus business profitability could surprise to the upside. We have some sympathy for this view, but we also suspect capacity utilization will be lower for longer, thereby restraining the bottom line … Low interest rates and discomfort with credit markets leave investors with nowhere else to go … We have heard anecdotally about younger individuals with less market experience viewing the March plunge as a unique time to start portfolios … we could be witnessing a repeat of the late 1990s when non-US investment professionals desired secular growth technology names and were forced into buying American leaders … we appreciate all the fiscal and monetary stimulus support but that money has been more of a preventative measure to avoid calamitous economic outcomes rather than expansionary dollars, in our opinion.”

“@SBarlow_ROB Levkovich: "we could be witnessing a repeat of the late 1990s when non-US investment professionals desired secular growth technology names and were forced into buying American leaders" – (research excerpt) Twitter

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Also from Citi, quantitative strategist David Bieber argues that the market rally has all the characteristics of a “melt-up” as part of a longer term bear market and suggests investors should be short the S&P 500 (my emphasis),

“there is large uncertainty on how this pandemic and its full economic impact will play out – this is reflected in the low confidence with which investors have participated in the rally (i.e. short cover and no significant new risk). Why do market response in similar dynamics lead to a melt-up? One possibility is that a melt-up cuts short side positioning, and therefore long side is more vulnerable to negative shocks. Meanwhile a melt-up is associated with a rapid move up in prices and suggests fast money players are the major participants and hence more likely to take profits quickly on longs. Currently the conditional models suggest that investors should be short in both EuroStoxx and S&P given the extent of short covering into the rally. The expectation is for prices to sell-off by 10% within 3mths”

“@SBarlow_ROB C: "Currently the conditional models suggest that investors should be short in both EuroStoxx and S&P given the extent of short covering into the rally" – (research excerpt) Twitter

“@SBarlow_ROB C: characteristics of a melt-up” – (research excerpt) Twitter

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Newsletter: “Has Buffett been replaced as the world’s greatest capitalist?” – Globe Investor

Diversion: “ Why it’s so hard to read a book right now, explained by a neuroscientist” – Vox

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