Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
CIBC economist Andrew Grantham found underlying weakness for the Canadian consumer,
“Stronger-than-anticipated household consumption has accounted for the entirety of the upgrade to the BoC’s GDP forecast since the start of the year. However, cracks are starting to show, with the recovery in services consumption stalling at a level still below its pre-pandemic trend, and households starting to fall behind on some of their debt repayments. Because of that, consumer spending is expected to see little growth over the balance of 2023 and into 2024 … The level of consumer spending, particularly in per capita terms, remains well below the trend it was on before the pandemic and relative to the 2017 rate hiking cycle… the rotation of consumer spending away from goods and back towards services that everyone was talking about before interest rates headed higher, has not fully happened … While bankruptcies remain historically low, proposals have risen above their pre-pandemic level even on a per capita basis. The proportion of indebted households that are behind with their monthly payments remains fairly low by historical standards, but that the fact that could reflect many mortgages have yet to be reset at higher interest rates. The proportion of loans in arrears for other types of consumer loans have generally risen more and most are now at levels above pre-pandemic norms”
“Canadian consumer: Cracks beginning to show” – CIBC Economics
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Goldman Sachs chief U.S. equity strategist David Kostin made an interesting discovery about U.S. stock market performance attribution,
“The share of the typical S&P 500 stock’s return explained by micro factors has risen sharply to 71 per cent from 41 per cent a year ago. Macro factors account for the balance. Falling stock correlation has outweighed receding volatility and return dispersion has risen near the long-term average. Options pricing reflects expectations for high return dispersion in the near term. A micro-driven market typically means more opportunity for stock pickers to capture alpha. The best stock picking opportunities arise in sectors where returns are driven by micro factors and the typical company in the sector carries a high level of firm-specific risk. We highlight 25 stocks likely to generate the largest alpha from either a long or short perspective "
The names on the list most likely to interest Canadian investors include Moderna Inc., Netflix Inc., Norwegian Cruise Lines Holdings, Paramount Global, Bath & Body Works and Tesla Inc.
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Scotiabank strategist Simone Arel recapped the S&P/TSX Composite earnings season so far,
“Turning to Canada, we’re halfway through the TSX Q2/23 reporting season, with 57% of companies having reported to date. Numbers are coming in weaker than in the U.S. so far, with a 3.9% miss (at $330) to July 13 estimates ($344) and a 59% beat ratio. At the index level, Resources (Energy -13%; Materials -3.2%), Utilities (-15%), Communication (-6.0%), and Financials (-3.2%) delivered disappointing results so far. Meanwhile, Tech (+13%), Discretionary (+11%), and Industrials (+1.5%) beat estimates, with Real Estate (+0.0%) and Staples (-0.1%) coming more in line. On a YoY basis, Resource (Energy -51%; Materials -46%), Utilities (-12%), and Communications (-10%) are posting double-digit EPS contraction. Looking forward, Q3, Q4 and Q1/24 TSX EPS estimates continue to trend lower”
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Diversion: The Mystery Genes That are Keeping You Alive – Wired