Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
Scotiabank strategist Jean-Michel Gauthier details a weaker housing market and his belief in at least a partial recovery in the second half of the year,
“After seeing a slight bounce earlier this year, Canadian home prices are back in decline in May, with second-hand properties driving the decline. Moreover, despite May/June usually being peak housing market activity month, unit sales have only been falling this year from their January peak. Meanwhile, sellers are back in large proportion … This is creating a market that for the first time in years is much more favourable to buyers than sellers … the New Listing to Sales ratio stands at some of its highest levels of the pre-Covid era (ex Financial crisis) while the months of inventory at hand is also at its highest since 2019. Despite the overall negative tone hovering over the Canadian housing market, we would point out to two positive developments. First, the market is deeply split between the recessionary markets of Ontario (housing prices -3.7% YoY) and British Columbia (housing prices -1.2%) while Quebec (+5.7% YoY) and the Prairies (+15% YoY) are still booming … Second, the Bank of Canada’s recent rate cut will likely only start impacting the market in July. In our view, expectations that the BoC was about to embark on a rate cut campaign may have kept some buyers on the sideline until rates start falling a tad. With another 75bp cuts priced in for 2024, the housing market could thus see much stronger buyer’s interest in the second half of this year”
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There are fully 24 analysts with writing credits for Citi’s 125-page report AI in Finance: Bot Bank and Beyond. There has been no shortage of ‘AI will transform the world’ research but this one contained some phrasing that was interesting to me,
“The steam engine commoditized production and physical movement, powering the industrial revolution. More recently, the Internet revolutionized communication and ushered in the age of information. Similarly, AI may commoditize human intelligence, including analysis, decision making and content creation … Based on the results of a recent Citi TTS Client Survey, we estimate the global banking sector 2028E profit pool could increase 9% or $170 billion from the adoption of AI, rising from just over $1.7 trillion to close to $2 trillion … As AI technology advances, developers are likely to become cheaper and more expendable. This is likely to be true not only for developers, but all professionals involved in content generation such as bank employees, journalists, equity research analysts, etc. The job market is likely to evolve into a celebrity economy, where only those with the best ideas will thrive, earning substantial rewards, whilst others face displacement”
“AI in Finance: Bot Bank and Beyond” – Citi GPS
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BMO chief investment strategist Brian Belski picks his favourite TSX market sectors in the wake of the rate cut,
“Last week we highlighted that “proactive” easing cycles have historically been a strong positive catalyst for TSX performance, with the S&P/TSX posting solid double-digit gains on average 12 months after the first Bank of Canada rate cut. Under the surface, our work shows an increasingly broad fundamental outperformance transpires following such “proactive cuts.” This is especially evident with respect to quality and capital usage factors, while more growth-heavy factors typically underperform. On a sector basis, cyclical sectors like Technology, and interest rate-sensitive areas like Financials and Real Estate tend to outperform during this environment. While all cycles are certainly not the same, we believe the strong value and quality profiles of Financials, Real Estate and Communication Services suggest these areas are well-positioned to benefit from easing interest rate pressures. Furthermore, from the cyclical side we believe both Technology and Consumer Discretionary remain poised to outperform throughout the easing cycle – especially as confidence improves and the believability factor increases. … we believe the Bank of Canada proactively entering the easing cycle early could be a clear catalyst for our long-awaited Canadian “catch-up” trade”
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Diversion: Quiet Compounding – Housel, Collaborative Fund