Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
CIBC economist Avery Shefeld believes Canadian governments must act now to address rent payments for small and medium sized businesses,
“Many micro businesses, will unfortunately not survive the crisis … Given the aversion towards debt accumulation, the concept of borrowing money to pay for rent will be difficult to justify — especially if you are not sure how long that need will last … A rent solution is what’s needed to keep these businesses in place during the shutdown so that they are ready to unlock the door and reopen when that’s permitted. The inability to pay rent might force SMEs to lay people off and reduce their participation in the wage subsidy program … in the absence of a rent solution, the effectiveness of the wage subsidy program will be compromised.”
“A Rent Solution for SMEs is Needed Now” – CIBC Economics
“@SBarlow_ROB CM: Rent relief for SMEs is needed ASAP” – (research excerpt) Twitter
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For analysis on day-to-day money flows for speculative hedge funds and algorithm-based portfolios, there’s no better source than Nomura’s Masanari Takada.
In a Wednesday report he wrote,
“We see an ongoing natural rebound away from earlier pessimism, with the sustained downtrend in volatility inducing systematic buying by [Commodity Trading Advisor funds ] and risk-parity funds … while stock indices themselves are looking strong, an under-the-hood look at sector preferences reveals a more cautious mood. What we are not seeing yet is a return to a market fueled by a preference for higher-risk investment targets such as small caps, high-beta stocks, and value stocks. We estimate that long/short funds, for instance, have a net long position that is merely crawling along at a low level”
“@SBarlow_ROB Nomura's Takada: "while stock indices themselves are looking strong, an under-the-hood look at sector preferences reveals a more cautious mood" – (research excerpt) Twitter
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The latest Research Investment Committee (RIC) report from BofA Securities argues that U.S. markets have already seen the bottom, and offers investors advice on the best market areas to focus on now,
“In our latest RIC in Pictures we laid out a “framework for a market floor” … the Liquidity phase is complete thanks to $7tn in QE, FX swap lines, and a Fed willing to buy nearly any kind of bond to ensure smooth market functioning … the Safety trade will continue until the health crisis has peaked. Equities will probably struggle from here but we do not expect new lows … The Recovery to new highs won’t be easy…the key will be additional public sector support for health care, income grants, and industrial policy. Only once GDP & EPS trough should investors glance at “deep value” trades …
"In the “Safety” phase buy quality, growth and yield, especially in corporate bonds. Companies may pay stockholders but they must pay bondholders… reasons to favor credit over equity right now … Credit recovers faster: in the last three crashes HY bonds reclaimed their losses within 10 months on average, while equities needed 56 months”
“@SBarlow_ROB BoA RIC report pushing corps” – (research excerpt) Twitter
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I don’t usually discuss individual stocks in this space, but Amazon is an extremely relevant company in the current shut-in environment.
Online shopping is an obvious beneficiary and Amazon’s giant cloud computing business is also expanding thanks to remote working.
The stock is a top pick at BofA Securities,
“Amazon to hire an additional 75k employees, bringing the total to 175k new hires to meet demand. Grocery seeing unprecedented demand; additional changes at Whole Foods to limit new customers & fulfill delivery orders. AMZN remains one of our top "in-home" stocks & should be a long-term beneficiary from consumer behavior change; Maintain Buy”
Analyst Justin Post’s 12-month price target implies a 14-per-cent return.
“@SBarlow_ROB BoA: more upside for Bezos Inc.” – (research excerpt) Twitter
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Column: “2020 is not 2009, and Canadians should invest accordingly” – Barlow, Inside the Market
Diversion: “ The Black Death’s aftermath isn’t cause for optimism about covid-19” – Washington Post
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Scott Barlow