Low quality ‘junk’ rally underway in Canadian equity market

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

Scotiabank strategist Hugo Ste-Marie identified a junk rally in Canadian markets,

“Canadian equities – a quant ‘junk’ rally under way. In case you missed it, our latest quant note pointed out that a junk rally was under way, with low Quality/low Growth stocks easily outperforming their respective top Quality/top Growth peers over the past few months. That makes it harder for us and clients to beat the benchmark. In fact, when we look at our Canadian large cap model portfolio, the recent underperformance does not come from sector allocation but rather from stock selection almost exclusively. While the percentage of stocks outperforming the TSX this year seems healthy at 47 per cent, near the historical average of 50 per cent, it goes down fast (34 per cent) if you take out gold equities, making it much more challenging for investors to beat the benchmark”

“Junk rally underway in Canada (Scotiabank)” – (charts) Bluesky

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Toronto real estate transactions are few and far between even though improving. BMO senior economist Robert Kavcic discussed options on what happens next,

“Toronto home sales were up 10.9 per cent year-over-year, which points to a fourth straight month of solid month-over-month gains on a seasonally adjusted basis. Of course, the starting point here was extremely low for Toronto, and sales remain well below the past-decade average. A wide bid-ask spread, so to speak, has kept the market from clearing and has left listings to go stale. Three things could close that gap: Forced selling: A serious recession, job loss and delinquency would force ask prices down (see the U.S. in 2009). We’re not seeing that, and we don’t want to. Lower mortgage rates: Our arithmetic suggests that rates down in the low-3-per-cent range would get things moving again, but we’ll be hard pressed to get there even with another 50 bps of Bank of Canada easing. It would take more. Price cuts: Ultimately this is the channel that is going to clear the market, but the process has been slow. Prices are down 5 per cent year-over-year for single-detached and more than 8 per cent year-over-year for condos, and some further reductions would likely help get deals done”

“Toronto housing transactions picking up (BMO)” – (research excerpt, chart) Bluesky

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RBC Capital Markets analyst Maurice Choy reviews performance in the domestic utilities sector,

“After underperforming the S&P/TSX Composite index for the previous two months, the Canadian regulated utility sector outperformed in July in spite of a slight increase in the 10-year Government of Canada bond yield to 3.46 per cent (up 18 basis points in the month). Stock-wise, we saw broad strength across the sector (AQN at up 4.9 per cent, FTS at up 4.3 per cent, EMA at 4.3 per cent) on a total return basis, with H being the only negative returning stock (down 0.1 per cent) over the last month. Topics that were of interest to investors include: (1) our expectations of the Q2/25 results (please click here); (2) the favourable change in sentiment relating to FTS, in light of data center themes in Arizona and the filing of a formula rate plan by TEP; (3) the remaining catalysts for EMA following the stock’s recent outperformance, including a potential rate application by NSPI and the closing of the NMGC sale (which has been delayed to early 2026); and (4) the near-term outlook for H, including the company’s anticipated filing of a new Joint Rate Application (JRAP) in the fall of 2026”

Mr. Choy has outperform ratings on South Bow Corp, Enbridge Inc, TransAlta Corp, AltaGas Ltd, TC Energy Corp, Brookfield Infrastructure Partners, Capital Power Corp, Gibson Energy Inc, Pembina Pipeline Corp, Emera Inc and Keyera Corp.

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Bluesky post of the day:

Diversion: “Mathematicians Startled by 17-Year-Old With Uncanny Abilities” – Futurism