This upbeat edition of Market Factors starts with renewed optimism in the REIT sector and continues with reasons to be optimistic about the Canadian economy. The diversion covers fascinating research on stress that starts with an African baboon troop. Quick hits includes data on redemptions from U.S. ETFs.
Income investing
Boomers and consumers
CIBC REIT analyst Dean Wilkinson is increasing his return expectations for the sector as it continues to outperform the TSX. He believes we are seeing “the precipice of a healthier REIT market.”
The TSX REIT index’s 16 per cent total return year to date has exceeded the S&P/TSX Composite by four percentage points. Retail REITs were the top performers at 24 per cent, assisted by strong performance of grocery-anchored properties. Industrial REITs were next best at 20 per cent as excess supply is soaked up by demand. Senior’s housing – the favoured sub-sector by most analysts – matched the REIT index’s 16 per cent total return.
Mr. Wilkinson’s year-ahead forecast report published in December predicted REIT sector returns in the comically wide five-to-15 per cent range but now he is adjusting his expectations higher overall. The sector trades with a roughly 6 per cent discount to NAV and an average 4.5 per cent yield leaving ample room for low double-digit total returns for the second half of the year, according to CIBC.
The analyst sees normalcy returning to the sector. By this he means efficient access to capital, income yields significantly above government bonds and attractive risk-adjusted returns for investors.
“Boomers and consumers” is the term Mr. Wilkinson invented for his preferred subsectors. Boomers refers to seniors housing and consumers, unsurprisingly, refers to retail REITs. He expects strong, predictable demand in the former case. For retail, the analyst believes valuations are attractive after an extended period of investor indifference.
In terms of specific recommendations, Mr. Wilkinson likes Extendicare Inc. (EXE-T), Chartwell Retirement Residences (CSH-UN-T) and Sienna Senior Living Inc. (SIA-T) in the seniors housing sector. For retail, he prefers Primaris REIT (PMZ-UN-T), Choice Properties REIT (CHP-UN-T), and Riocan REIT (REI-UN-T).
People take in a Canada Day fireworks show at Woodbine Beach, in Toronto on Wednesday, July 1, 2026.Arlyn McAdorey/The Canadian Press
Economics
Domestic economy: Three reasons for optimism
BMO chief economist Doug Porter sees three reasons for a Canadian economic recovery. Firstly, recent data including real GDP have been reported above expectations and he points to early signs of further growth acceleration in the May and June data. Mr. Porter estimates second quarter growth close to 2.0 per cent.
Secondly is that major industrial projects are taking shape, a trend underscored by plans for a pipeline from Alberta to southern British Columbia. The Carney government had previously announced a ramp up in defence spending.
Thirdly is strength in the domestic equity market. Mr. Porter concedes that the composition of the TSX is not representative of the economy but adds that it nonetheless has historically been an accurate leading indicator for domestic growth. The benchmark’s near-55 per cent gain over the past two years, after inflation, has only been topped three times in the past 65 years.
A baboon yawns in his enclosure while sitting in the sun at the Hellabrunn zoo in Munich, Germany, May 18, 2018.MICHAEL DALDER/Reuters
Diversions
Baboons, stress and a must-watch documentary
A friend recommended the 2008 documentary Stress, Portrait of a Killer and I’m happy they did. The 56-minute video covers research by Stanford neuroscientist Robert Sapolsky on Kenyan baboons. The professor assessed the hierarchy in a baboon troop and measured the stress hormones in the males.
The study found that stress, blood pressure, and heart disease were inversely correlated to where the animal sat on the social ladder. Dominant males carried less stress hormones, more dopamine (the hormone indicating pleasure), their immune systems were less suppressed, and they were far healthier in general.
A separate study on the U.K. civil service found that the baboon research was translatable to humans. Senior civil servants were found less susceptible to heart disease and immune system-related maladies.
Sir Michael Marmot from the University College Medical School believes not only that stress contributes to weight gain, but also the way in which the extra weight is carried. Abdominal fat is often a sign of stress and is less common in dominant macaques and successful humans.
Netherlands professor Tessa Roseboom found that babies born during time of stress, as during famine, are more likely to develop cardiac or cholesterol issues later in life. One year of raising a disabled child was found to cause six years’ worth of aging and this was attributed to higher stress hormones.
There are many more fascinating details about stress, what it looks like and how it affects (and shortens) our lives. Highly recommended.
The essentials
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Globe Investor highlights
The team at Rosenberg Research provide three reasons why they think the Canadian dollar will plummet to nearly 60 cents by the end of next year
David Berman on whether a new pipeline will reinvigorate Canadian energy stocks
CIBC’s chief market technician Sid Mokhtari reveals his Top 10 stock picks for July
Tom Bradley on gold, bitcoin, SpaceX and the dangers of market chameleons
Reuters’ Mike Dolan on Wall Street’s aging bull meeting an ‘everlasting’ U.S. expansion that is one for the ages
Quick hits
As of Wednesday last week, the S&P 500 saw the biggest weekly outflows from U.S.-traded S&P 500 tracking ETFs this year, at US$12-billion. Nasdaq ETFs saw US$7-billion in outflows, a little over 1.0 standard deviation higher than average. Single stock leveraged ETFs, a terrible idea, saw big inflows for Sandisk and Micron Technology funds as investors looked to call the bottom. These results were published by Wells Fargo strategist Ohsung Kwon.
Citi chief U.S. equity strategist Scott Chronert noted that while the VIX (CBOE Volatility) index remains low, the VIXEQ, which calculates the average volatility of all S&P 500 stocks as indicated by options pricing, is steadily moving higher. Mr. Chronert believes this is indicative of a market rotation out of technology.
FT Alphaville’s Robin Wigglesworth cited unsettling research suggesting the equity rally can’t last much longer. Most investors are aware that U.S. equities are expensive based on the CAPE (Case-Shiller PE) ratio, which sits at 41 times. This compares with 1929’s CAPE of 32.6 and 1999’s peak of 44.2. Unlike 1929 and 1999 when earnings growth was in line with historical averages, profit growth now is 1.8 standard deviations above historical trends. Mr. Wigglesworth interprets this as a simultaneous valuation and earnings growth bubble.
Read this week’s earnings and economic calendar here