This Market Factors starts with a bullish strategist arguing recent market behaviour is entirely rational and it’s time to buy selected stocks. A Citi analyst then provides a wakeup call regarding the necessity of fossil fuels for the global economy despite gains in renewable power. The diversion is a lament for a TV season that seems over already and we have quick hits as always.
A trader works on the floor at the New York Stock Exchange.Brendan McDermid/Reuters
Equities
History says markets set to rally
The sizeable finance corner of my social media is rife with industry professionals wondering at the markets’ relative calm despite the Middle East conflict and soaring fuel prices. JPMorgan global strategist Mislav Matejka is not surprised and believes even the marginal volatility of recent days represents a profitable buying opportunity for investors.
The MSCI World Index as of early Monday was down 7.3 per cent since the Feb. 25 highs, and while this is discomfiting for investors it’s far from a market apocalypse. Mr. Matejka points to precedent to argue that current market behaviour is not inconsistent with previous periods of military conflict and higher gasoline prices.
The strategist notes that global markets have climbed roughly one per cent on average when oil prices spike 50 to 60 per cent in a short period of time. The S&P 500 has averaged gains of about 7.0 per cent for the six months following a 50 per cent move in crude prices and 14 per cent over a 12-month period. No sensible person would suggest that high oil prices causes equity rallies but history makes it clear that price spikes do not halt rallies for long. The consistent pattern has been an initial equity selloff as the crude price jumps, followed by a rally in the ensuing months.
The oil intensity of developed world economic growth – the amount of crude needed for each unit of growth – has declined sharply since the middle of the 20th century and this is a big reason for the subdued market reaction to the Middle East conflict. U.S. energy consumption as a percentage of GDP, for example, has fallen from just under 14 per cent in 1950 to about 4.0 per cent now.
Rising oil prices are inflationary and the rate hike expectations for central banks, including the Bank Canada, have increased. However, higher fuel costs also limit spending elsewhere and thus curb economic growth.
Mr. Matejka thinks it’s unlikely that central banks will raise rates significantly as economic growth slows. He is finding bonds, whose yields have climbed with rate hike expectations, more attractive as a result.
The strategist grants that Israel’s bombing of Iran’s South Pars gas field is an escalation in the conflict and the peak of volatility may still ahead. He thinks it’s time to buy stocks in select sectors nonetheless. With a focus on European and Asian stocks, he believes semiconductors, industrials, and consumer cyclicals are oversold to bargain levels.
There are no signs that AI-related demand for semiconductors is slowing and JPMorgan likes South Korea’s Samsung Electronics and SK Hynix. Other names on the strategist’s top picks list that might interest Canadian investors include Siemens AG, power provider SSE PLC., Alstom and luxury goods retailer Cie Financière Richemont.
Mr. Matejka’s optimism extends to the Magnificent Seven stocks. He indicates that the group went from a 1.8 times forward PE ratio premium to 1.2 times and they now offer upside.
Oil sector
Energy investors asking the wrong question
Investors are looking for value in the energy sector by asking what oil or gas price is reflected in the stock value. Citi analyst Alastair Syme thinks this is the wrong question and what’s actually happening is that investors have been reminded that oil and gas are still vital assets in the global economy.
Mr. Syme pushed back on the idea that energy stocks are just a proxy for the commodity price. He points out that the sector dramatically outperformed a falling oil price in 2025.
The analyst calculates that with a long-term perspective, integrated oil and gas stocks reflect a 0.5 per cent annual profit growth rate. Longer-term oil and gas demand, however, is projected at a much more robust 1.4 per cent annually. On this basis the sector is cheap.
If we accept this argument then Scotiabank energy analyst Kevin Fisk’s Thursday report, “Identifying Opportunity in Volatile Times” is, well, timely. Using fee cash flow yield as his primary metric, the analyst provided his top picks for both falling and rising commodity prices in the short term.
The more defensive oil names Mr. Fisk prefers are Cenovus Energy Inc., Whitecap Resources Inc. and Ovintiv Inc. Each of them reflect a lower long-term commodity price and have operational catalysts to unlock value. The more aggressive picks have, in his words, “the highest torque to oil prices”: Strathcona Resources Ltd., International Petroleum Corp., Baytex Energy Corp. and Athabasca Oil Corp.
Mr. Fisk’s top picks in natural gas are Topaz Energy Corp, which has exposure to some of the highest-margin properties in Canada, Spartan Delta Corp., his top growth name after strong drilling results, Peyto Exploration and Development Corp. and U.S.-traded Expand Energy Corp. Vermillion Energy Inc., which has healthy exposure to spiking European natural gas prices, is also a top pick.
This image released by HBO shows Emilia Clarke in a scene from the series finale of "Game of Thrones."HBO via AP
Diversions
Why does it feel like the TV season is over for 2026?
The first quarter is not even over and it feels like television is done for the year. The Pitt, now my favourite watch even if it’s taking a dark turn, has a few more episodes to go but the new Game of Thrones show and Industry are both finished.
In the case of Industry, the end of the season was somewhat of a relief. All the characters are now miserable, humorless and alone. Two characters I liked most have exited the show in complete and disturbing disgrace. I will watch the final season next year but Industry has become much more a show to be admired than enjoyed.
I asked Co-pilot to list the most anticipated shows for the remainder of the year and the results were uninspiring. House of the Dragon isn’t my thing, nor is Euphoria or Bridgerton. Ted Lasso has definitely made a cultural contribution but I’m not interested in the upcoming season.
3 Body Problem is the one show I’m waiting for impatiently. The first season was extremely well done – intelligent and thoughtful. I read all the books because they were bestsellers in China forever and the next part of the story should be interesting.
The essentials
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Globe Investor highlights
David Berman makes the argument for bonds in this difficult investing environment
Ken Fisher on why there’s plenty of good reasons to stay bullish on the TSX
Canadian investors loaded up on margin debt just before the Iran war
Quick hits
International investors are buying more Canadian equities than they’re selling for the first time in four years. Statistics Canada released a report on foreign transactions in domestic assets in January showing foreign investors bought a net $5.7-billion in equities and $51.3-billion in fixed income. Scotiabank strategist Simon Fitzgerald-Carrier believes that the TSX outperformance of the S&P 500 last year will result in more buying of domestic stocks.
The Nasdaq, Dow Jones Industrial and S&P 500 all started Friday trading right at their 200 day moving average trendline. The 200 day average is an important one – technicians use it to determine if the stock is in a long term uptrend or downtrend. At the end of the week’s trading, all three indices had knifed through the 200 day line without hesitating which is not a great sign.
RBC Capital Markets bank analyst Darko Mihelic is constructive on the sector, expecting core earnings growth of 17 per cent year over year in 2026 and 10 per cent in 2027. This is interesting because stocks tend not to trade on the basic rate of growth but changes in the rate of growth – the vaunted second derivative of growth. The downshift from 17 to 10 per cent is a significant second derivative change and even though 10 per cent profit growth is solid there might be some volatility.
Read this week’s earnings and economic calendar here