In this edition of Market Factors, I’ll outline two market trends that could lead to risks for domestic investors and then discuss evidence that the U.S. onshoring trend is ahead of schedule. The diversion discusses a new report about etiquette coaches for Gen-Z employees and we’ll look ahead to data releases for the coming week.
Sam Edwards/Getty Images
Finance industry
Watch out for two kinds of mining deals
There have been times when I’ve defended the finance industry from claims of venality here in the newsroom but today I will do the reverse and warn readers of two ways the industry may not be working in investors’ interests.
The first case involves gold. It is no secret that bullion is rallying – it’s up 84.3 per cent in the past three years compared with 62.2 per cent for the S&P 500. The problem is that the quality of new issues and secondary offerings declines the longer the rally continues.
Investors who don’t already own gold are afraid of missing out and getting in too late. Investment bankers are well aware of this. Because bankers’ fiduciary duty is to their corporate clients and not investors, the risk that investors buying newly issued stock receive lower and lower quality assets (in terms of balance sheets, operating risk or profitability for example) increases.
China’s threat to stop exports of rare earth metals brings up the second risk for Canadian investors. There is the possibility that investors will be approached with private deals (not backed by a major investment institution) to fund the mining of rare earth materials in the Canadian north.
In these cases, investors should be aware that processing of many rare earth metals is extremely damaging to the environment – that is the main reason processing is done in loosely regulated China – and may not be permitted domestically.
I would also like to remind investors that the Canadian north is vast and generally bereft of infrastructure. I don’t doubt that a rich deposit of tellurium exists somewhere up there, but investors asked to help fund mining it should make sure there’s a road within 500 miles and at least faint hopes of electricity and fuel.
I may (or may not) have seen examples of poor-quality gold miner stock issuance and the selling of shares in highly speculative rare earth properties during my time in finance. I definitely believe investors should be careful about stock sales in both sectors.
Trends
Onshoring accelerates
Morgan Stanley has released a report suggesting the U.S. onshoring trend is happening faster than expected, with industrial stocks already profiting.
Morgan Stanley global director of research Katy Huberty publishes a weekly Charts That Caught My Eye report, highlighting her picks for the most interesting and relevant research issued at the (giant) company.
In the most recent edition, Ms. Huberty cites a report from the industrials team noting that manufacturing construction starts are proceeding at twice the pre-Covid run rate. The average cost of new projects is now at a 12-month high. Analyst Christopher Snyder sees activity ramping higher in the next few months as tariff clarity clears the runway.
Mr. Snyder’s top reshoring picks are Eaton Corp. (ETN-N) and Rockwell Automation Inc. (ROK-N).
An illustration of Generation Z workersfreemixer/iStock
Diversions
Are Gen Z really this bad at work?
Gizmodo cited a San Francisco Standard report describing the new phenomenon of etiquette coaches lecturing Gen Z employees on basic civility in the workplace. Stuff like showering regularly, not expecting a promotion to upper management after six weeks, to avoid asking the CEO to go get them coffee, that kind of thing.
I can’t figure out how much of this is true and how much is a meme. Like most people, I’ve heard the horror stories – one of the first featured a parent accompanying a Gen Z prospect to a job interview – but the anecdotes now are starting to sound like a running joke. Please forward any related firsthand experiences. I can be reached at sbarlow@globeandmail.com.
The essentials
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Globe Investor highlights
Elon Musk’s companies are at risk as the billionaire reignites a feud with Donald Trump
The biggest U.S. banks are are hiking dividends and announcing share buybacks after acing stress tests
Dan Hallett has done a deep dive to find out whether covered call strategies actually do shine in flat markets
What’s up next
The data calendar remains “dog days of summer” light. Domestically the international merchandise trade result for May is out Thursday (a deficit of $5.98-billion expected) and the S&P Global Canada services PMI for June will be released Friday. No major corporate releases are on tap for the next week.
The Americans are scrambling to get the important economic releases out before July 4. Thursday will see change in non-farm payroll for June (110,000 new jobs forecasted), average hourly earnings for June (a 0.3 per cent month-over-month rise expected) and ISM services index for June (50.7). Wholesale inventories for May will be announced on July 9th.
See the full earnings and economic calendar here
Are you a Canadian retiree involved in an investment club to help keep busy and boost your market knowledge? The Globe is doing a story on investment clubs for retirees. If you’re interested in being interviewed about your club, e-mail reporter Brenda Bouw at: bbouw@globeandmail.com We look forward to hearing from you