Barlow’s Research Roundup: Strategist identifies the rally killer, headwinds for telecoms

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

Bond yields will end the rally

BofA Securities investment strategist Michael Hartnett identified the culprit that will end the market rally in his weekly Flow Show report,

“Zeitgeist: “Buy on the cannons, sell on the trumpets,” Baron Rothschild. The Price is Right: central banks & bonds to end speculative price action... but not happening yet... global rate cuts (31) still outpacing hikes (12), real policy rates in Japan & Korea negative (why Nikkei & Kospi soaring as yen & won collapse), and traders happy to front-run bubble until new Chair Warsh forced to enact tightening of financial conditions. Tale of the Tape: S&P 500 index at new highs but just 21 stocks (4 per cent of SPX) making new highs (was just 20 stocks at internet bubble Mar’00 top); EM leadership even more narrow... 2 per cent of stocks (21 of 1224) currently at all-time highs; back to SPX, 222 stocks currently trading greater than 20 per cent below their highs, 109 trading more than 40 per cent below highs... best performers next 12 months likely to be unlevered, opportunistic, ‘diamonds-in-rough.’

“The Biggest Picture: post-bubble investor roadmap since 1929 is long bonds (10-year yield down 50bps in 6 months after big market tops), and long defensives and/or equity sectors/styles which dramatically underperformed in last months of the bubble – the classic ‘long humiliation, short hubris’ trade”.

Trouble for telecoms

RBC Capital Markets analyst Drew McReynolds outlines the difficulties faced by domestic telecoms,

“Despite further wireless penetration gains, some core price increases and the emergence of incremental revenue streams (enterprise, IoT, home automation etc.), we continue to expect the revenue recovery for the industry in 2026 to remain gradual reflecting minimal population growth, elevated wireless promotional activity in Q1/26, regulatory measures, ongoing substitution (telephony, television) and macro headwinds. Until proven otherwise, we expect what looks to be a maturing Canadian telecom

industry in a low revenue growth environment warrants greater emphasis on lowering the cost to serve to drive FCF, improve ROIC and sustain/enhance capital returns. We continue to view sector valuations as reasonable … Given the current price of wireless and Internet services in Canada versus many global benchmarks and relative to the rising prices of most other consumer discretionary and non-discretionary products and services, we believe Canadian telecom policy has reached or even crossed the tipping point whereby Canadian telecom operators are notably less incentivized to invest, and equally consequential, public market investors are notably less interested in owning Canadian telecom stocks in turn driving up the cost of capital for telecom operators, which only further raises the hurdle rates for telecom investment. While from a telecom policy perspective (or any policy perspective) it is hard to argue with a consumer affordability agenda, we see a growing disconnect between the price of wireless and Internet services in Canada and what arguably has become one of the most (if not the most) important consumer value propositions (i.e., connectivity) across all discretionary and non-discretionary consumer spending buckets”

Keep an eye on corporate bonds

The lack of value in corporate bond markets is something for investors to check up on every once in a while. Issues in corporate bonds can contaminate equity performance quickly. RBA Advisor strategist Michael Contopoulos outlined the current state of play,

“The U.S. economy is stronger than widely perceived. Despite tariffs, geopolitical conflict, and what appears to be late-cycle dynamics, profit growth remains positive and liquidity continues to be supportive. Inflation is moving higher, not lower, while labor market data remains exceptionally strong. In fact, we haven’t seen jobless claims this low since the ‘Guns & Butter’era of the 1960s, despite today’s much larger labor force.

"Yet recent market narratives have focused on something far narrower: a handful of mega-cap artificial intelligence (AI) beneficiaries and expectations for Federal Reserve (Fed) easing. In our view, this disconnect is not being driven by fundamentals … If underlying economic and profit conditions remain resilient, why have investment-grade corporate bonds (IG corporates) delivered such weak returns? Since Q4 2025, IG corporates have returned negative 0.2 per cent and are down 1 per cent this year … With spreads at historic tights and rates moving higher, there is limited room for price appreciation.

“As the old fixed income saying goes, ‘The path to hell is paved with carry.’ When corporate spreads are this tight, picking up pennies in front of a steamroller isn’t prudent”

Bluesky post of the day

Diversion

“The estate of Michael Jackson family won’t be happy with this new Netflix documentary” - Gizmodo