Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
The strategy team at Scotiabank uncovered a change in investor tax harvesting,
“The June 25 deadline for the implementation of the new capital gains tax in Canada is approaching quickly. As a reminder, capital gains in excess of C$250,000 will use an inclusion rate of 67% instead of 50% when applying the marginal tax rate. High-net-worth Canadians could thus potentially generate tax savings by engaging in an early tax loss harvesting strategy ahead of the deadline ... However, Canadian YTD stock winners (YTD to May) have generated unusual losses in June. Meanwhile, YTD losers are also suffering more than the benchmark. In our view, selling pressure on both winners (capital gains) and losers (capital losses) could be interpreted as tax loss harvesting to lock in, and limit, any net taxable gains at the 50% inclusion level while resetting the cost basis of the investment ... Proceeds from tax loss harvesting need to be reinvested, often in correlated names/ETFs … Our previous work on the subject highlighted that names which see tax loss harvesting in December typically enjoy a recovery in the next two months”
The team listed Veren Inc., Nexgen Energy Ltd., Cenovus Energy Inc., Tourmaline Oil, Advantage Oil and Gas Ltd., Peyto Exploration and Development Corp., Methanex Corp., Magna International, Ivanhoe Mines Ltd., Teck Resources Ltd., Linamar Corp., Brookfield Corp., Intact Financial Corp. and Converge Technologies Solutions as potential bounceback candidates.
BMO senior economist Sal Guatieri discussed immigration, migration and the domestic housing market,
“The yearly rise of 1.27 million was the most on record, while the percentage gain of 3.2% is the largest since 1958 and more than double the historical mean. Net international migration of 1.24 million drove almost all the rise, with two-thirds (828,000) propelled by temporary immigration. If, as planned, the federal government slashes the number of temporary immigrants from 6.8% of the population to 5% within three years, then overall growth will slow to around 1%. A growing population propelled by permanent immigration targets of half a million per year will still support the housing market, but in a much more sustainable manner. Builders will have a decent chance of keeping up with household formation … Poor affordability, namely in B.C. and Ontario, is not (yet) having a serious effect on international migration. Ontario’s population grew 3.5% in the past year and B.C.’s rose 3.3%, both much faster than usual and still leading all provinces except for Alberta, whose population exploded 4.4% … All provinces are attracting more international migrants than usual, even pricey Ontario (net 93,000) and B.C. (40,000), with Alberta (33,000) punching above its weight. But regional affordability differences are influencing where migrants, including longtime residents, eventually end up”
“Canadian Housing: Migration Matters” – BMO Economics
RBC head of global equity strategy research Lori Calvasina sees signs that U.S. markets are ahead of themselves,
“We’ve added a new stress test to our valuation analysis. This is an optimistic scenario which bakes in lower inflation, lower 10-year yields, and more Fed cuts than the current consensus (this scenario bakes in PCE of 2.2%, 3 cuts, and 10-year yields that fall to 3.75% at year-end). To be clear, this is not our base case for year-end 2024. But it is a helpful exercise in terms of understanding what the stock market may be pricing in currently. These assumptions imply that a reasonable trailing P/E for the S&P 500 at year-end would be around 22.5x and that a fair value for the index would be 5,500 (assuming bottom-up consensus EPS of $245 is in the right neighborhood). That 5,500 index level is close to recent highs. While we consider our valuation model to be a compass, not a GPS, our work here nevertheless continues to make us worry that the US equity market has gotten a little ahead of itself in the short term due to a little too much optimism around interest rates and inflation after the latest CPI print/Fed meeting”
Diversion: “Scientists Propose New Way to Find Aliens: Detect Their Failing Warp Drives” – Gizmodo