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

Credit Suisse U.S. equity strategist Jonathan Golub continues to argue that U.S. tech stocks are dominating global markets because they should be,

“Over the past 12 months, the largest 5 companies (AAPL, MSFT, AMZN, GOOGL, FB) returned 49% while the rest of the S&P 500 barely budged. Investors are quick to assume that outsized returns are driven by speculative flows, while the data shows that roughly three quarters of outperformance is the result of stronger earnings… today’s larger names are superior on almost every financial metric including revenue and profit growth, margin structure, volatility, and corporate leverage. As such, we wouldn’t be surprised to see the performance gap widen even further.”

“@SBarlow_ROB CS: Large cap tech “superior in every way”” – (research excerpt) Twitter

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Financial Times columnist Robin Harding argues that anger at central banks is misplaced,

“Rocketing house prices, zombie companies, rising inequality, a runaway stock market, struggling savers … perhaps the only thing that does not get blamed on easy monetary policy from central banks is the weather… To blame monetary policy for rising house prices or growth in debt is to assume, mistakenly, that central banks had any alternative… If a central bank tried to hold interest rates down below their natural rate, then surging demand for credit would push prices up …

“The test of whether central banks have kept market interest rates in line with the natural rate is whether they have kept inflation at its target. In the US, the average inflation rate from 2000-2019 was 1.8 per cent, and fell to 1.6 per cent in the period after 2008 during the long struggle to recover from the recession. In the eurozone, it was 1.7 per cent falling to 1.3 per cent. In other words, inflation was consistently below the figure of 2 per cent by which price stability is widely defined.That implies central banks have kept interest rates close to but slightly above their natural rate over the past two decade.”

“Rage against central banks is misdirected” – Financial Times (paywall)

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Nomura quantitative strategist Masanari Takada continues to track asset flows for algorithm-based Commodity Trading Advisor (CTA) portfolios and the rest of the world’s most aggressive, fast moving funds,

“The mood seems to be that the NASDAQ … has started a downward adjustment … It remains our expectation that the consolidation in the NASDAQ will stretch into August, in continuation of the usual seasonal pattern. That said, we expect the drawdown over the span of the consolidation to come to only around 5%. ... The other part of our thinking is that the momentum and growth factors (rather than the NASDAQ as such) are getting an unexpected push from what appears to be a return by CTAs to accumulating long positions in 10yr UST futures (TY). We would expect CTAs’ buying of TY to accelerate if the 10yr yield were to proceed to drop below 0.54%. Oddly enough, then, two different systematic trading flows are colliding head-on in the NASDAQ market, with selling pressure coming from CTAs’ trimming of their net long position bumping up against the buying pressure associated with the preference for growth and momentum being indirectly powered by CTAs’ resumed accumulation of long positions in TY”

It’s interesting that aggressive funds are buying Treasuries when yields are already so low.

“@SBarlow_ROB Nomura’s Takada - CTAs are buying Treasuries” – (research excerpt) Twitter

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Diversion: “The Winners and Losers of the 2020 Emmy Nominations” – The Ringer

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