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

Morgan Stanley’s bullish U.K.-based strategist Andrew Sheets believes investor concerns about stock valuations are misplaced (my emphasis),

“During recessions, earnings and default rates both see large, temporary deviations from trend. Both can distort the true valuations picture, a reason why we think that ‘through the cycle’ valuations are especially useful at present … Defensive assets are (much) richer versus history than their more cyclical peers, the opposite of what one would expect if there was economic optimism. This is true across asset classes … many of our preferred relative themes all have attractive relative valuation: a weaker USD, higher yields, steeper curves, lower volatility, BBB-A spread compression, EU value equities and US smaller and more cyclical stocks.”

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This is a really good point, and not one that is frequently mentioned – how can a market piled in to defensive stocks be said to be pricing in a sharp economic recovery?

“@SBarlow_ROB MS: “Defensive assets are (much) richer versus history than their more cyclical peers, the opposite of what one would expect if there was economic optimism” - (research excerpt) Twitter


National Bank economist Warren Lovely details the effects of surging federal debt on Canadian bond markets,

“With the feds signaling a $343 billion deficit for the current fiscal year, it follows that the federal debt stock is primed for an unprecedented surge. Indeed, the aggregate principal amount to be borrowed in 2020-21 is $713 billion, which is $437 billion higher than aggregate borrowing in 2019-20… In total, GoC market debt is set to jump from $764 billion at the end of 2019-20 to $1.24 trillion at the end of the current fiscal year. Bond issuance is projected to total $409 billion in 2020-21, tripling the prior record of $136 billion set back in 2017-18… The 5-year-under-share of issuance will decline another 6%-pts to 74% of issuance this year, as 10s and 30s are seeing the largest increase in supply. 10-year bonds will increase from $13 billion (11% of issuance in 2019-20) to $74 billion (18% of issuance in 2020-21). Long bonds are set for the largest relative jump, moving from $4 billion (3%) to $32 billion (8%) "

" @SBarlow_ROB NBF on GoC bond issuance strategy: “Long bonds are set for the largest relative jump, moving from $4 billion (3%) to $32 billion (8%)” – (research excerpt) Twitter


Newsletter: “Tell me where real rates are in 18 months and I’ll tell you which sectors are set to outperform” – Globe Investor

Diversion: “‘Swingers’ With Bill Simmons, Sean Fennessey, and Chris Ryan” – The Ringer (podcast)

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