Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
BMO REIT analyst Michael Markidis titled his Monday research report It’s Time to Begin, Isn’t It?,
“The S&P/TSX Capped REIT Index was +4.3% for the week ended August 23. All 16 index constituents ended the week in positive territory, lead by NWH (+10.8%), GRT (+5.4%), and AP (+5.0%). Performance was boosted by (1) the release of the July 30-31 FOMC meeting minutes on Wednesday, followed by (2) Chair Powell’s speech at Jackson Hole on Friday, which declared ‘The time has come for policy to adjust.’ . June 2024 Real GDP will be released by Statistics Canada this Friday (August 30), setting the stage for the next BoC policy rate announcement next Wednesday (September 4) … The Index yield spread has compressed, but is still close to the LTA [long term average]. The S&P/TSX Capped REIT Index has gained 16.3% in the last nine weeks. The 10-year GoC is down by only 30bps during this time frame. Multiple expansion has been a bigger contributor, as evidenced by the 80bps decrease in the simple-average FTM [forward twelve month] FFO yield spread, which now sits at ~500bps vs the LTA of ~550bps. Earnings outlooks for multifamily REITs have improved significantly over the past year’”
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Scotiabank strategist Hugo Ste-Marie seems right on the verge of a bullish view on domestic bank stocks,
“Canadian Banks: After Two Years of Sideways Activity, A Breakout Might Be Coming
While the TSX Composite is trading near its all-time high, the TSX Banks index remains almost 14% below its peak. As illustrated in our Chart of the Day, every major rebound in the TSX Bank index since the summer of 2022 stalled around 4,150. However, the sector has started to trade slightly above that zone with the index closing at 4,173 yesterday. It’s probably too early to call that a clean breakout, but If CDA banks’ FQ3 reporting season is decent (numbers in line or better + stabilization in PCL, etc.) and the BoC easing continues, the 2+ year ceiling of 4,150 could finally be overcome. We have been underweight the sector for quite some time, but maybe it’s time to warm up to the space again. Let see how the reporting season goes”
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J.P. Morgan strategist Alexander Wise made some discoveries about economic growth and equity market returns,
“We find that higher economic growth is associated with higher equity returns in DM, but not EM. Higher returns are observed both outright and also relative to other countries. In DM, a 1% increase in long-term real growth came with ~3% higher long-term equity returns on average … About half of the return impact of higher growth in DM comes from higher earnings growth. Slightly less than half comes from higher valuations. The rest is from currency strengthening. However, as we have previously shown, long-term growth forecasts come with large forecasting errors. We see no relationship between forecast growth and actual returns. Actual returns are also unrelated to recent past growth. Being mindful of the difficulties forecasting long-run growth, the results suggest it would still be reasonable for an investor to incorporate any high conviction views about growth or growth differences into their asset allocation process”
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Diversion: “Have supermarkets reached peak self-scan?’ – BBC News