Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
I’m kicking myself a bit this morning.
I wrote a newsletter top discussing the possibility of a mass investor exodus out of bonds and into equities led by risk parity funds. I forgot to mention that the mammoth US$14-billion iShares 20+ Year Treasury Bond ETF is down 5.0 per cent year-to-date as longer term U.S. bond yields rise. If performance remains weak, ETFs like these provide another potential catalyst for equity inflows as investors switch from them to equity ETFs.
“An under-recognized bullish force in equity market” – Barlow, Globe Investor
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BMO economist Benjamin Reitzes puts U.S. inflation pressure in perspective after a weaker than expected reading on U.S. consumer prices,
“Despite all the chatter around upside risks to inflation, U.S. core CPI was notably soft to start 2021, coming in flat from the prior month. The below-consensus result was in no small part driven by the ongoing slowdown in Owners’ Equivalent Rent. With home prices surging, how can this be? A quick peek at the chart and you’ll see that home prices lead OER inflation by about 1.5 years. Assuming home prices continue to press higher, then look for some pass-through to inflation, but not until 2022. Upside inflation risks are brewing, but it’s going to take some time to fully develop.”
“@SBarlow_ROB BMO: “Patience Needed on U.S. Inflation”” – (research excerpt) Twitter
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BofA Securities quantitative strategist Savita Subramanian detailed the recent outperformance of U.S. value stocks, and suggested the trend has a long way to go in light of still-cheap average valuation levels (my emphasis),
“Value leadership continued: all of Value factors we track outperformed the equal-weighted benchmark (+2.7% on avg. vs. benchmark -0.7%), led by Low Forward P/E (+5.3%) and Low EV/EBITDA [enterprise value to EBITDA] (+4.9%), which were also among the top factors overall. On a three-month basis, Value factors are +27.0% (on avg.), beating Growth (+20.1%) and Momentum (+17.1%) factors, and trailing only Risk factors (+36.1% on avg). ... Other reasons we continue to prefer Value: it remains historically inexpensive, and undervalued vs. Growth and Momentum and active managers are still over 20% underweight Value, leaving ample room for further rotation into Value.’
“@SBarlow_ROB BoA: U.S. value rally ongoing, room to run” – (research excerpt, charts) Twitter
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Also from BofA , global quantitative strategist Nigel Tupper sees no end to the global economic recovery and current investment conditions are “The sweet spot in the cycle – improving earnings and accommodative policy – [and this] could facilitate smooth sailing for cyclicals.”
Mr. Tupper recommends his ”global boosters” list of stock picks to benefit from the recovery and Canadian equities are involved. Booster stocks are typically lower quality balance sheets, high beta (move with the market but at larger percentages), smaller market capitalization, outperform when bond yields are rising, and they have earnings growth highly correlated with the economic cycle.
Metro, TC Energy and Fortis are on the global booster list. Other prominent names include Japan’s KDDI and U.S.-based Home Depot, Church & Dwight, Hershey, Amgen, Eli Lilly and Lockheed Martin.
" @SBarlow_ROB BoA: Canadian stocks featured on global booster top picks list” – (full table) Twitter
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Diversion: “Video Game-Playing Pigs Stretch Our Concepts of Animal Intelligence” – Gizmodo
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