Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
BofA strategist Ohsung Kwon runs a Canada Cycle Indicator (CCI) that has now turned positive, indicating TSX outperformance of the S&P 500,
“Our Canada Cycle Indicator (CCI) is now in positive territory for the first time since March 2023 after improving for eight straight months. Interestingly, the CCI is rising when other indicators are starting to weaken (see US Regime Indicator, Global Wave, Industrial Momentum Indicator), suggesting that Canada could be an attractive alternative in the muddled macro environment. Historically, when the CCI was positive, the TSX outperformed SPX 60% of the time by 4.2ppt over a 12-mo. period (vs. 23% hit rate and -5.9ppt when negative). Since June, the TSX outperformed SPX by 3.3ppt, but for sustained outperformance, the TSX needs higher commodity prices, which have been the biggest drag on the indicator … ~90% of 2Q earnings are in for the TSX 60, and EPS is tracking a 3.5% beat. 2Q EPS grew 12% YoY, the strongest since 3Q22 and above the S&P 500′s +10% YoY … On a relative basis, the TSX looks even cheaper, trading at just 0.7x vs. the S&P 500, the steepest discount in history, even more so than during the Tech Bubble”
The CCI consists of relative interest rates (with S&P 500), earnings revision s ratio, inflation, leading economic indicators and commodity prices.
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RBC capital Markets analyst Pammi Bir restated top picks in the REITs sector while taking a bit of a victory lap,
“Our view: Our Outperform-rated recommendations include Boardwalk, BSR, CAPREIT, Chartwell, Colliers, Dream Industrial, FirstService, First Capital, Flagship, Granite, InterRent, Killam Apartment, Minto Apartment, Morguard Residential, RioCan, SmartCentres, and StorageVault. After a strong Q1, momentum extended through Q2 with the sector delivering decent overall growth that exceeded our forecasts. Combined with strong fundamentals across most property types and more favourable debt costs, our earnings outlook has modestly improved. While YTD sector returns are back in the black, we’ll likely need some further macro support to light a bigger spark under fund flows. In the meantime, our preferred picks remain anchored in names where we continue to see superior operational resilience, including select seniors housing, multi-family, industrial, self-storage, and defensive retail”
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BMO rates and macro strategist Benjamin Reitzes assesses the potential damage from the rail strike,
“Canada’s two biggest rail companies are both facing a potential shutdown due to labour disputes. While this is the first time we could see simultaneous stoppages in recent memory, we’ve had two major rail strikes in the past dozen years (circled in red). Both were just over a week in length, and slashed rail activity in the month. While the drops are notable, weather issues have caused similar declines. And, rail accounts for less than 0.5% of GDP. The bigger potential economic impact comes from the knock-on effects. Lack of transportation options can force firms to temporarily halt activity. That’s exactly what happened in 2019, when some mining operations were forced to sharply lower production. The prior two episodes saw a hit to monthly GDP of about 0.1 ppts. This time around we roughly estimate a similar impact 0.1 ppt impact per week, but that figure will likely increase sharply the longer it drags on”
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Diversion: “Ford steps back from EVs – and says hybrids are the future” – Wired
“Market Factors: The worst list of investing advice imaginable” - Globe Investing