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

BofA Securities quantitative strategist Savita Subramanian sees a very positive U.S. earnings season ahead,

“20% of S&P 500 2Q earnings report next week; analysts expect EPS of $23.20 (-44% y/y)-the trough before an expected pick-up to -25%/-14% in 3Q/4Q. We forecast $25.00 (-39% y/y), an 8% beat. Estimates for 2Q have been slashed ~40% over the last three months - the highest pre-season EPS cut since ’08. This, as well as a host of other factors, support a big 2Q beat. Early reporter strong results, economic surprises hitting 2+ yr highs, stronger-than-expected consumption trends, oil off of April lows, and a weakening 2Q USD also help’

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“@SBarlow_ROB BoA expects 8% Q2 beat for SPX” – (research excerpt) Twitter

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I wrote a newsletter item Monday about the risks of rising inflation pressure, but BMO economists are taking the other side of that argument,

“The Bank of Canada’s summer Business Outlook Survey was unsurprisingly weak right across the board… One key takeaway from the BOS is that capacity pressures have fallen sharply. This too is not a shock, with demand plunging and mass layoffs making new potential workers much more available. The drop in capacity pressures suggests that the output gap has widened significantly in the first half of the year…The output gap will take a lengthy period to close, which should keep inflation subdued well through next year. Don’t expect the Bank of Canada to back off its stimulative bias for quite some time.”

" @SBarlow_ROB BMO: “Canadian output Gap Will Keep Rates Low for Long” – (research excerpt) Twitter

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Citi U.S. equity strategist Tobias Levkovich raised his target of the S&P 500 in what amounts to a bit of a capitulation for a strategist that has been highly skeptical of the rally,

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“We are raising our year-end 2020 S&P 500 objective from 2,700 to 2,900, reflecting our sense that a higher multiple on 2021 EPS forecasts is likely given the Fed’s aggressive policy to support risk assets. While our fundamental assessment still implies downside from current levels, it is more probable that the trading range for the market should be 2,700-3,200 given powerful fiscal and monetary stimuli (with more likely from government next month)… the lack of buybacks and poor fund flows are being offset by central bank action, which may be a moral hazard but one that the FOMC is willing to take due to downside economic (and societal) risks”

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Montreal-based Scotiabank strategist Hugo Ste Marie notes that institutional investors remain very nervous but the market outlook remains largely positive,

“The shape of the recovery and the COVID-19 situation remain top concerns for investors. The pandemic is not yet under control, but we see pent-up demand … How far ahead of fundamentals equities stand generates much debate. Assuming the stock market is forward-looking, the macro outlook and shape of the recovery will influence the earnings trajectory for 2021, 2022, and beyond. We believe earnings could be back in record territory in 2022… The first half has been challenging and not owning SHOP (not covered) proved costly as the stock added 365 bp to TSX performance. Looking forward, our portfolio is positioned for a recovery in activity and a pickup in yields, with overweight (OW) in Financials, Industrials, Discretionary, and Materials.”

BNS’ list of top domestic stock picks is long, but here goes (by sector) – Royal Bank of Canada, National Bank of Canada, Manulife Financial Corp., Sun Life Financial Inc., TMX Group Ltd., Intact Financial Corp., Brookfield Asset Management Inc., Granite REIT, Allied Properties REIT, Metro Inc., Alimentation Couche-Tard Ltd., BCE Inc., Quebecor Inc., Cogeco Communications Inc., Enbridge Inc., Brookfield Infrastructure, Dollarama Inc., Magna International, Descartes Systems, Constellation Software, Open Text Corp., Canadian Natural Resources Ltd., Suncor Energy, Barrick Gold, Yamana Gold Inc., Franco-Nevada Co., Lundin Mining Co., First Quantum Minerals Ltd., Methanex Corp., Winpak Ltd., West Fraser Timber Co. Ltd., Canadian National Railway Co., WSP Global , TFI International Thomson Reuters Corp., Finning International Inc., Ritchie Brothers Auctioneers Inc. and TFI International Inc..

“@SBarlow_ROB BNS “overweight in Financials, Industrials, Discretionary, and Materials” – (research excerpt) Twitter

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" @SBarlow_ROB BNS Strategic Edge portfolio of top domestic stock picks’ – (table) Twitter

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Column: “How long can markets and the economy move in opposite directions?” – Barlow, Inside the Market

Newsletter: " Strategist predicts dreadful market environment for retired Canadians” – Globe Investor

Diversion: “An interesting question: Has your taste in music changed during the coronavirus?” – A Journal of Musical Things

Tweet of the day:

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