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

Bank of America has cut its 2020 forecast for Canadian GDP but predicts a faster recovery in 2021,

“We revise our GDP forecast down to -8% in 2020 (-5% previously) followed by a stronger rebound of 9% in 2021 (4.5% previously )… The deeper contraction reflects a deterioration of the economy amid the shutdown which is much worse than we previously thought. Meanwhile, the unprecedented job losses are taking a big toll on the economy. So far, there are more than 7m applicants on the Canada Emergency Relief Benefit (CERB) program, and we expect more than 6m job losses over March-April, with the unemployment rate spiking to above 20%. Last but not least, the recent oil price turmoil will hurt he oil sector through oil production cuts and jobs/capex cuts”

“@SBarlow_ROB BoA: "We're expecting [Cdn] GDP to plunge by 8% this year"” – (research excerpt) Twitter


Morgan Stanley chief economist Chetan Ahyat sees a similar pattern for the global economy as he wrote in “Sharper but Shorter,”

“While global growth will trough at -7.5%Y in 2Q20 on our estimates (far below the -2.4%Y in 1Q09), global and DM output will reach pre-recession levels in four and eight quarters, respectively, as compared with six and fourteen quarters during the GFC… As we move towards this gradual reopening in parts of the world outside China, we have been closely observing developments in China to see how various sectors of the economy are normalising and how this experience may inform our outlook for the rest of the world … In China, the manufacturing, infrastructure and construction sectors recovered relatively quickly. The manufacturing PMI is back in expansionary territory, while steel and cement demand and property sales are growing again in year-over-year terms, just ten weeks after the peak in new cases … However, as the US and Europe are more consumption-based economies, it is the experience of the Chinese consumer that is drawing the most investor attention. Consumption in China is also showing signs of progress, but the pace of recovery has varied across different segments, and the phased relaxation of social distancing measures has dampened the overall pace to some extent.”

“@SBarlow_ROB MS: Consumption will recover more slowly than manufacturing’ – (research excerpt) Twitter


Bank of America U.S. quantitative strategist Savita Subramanian has made changes to her top picks list for high-quality companies paying dividends.

Out are General Dynamics Corp. (rising debt-to-equity ratio), PPG Industries Inc. (same reason), Ralph Lauren Corp. (lowered analyst rating) and Raytheon Technologies Co. (lower rating).

Air Products has been added to the list on the basis on strong free cash flow relative to payouts. The remaining companies on the list are Automatic Data Processing Inc., Emerson Electric Co., Honeywell International Inc., Johnson & Johnson, Norfolk Southern Corp., Pfizer Inc., Packaging Corp., Public Storage, Robert Half International Inc., Snap-On Inc., Texas Instruments Inc., and VF Corp.

“@SBarlow_ROB BoA: Top picks for high quality balance sheets paying dividends” – (table) Twitter


Citi U.S. equity strategist Tobias Levkovich is concerned the market has rallied too far and a significant correction is approaching,

“ equity prices have rebounded impressively from the sharp pullback in February and March. We believe that three major drivers including the aforementioned government and central bank policy moves, as well as better news on the health care side, not to mention talk of re-opening the economy all have contributed to the sense of a brighter future. Therefore investors are less worried about three or four quarters of declining/depressed GDP … A recovery in 2H20 for the economy translates into better EPS. But, we can argue that the S&P 500 is already discounting a $37.50 quarterly EPS run rate (or $150.00 annually) as it hovers in the 2800 area … the unemployment rate likely hitting 13%-14% (before slipping to say 9% by year-end) and its relationship with the broader index. Typically, the market bottom is found before jobless rate peaks, so the rebound in share prices is appropriate, but it seems to have been too much. Unfortunately, as many as 20 million of the jobs lost may take a significant period of time to reverse which has important economic ramifications. In addition, our Panic/Euphoria is back in neutral territory after spending several weeks in panic mode … The valuation story is not as supportive anymore either.”

“@SBarlow_ROB Levkovich: "the market bottom is found before jobless rate peaks, so the rebound in share prices is appropriate, but it seems to have been too much" – (research excerpt) Twitter


Diversion: “You Should Probably Skip Buying a New Xbox or PlayStation This Year” – Gizmodo

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