Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
BMO equity strategist Brian Belski noted that Canadian equity performance was broadening out into more sectors and offered a list of “disciplined value” stock picks. The stock screen identified companies with “no profit losses in the past five years, debt to common equity less than 1x (except for Banks) and P/B and forward P/E values less than that of the S&P/TSX”
The list is alphabetical – Aecon Group Inc., Alaris Royalty Corp., Atco Ltd. Class I, Bank of Montreal, Bank of Nova Scotia, Canadian Imperial Bank of Commerce, Canadian Western Bank, Celestica Inc., Chorus Aviation, Equitable Group, Genworth MI Canada Inc., Great-West Lifeco , Home Capital Group Inc., iA Financial Corp Inc., Inter Pipeline Ltd., Laurentian Bank of Canada , Linamar Corp., Magna International Inc., Manulife Financial Corp., Martinrea International Inc., NFI Group Inc., Pembina Pipeline Inc., Power Corporation of Canada , Sun-Life Financial Inc., TD Bank, Transcontinental Inc., Tricon Capital Group Inc. and Westshore Terminals Investment Corp.
“@SBarlow_ROB BMO: Top Cdn stock picks for 'Disciplined value' – (table) Twitter
Scotia strategist Jean-Michel Gauthier sees Wednesday’s Fed meeting as indicative of bond yields that will be "lower for ever,”
“In our view, this QE Infinity + will indeed be needed to keep longer term yields low. Despite cratering inflation expectations and high uncertainty (World Uncertainty index), new supply of treasuries is exploding. Moreover, the gap between US 10Yr yields and those of other countries has narrowed materially in their favour, lowering US bond attractiveness for overseas investors. Hence, in our US 10Yr Yield Fair Value model, the only factor putting a lid on yields over the next two years is the Fed’s asset purchase program… We still see some upside from current levels as the macro condition normalizes, but QE infinity and “lower for ever” on short term rates will prove a formidable obstacle to rising yields.”
Continued lower yields have important implications for sector performance. Market history implies that secular growth stocks – FAANG basically – will continue to outperform while economically sensitive stocks continue to lag. In general, it means growth stocks over value.
“ @SBarlow_ROB BNS on yields: Lower for ever “ – (research excerpt) Twitter
Index futures point to a significant rally Friday, reversing about half of Thursday’s losses, but BMO economist Doug Porter sees yesterday’s sell-off as the beginning of a “second wave of volatility”,
“Markets finally hit a wall in the past few days. A reality check on the recovery’s prospects from the Fed and the OECD were two big bricks. But, arguably, more important has been the unnerving back-up in [COVID-19] cases in a variety of states. These renewed concerns led to the biggest daily retreat in equities in almost three months. In just one sign of how abruptly market sentiment shifted, the VIX jumped 50% on the day to back above 40. To put that in perspective, prior to the past few months, that level would have rivalled all of the peaks of the past decade.’
“@SBarlow_ROB BMO: "Second wave of volatility"’ – (research excerpt) Twitter
Citi economist Igor Cesarec reiterated the firm’s bearish global market outlook in a Thursday report (my emphasis),
“Recent better-than-expected economic data from the US and improved growth outlook for China are encouraging (Figure 4). However, even if the US and China do follow a more optimistic recovery path as some forecasters are now projecting – and there is even uncertainty around that – it is unlikely that they can carry the global recovery entirely by themselves. In many sectors, other regions including non-China EM will be key for a sustained recovery . For as long as many large, globally inter-connected economies face significant headwinds, it is difficult to have a large degree of confidence in a truly global and sustained V-shape recovery.’
“@SBarlow_ROB C: "For as long as many large, globally inter-connected economies face significant headwinds, it is difficult to have a large degree of confidence in a truly global and sustained V-shape recovery" – (research excerpt) Twitter
Diversion: “Unbundle the Police” – The Atlantic
Tweet of the Day:
Propelling most of S&P 500’s gains this year have been 10 largest stocks (in terms of market cap) ... leading up to selloff, they were up ~24% while rest of market was barely in positive territory; leading to yawning gap in performance (bottom half of chart)@bloomberg pic.twitter.com/PJKQqDp4iZ— Liz Ann Sonders (@LizAnnSonders) June 12, 2020
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