Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
Management pleas for workers to return to the office have had little effect, according to BMO senior economist Erik Johnson,
“Despite several high-profile ultimatums by companies to bring workers back to the office, the latest Canadian office vacancy figures suggest those anecdotes haven’t become a trend. The national office vacancy rate edged up 10 bps to reach a new record high of 18.4% in 2024Q1. The aggregate trend is masking a significant divergence across building classes, particularly in downtown markets, as class A buildings (basically anything that is new, clean, and green) have vacancy rates 770 bps lower than class B/C buildings. With hybrid work habits proving to be sticky that flight to quality is likely to continue. Supply is starting to react to the shifting demand for office space, as for the first time in several years, no new projects broke ground in Q1. Across cities, Toronto (19.2%) and Montreal (18.1%) continue to deteriorate more than other markets like Calgary (28.0%) and Vancouver (9.5%), which have started to show more stability”
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Citi U.S. equity strategist Drew Pettit highlights recent research reports from his firm emphasizing euphoric investor sentiment and no room for error for popular stocks,
“Last Friday, Levkovich Index (LI) hit euphoria for the first time in over two years. Interestingly, this comes right at the end of another very strong ETF flow month for US equities. However, LI is not a market timing tool, but an important risk/reward indicator we combine with our fundamental outlook and valuation frameworks. Now, a euphoric LI setup and strong market run off late October lows has priced in a lot of good news. This leaves little room for any macro or fundamental missteps, especially in some hotter areas of the market. This coincides with our downgrade of IT to market weight and upgrade of Utilities and Staples up to market weight. Overall, this lessens our -defensives and +growth/cyclical tilts. The IT downgrade aligns with our AI deep dive that stresses broadening exposure beyond US creators/enablers to global names and users of AI”
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RBC Capital Markets equity team made changes to their Canadian small-cap conviction list,
“The Canadian Small Cap Conviction List consists of 20 of RBC Capital Markets research analysts’ highest-conviction names with market capitalizations of approximately <$2 billion at the time of their addition to the list. We expect constituents of our Canadian Small Cap Conviction List, which span a wide array of sectors, to deliver strong absolute returns. In this report, we identify a number of catalysts that we believe could drive our small-cap investment ideas in Q2/24 and beyond. Below is a summary of the Q2/24 edition of our Canadian Small Cap Conviction List: Additions (3): Ag Growth International (AFN); Doman Building Material Group Ltd (DBM); Torex Gold Resources (TXG). Deletions (2): Cascades Inc. (CAS); Tidewater Midstream & Infrastructure Ltd. (TWM). Maintain (17): Cargojet Inc. (CJT); Copperleaf Technologies Inc (CPLF); Coveo (CVO); DRI Healthcare Trust (DHT.UT); dentalcorp Holdings (DNTL); Enghouse Systems Limited (ENGH); Exchange Income Corporation (EIF); Freehold Royalties Ltd. (FRU); G Mining Ventures Corp. (GMIN); Interfor (IFP); Jamieson Wellness Inc. (JWEL); Major Drilling Group International Inc. (MDI); Minto Apartment REIT (MI.UT); Obsidian Energy (OBE); Park Lawn Corporation (PLC); Pason Systems Inc. (PSI); and VerticalScope Holdings Inc. (FORA)”.
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Diversity: “China’s ageing population: A demographic crisis is unfolding for Xi” – BBC
Scott Barlow