Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
BMO chief investment strategist Brian Belski believes that concerns about the Canadian market are overdone,
“Based on our interactions with clients, one of the primary concerns and rationales for the continued steep valuation discount of the TSX is the perception that Canada faces significantly higher growth headwinds relative to its neighbour to the South. There is no denying that the higher debt loads of Canadian households and the maturity structure of the mortgage market dampens confidence, let alone buying power of the Canadian consumer over the next few years. However, we believe these growth concerns are largely overstated. Yes, retail sales are likely to be more sluggish in Canada versus the US as the Canadian consumer adjusts to higher rates. However, Canadian economic activity is highly correlated with the US and is unlikely to significantly decouple. As such, we believe Canadian investors should remain focused on the leading nature of US economic activity when looking at the broader growth trajectory of Canadian equity markets. Furthermore, our work also suggests much of this divergent economic activity has been priced in, with domestic-oriented companies significantly underperforming year to date, helping in part to position the TSX to trade at a near-record valuation discount’
***
Citi global strategist Beata Manthey’s quarterly outlook features a recommendation to start buying the dips in U.S. technology,
“Last quarter, we took profits on our US and Global Tech Overweights, but suggested buying dips. We have now seen a meaningful pullback and thus upgrade global Tech once again. We continue to prefer Europe and EM over the US, as increased chances of a US soft landing should support Cyclical markets. Our global sector allocation also has a clear Cyclical tilt. One exception is Energy, which we downgrade to Underweight (alongside the UK), given Citi’s bearish house view on oil. Top-down, we forecast negative 1-per-cent global EPS growth in ‘23 and a gain of 9 per cent in ‘24. This is slightly below bottom-up consensus, implying minimal downgrades from here. Until recently, our year-end targets implied down markets, but the latest sell-off provides a more attractive entry point. Our targets point to 15-per-cent upside for the MSCI AC World to mid-24, implying a modest rerating from the current 15 times fwd PE”
***
Jefferies’ popular GREED & fear report can trend to the dramatic as the October 5 edition, which notes similarities between the current market and the period before the 1987 crash, highlights,
“The potential similarity with what occurred in October 1987 is that the historic stock market crash was preceded by a big sell-off in the ten-year Treasury over the summer months. The 10-year Treasury bond yield rose by 203 basis points from 8.2 per cent in on 17 June 1987 to 10.23 per cent on 15 October 1987. But the other salient point to note is that when the S&P500 subsequently collapsed by 28.5 per cent in four days, and by 20.5 per cent on 19 October 1987 alone, the Treasury bond market staged a classic flight-to-safety rally in the context of a then dramatic decline in the 10-year Treasury bond yield. The 10-year bond yield fell from a peak of 10.23 per cent on 15 October 1987 to 8.72 per cent on 26 October 1987 … The interesting point now is whether Treasury bonds would behave in a similar fashion in such circumstances given the current debate, discussed here last week (see GREED & fear - Treasury bond liquidity and creative financing, 28 September 2023) and also in the just published Asia Maxima, as to whether the recent Treasury bond market sell-off has been driven primarily by supply-side concerns as opposed to the ‘higher for longer’ narrative”
***
Diversion: “Let’s Get Ready to Jiggle: Fat Bear Week Is Here Again to Soothe Your Soul” – Gizmodo
Scott Barlow