The best strategists are those that make two consecutive calls in different directions. For example, correctly predicting a market downdraft and then accurately forecasting the market bottom and the beginning of a recovery.
The Research Investment Committee (RIC) at BofA Securities is taking a run at this in their most recent report, arguing that a bear market is imminent but also providing the three signals that will eventually mark a new sustainable rally.
Referencing 150 years of market history, RIC sees three signs of a recessionary bear market rally. The first two, a steepening of the yield curve and tightening monetary conditions, are already apparent. The third, a Federal Reserve rate cut, is being predicted by derivatives markets for later this year.
The committee emphasized that the last seven times monetary conditions were as tight as present, a recession occurred. They note that no matter what happens with quantitative easing or bond market liquidity, “credit to the real economy directly affects business plans, jobs, wages, and consumption.”
RIC recommends U.S. consumer staples stocks, small caps, value stocks, corporate bonds and gold to protect portfolios against the downturn they expect.
The committee forecasts trouble but also lists the signs of an eventual market bottom and imminent upturn, again based on long-term market history. They suggest buying stocks when aggregate S&P 500 earnings trough, adding aggressively when the benchmark climbs above its 200-day moving average, and buying even more stocks when unemployment peaks.
It’s one thing to highlight the RIC roadmap as useful and thorough, which it is, but it is another thing to predict that it will be correct, which I’m not. Still, there is enough guidance for investors to follow along, and assess the accuracy of the predictions on their own. The more often they’re right, the more we can trust the conclusions and the signals for a new market rally.
-- Scott Barlow, Globe and Mail market strategist
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The Rundown
Bank ETFs are popular with investors. The best part: Fees are falling
A battle is raging among wealth management firms as they compete for assets in a surprisingly popular financial product: exchange-traded funds that provide exposure to the shares of Canada’s Big Six banks. As David Berman reports, investors may be among the biggest winners in this fight as selection rises and fees drop.
Historic 2-year U.S. bond shock is a VaR game-changer
When U.S. government bonds become the epicentre of global market volatility, investors’ room for taking on additional risk shrinks, sucking the oxygen out of their risk budget. That’s what happened last month when the U.S. and Swiss banking shocks triggered one of the most powerful rallies ever and days of wild price swings in the two-year Treasury bond - typically badged as a “risk free” asset and one of the safest, most liquid and least volatile securities in the world. As Jamie McGeever of Reuters tells us, the Treasury market volatility of March 2023 could have lasting consequences as investors may demand higher premiums across the bond yield curve and across the asset spectrum - preferring lighter positions than they would have otherwise.
Foreign cash streaming back to China after Alibaba’s plans
Foreign investors are steadily marching into China in the wake of Alibaba’s plans to restructure, with money managers reckoning it is the latest sign the national leadership is turning friendlier to business as economic growth gains traction.
Bitcoin traders like their options
Even as bitcoin flies high, investors are keeping their options open, judging by a record race to derivatives. Open interest for bitcoin options and futures has spiked over the past month as fear has stalked global banking, hitting an all-time high of 433,540 contracts on March 23 on Deribit, a leading exchange for crypto-focused derivatives products. Most options traders are betting on bitcoin prices jumping higher, as speculation ramps up that bitcoin’s rally is just getting started.
U.S. bank failures and global forces make commodities volatile in 2023
With the failure of Silicon Valley Bank and Signature Bank, the U.S. Federal Deposit Insurance Corp. invoked the systemic risk exception in order to be able to guarantee uninsured deposits. Now the questions for commodity investors are: Has SVB and Signature helped the U.S. Federal Reserve slow its interest rate tightening cycle and ultimately support commodity prices, or is a recession more probable leading to lower commodity demand? Brian Donovan takes an updated look at how some commodity prices have moved over the past month and their outlook.
Others (for subscribers)
Canadian dollar expected to rally over coming year if economy avoids hard landing, analysts say
John Heinzl’s model dividend growth portfolio as of March 31, 2023
Number Cruncher: 8 consumer stocks paying dependable dividend
Wednesday’s analyst upgrades and downgrades
Wednesday’s Insider Report: Large shareholder invests over $3-million in this stock yielding 5.3%
Tuesday’s analyst upgrades and downgrades
Ask Globe Investor
Question: My husband and I both have investment accounts in RRIFs and LIFs. We are wondering what happens when one of us dies. Do the accounts just get transferred to the living person? Or are they collapsed, with the proceeds taxed as income and then transferred to the surviving spouse? – Kathie S.
Answer: It depends on whether the surviving spouse is named as the successor annuitant or the beneficiary of the deceased’s plan. If the surviving spouse is the successor annuitant, the RRIF/LIF continues on with the survivor as the new annuitant. The minimum payments stay the same. No taxes apply on this transfer.
If the surviving spouse is the designated beneficiary, the RRIF/LIF is collapsed at death and converted to cash. This money can then be transferred on a rollover basis to the survivor’s registered plan. Minimum payments will be based on the survivor’s age. There is no tax on the rollover. That comes when the last survivor passes.
Avoid naming the estate as the beneficiary. That would trigger a collapse of the RRIF at death and the assets would be taxable.
--Gordon Pape (Send questions to gordonpape@hotmail.com and write Globe Question in the subject line.)
What’s up in the days ahead
Fixed income expert Tom Czitron will tell us why alternative investments are headed for trouble.
Click here to see the Globe Investor earnings and economic news calendar.
Have you gotten bad financial advice from your bank?
Shortchanged, the Globe’s new investor protection series, was launched last month to look into the ways retail investors are mistreated in Canada. The next part in the series will look at the quality of advice that investors are getting from the big banks.
What kind of bad advice? Well, for example, three months ago, an investigation revealed that dozens of advisors at Bank of Nova Scotia’s securities arm were using improper transactions and unsuitable investments to boost their own sales figures, harming some clients in the process.
Do you feel like a bank employee has given you bad financial advice or recommended unsuitable investments? Or are you an advisor who can speak about the pressure within the banks to meet sales targets? To share your personal story, please email Globe investing reporter Tim Shufelt at tshufelt@globeandmail.com
Compiled by Globe Investor Staff