If BofA Securities U.S. quantitative strategist Savita Subramanian is right, investors will have to re-learn a lot of what they know about individual market sectors because now “risky sectors are safe, safe sectors are risky.”
The general theme of the strategist’s most recent report is that market focus is set to change from macroeconomic factors like interest rates, lockdown-related slowdowns, and government spending to more stock-specific criteria. The transition will be complicated by the fact that we are entering what will be “not your parents’ economic slowdown,” according to Ms. Subramanian.
The changing risk profile of market sectors is one way that the ongoing economic slowdown is different from the past. Specifically, U.S. energy and other commodity stocks are screening as low risk in terms of volatility relative to the overall market - beta, in other words - after showing as high risk over the past decade. The same is true of U.S. industrials and financials.
The reverse case – a move from medium and low-risk into the high risk category - is apparent for information technology, consumer discretionary and communications services stocks.
Extrapolating these U.S.-based results to Canadian markets is not entirely straightforward. The financials sector, for instance, is not comparable because of the economic dominance of the major Canadian banks. Similarly, the domestic consumer discretionary sector does not have volatile behemoths like Tesla and Amazon.com.
The improving risk profile of energy and commodity stocks should remain a cross-border trend as long as these companies maintain capital discipline and return funds to shareholders. The Canadian information technology sector, dominated by Shopify Inc., should remain high risk like its U.S. counterpart.
-- Scott Barlow, Globe and Mail market strategist
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Stocks to ponder
Slate Grocery REIT (SGR-UN-T) Toronto-based Slate Grocery REIT owns a portfolio of 121 grocery-anchored properties located in 24 U.S. states. Last year, Slate Grocery REIT was the second-best performing security in the S&P/TSX SmallCap real estate sector with a price return (not including the yield) of 4.7 per cent. Year-to-date, the unit price is up nearly 5 per cent. However, analysts have mixed recommendations on the REIT, half with buy-equivalent ratings and half with neutral calls. Jennifer Dowty looks at the investment case.
Tesla Inc. (TSLA-Q) Most stocks have a bull case and a bear case, but Tesla shares have been driven by a bro case. The astonishing rise in the company’s stock, particularly since the COVID-19 pandemic, could be seen as investors piling into the one company that will dominate the future automobile industry and use its technological innovation to vault into a leadership position in multiple markets. But even that shouldn’t get you to a market value of more than US$1-trillion, which Tesla hit early last year. Instead, the true differentiator for Tesla is toxic masculinity, argues the Globe’s David Milstead.
The Rundown
It’s time to stick a toe back into the bond pond
After their worst showing in about 40 years, bonds have charged out of the starting gate to begin 2023. The question is, will it continue? Gordon Pape’s feeling is the worst of the bond debacle is behind us and it’s time to begin to rebuild your fixed income positions. He explains his rationale here and has a couple top bond ETF picks.
How to turn sour stocks into sweet returns for a Lemonade portfolio
When life gives you lemons, make lemonade. It’s a maxim Norman Rothery uses here to turn sour stocks that lack dividends into a portfolio with sweet returns. (To see the list of stocks in the Lemonade portfolio, and an update on his other portfolios, click here.)
Analysts wary of base metals after China recovery rally
Base metals have enjoyed a strong start to the year, the London Metal Exchange index rising by 9.4 per cent over the course of January on high hopes for China’s post-COVID reopening. However, analysts are cautious that China’s recovery may not live up to bullish expectations and that prices have got ahead of themselves, judging by the latest Reuters base metals poll. Andy Home of Reuters reports from London.
Big investors edge back to bitcoin
Big investors are dipping their toes into crypto waters again after a bumper month for bitcoin. Digital asset investment products, often favored by institutional investors, saw inflows of over $117 million last week, the biggest weekly increase since last July, according to data from asset manager CoinShares. Bitcoin was far and away the biggest draw, with funds tracking it responsible for $116 million of that. Reuters reports on why some large investors are regaining confidence in the cryptocurrency.
Europe’s luxury stocks have room to rise, but becoming costly
Europe’s glittering luxury companies, the region’s top stock-market performers in 2023, may see yet more gains driven by a rebound in Chinese spending, but for some the sector is starting to look expensive, reports Reuters.
Wall Street is counting on a debt limit trick that could entail trouble
Washington’s debt limit drama has Wall Street betting that the United States will employ a fallback option to ensure it can make good on payments to its lenders even if Congress doesn’t raise the nation’s borrowing limit before America runs out of cash. But that untested idea has significant flaws and has been ruled out by the Biden administration, which could make it less of a bulwark against disaster than many investors and politicians are counting on. The New York Times reports.
Others (for subscribers)
John Heinzl’s model dividend growth portfolio as of Jan 31, 2023
Number Cruncher: Investment funds that are moving to defensive positions, and some that are not
Wednesday’s analyst upgrades and downgrades
Tuesday’s analyst upgrades and downgrades
Wednesday’s Insider Report: Company leaders are buying these three dividend stocks
Globe Advisor
Big Three grocers have new appeal in recessionary environment
‘Colossal’ central bank buying drives gold demand to decade high
Crypto ETFs roar into life with eye-popping 2023 returns
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What’s up in the days ahead
U.S. homebuilding stocks have been on the rebound despite a slowing real estate market. David Berman shares some insight on whether there’s still time for investors to take advantage of the trend.
Click here to see the Globe Investor earnings and economic news calendar.
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Compiled by Globe Investor Staff