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Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow

BMO chief economist Doug Porter reported that the Toronto housing market is softening very quickly,

“One feature in the latest Canadian home sales figures is a quick fall in the key sales-to-new-listings ratio. After averaging a steamy 76% in the past year, the ratio slid to 66% (on a seasonally adjusted basis), which CREA suggests is on the cusp of a balanced market. Notably, the market that reported the lowest ratio in the country just happens to be the largest market — Greater Toronto. The GTA sales-listings ratio plunged to just 45% in April, which is suddenly getting into buyers market terrain. And, it compares to an average of over 70% in the prior 12 months (firmly sellers market). Decades of history show that this ratio is an excellent leading indicator for average transactions prices, leading prices by about three months. And what the ratio is now telling us is that prices are about to go from 20%+ gains to a sudden stall. And that’s assuming the sales/listings ratio doesn’t fall further in coming months”

“BMO: Toronto housing market “suddenly getting into buyers market terrain” (in terms of sales/new listings)” – (research excerpt) Twitter

“The pandemic housing boom is winding down. Economists forecast a 10-20% price correction” - Report on Business


BofA Securities’ popular monthly survey of global portfolio managers uncovered a lot of bearish institutional investors,

“Bottom line: extremely bearish May FMS [fund manager survey] … Highest cash levels since 9/11, biggest tech ‘short’ since Aug’06, biggest equity UW [underweight] since May’20; BofA Bull & Bear Indicator at … contrarian buy level; missing ‘full capitulation’ piece = investors expect rate hikes not cuts; stocks prone to imminent bear rally but ultimate lows not yet reached … Stocks prone to bear rally, ultimate lows not reached … Global growth optimism at all-time low … Investors are very long cash, commodities, healthcare, staples, and very short tech, equities, Europe … "

At first, I was confused by the ‘investors expect rate hikes not cuts” as a sign investors haven’t fully capitulated yet. I think it means that when investors become so pessimistic about equities they start predicting that the Fed has to step in and cut rates, that will be closer to the bottom.

Another note: The extreme bearishness of fund managers is often viewed as a contrarian bullish signal.


Credit Suisse global asset allocation strategist Andrew Garthwaite also sees reasons for more downside ahead for stocks,

“Recession risk remains very high. We believe that US GDP needs to slow to 1% to push up the employment rate in order to slow wage growth sufficiently. This requires a 3.5% to 4% Fed funds rate which, in turn, causes the yield curve to invert in Q4 (leading to a ‘soft’ hard landing in 2H 23). When overall commodity prices have risen this rapidly, recessions have tended to follow… Earnings revisions have started to fall and 71% of the time when this happens, markets fall over the next quarter. Current PMIs [global manufacturing purchasing manager survey indices] imply significant further downside to revisions. We see clear risk of negative EPS in 2023. We think nominal US GDP of 3% to 4% is required to bring US inflation under control, and sub-3% nominal GDP causes EPS to fall… On four occasions in the past 30 years, markets have bottomed after a c19.5% decline from their peak (=3860 on the S&P 500) but, on 3 occasions the Fed eased - we can’t see that happening this time around.”

“CS’s Garthwaite: ‘Earnings revisions have started to fall and 71% of the time when this happens, markets fall over the next quarter”” – (research excerpt) Twitter


Diversion: “Historically cold spring deals another blow to B.C. farmers as crops lag” – CBC

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