Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
CIBC real estate analyst Dean Wilkinson published his monthly survey of the REITs sector,
“While we don’t forecast further rate hikes on the horizon, we believe the measures the BoC have taken still likely require time to push an otherwise resilient economy into a deceleration in price pressures … Growth is expected to be strong across the majority of the sub-sectors, notably Seniors (up 27 per cent) and Domestic Apartments (up 7 per cent), offset by declines in both Office and Diversified … REITs within our coverage universe are trading at an average 15-per-cent discount to NAV, only slightly below the long-term average of an 10-per-cent discount. On a P/FFO basis [price to funds from operations], our coverage universe is trading at 13.7 times, which is effectively in keeping with the long-term average … Time For A Defensive Posturing: Despite the economically sensitive REITs (REI, FCR, and SRU) continuing to trade at the largest valuation discounts within the retail peer group, we believe investor sentiment in 2024 will largely centre around consumers and their financial health, rendering a natural bias towards the more staples-oriented retailers as consumers reduce their allocation to discretionary spending, redirecting it towards household necessities”
Mr. Wilkinson has “outperformer” ratings on Automotive Properties REIT, Brookfield Corporation, BSR REIT, Chartwell Retirement Residences, Crombie REIT, Dream Industrial REIT, Dream Residential REIT, European Residential REIT, First Capital REIT, Granite REIT, H&R REIT, Killam Apartment REIT, Minto Apartment REIT, Morguard North American REIT, Nexus Industrial REIT, Primaris REIT, PRO REIT, RioCan REIT and SmartCentres REIT.
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Goldman Sachs’ Jan Hatzius, arguably America’s most prominent Wall Street economist, still believes the Federal Reserve will cut rates five times in 2024,
“Could the recent outsize strength of the US economy—visible in the 4.1-per-cent GDP growth pace in 2023H2 and the 353k January nonfarm payroll gain—derail continued progress on disinflation? We don’t think so. A broader set of indicators suggest that output is at most growing modestly above trend, the labor market is back in balance, and wage growth continues to trend down toward a sustainable rate. Combined with our expectation that year-over-year core PCE inflation will fall to 2.2 per cent in Q2, we continue to expect five Fed cuts this year, most likely beginning in May. Likewise, the ECB and BoE are likely to start cutting in April and May, respectively, and the hurdle for a faster pace of normalization is low. Our EM views are optimistic for similar reasons, with the notable exception of China, where longer-term headwinds continue to weigh on sentiment. With global growth on firm footing and rate cuts ahead, our market views remain constructive’
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BofA Securities equity and quant strategist Ohsung Kwon discussed the outlook for Canadian stocks,
“The 70′s playbook: TSX for inflation, SPX for disinflation. With disinflation in 2023, the TSX lagged the S&P 500 by 16 percentage points (TSX up 8 per cent vs. SPX up 24 per cent), more than reversing its 2022 lead. This is consistent with the 1970′s inflation regime when the relative performance of TSX vs. SPX moved closely with inflation (86-per-cent correlation in 1986-81 vs. 26 per cent for the full history since 1928). With the near-record growth differential between Canada and the U.S. expected to narrow and much of disinflation already taken place the TSX offers a great entry point at just 15 times EPS … Canada offers a great hedge against [Inflation and geopolitics]. The three historical upcycles in the TSX relative to the S&P 500 occurred during inflationary cycles, and two of those were during wartime: the 1940s (WWII) and 1970s (Yom Kippur + Vietnam) … We believe higher commodity prices will be needed for the TSX to meaningfully outperform the S&P 500″
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Diversion: “Woman’s Obsessive Compulsive Disorder Successfully Treated by Unique Brain Implant” – Gizmodo