Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
CIBC technical research analyst Sid Mokhtari took a look at the domestic REIT sector,
“The technical charts for the TSX REITs index (measured by XRE and ZRE ETFs) are beginning to show early signs of positive traction, with the index stabilizing near its 200-day average. It is our technical opinion that the sector can be best described as a range-trader with no real evidence yet of developing directional signals. It would be reasonable to suggest investors should approach the sector with an active and selective strategy to produce alpha, not a passive nor collective one. Our technical work for the REITs sector shows that investors should be patient and only use periods of deeper retracements to accumulate – patience is a virtue… Sector breadth indicators are still on the weaker side and have not yet improved … From a trend metrics perspective, over 70% of the sector are signaling short- to medium-term downtrend patterns … Our technical chartwork for the TSX REITs ETF (XRE) shows that while the sector may be exhibiting some early signs of traction (at the time of writing $16.42), better technical support is seen closer to $15.50-$14.60 levels (the lower Bollinger bands), reflecting 6-per-cent to 10-per-cent downside risk.”
My main takeaway here is that REITs as a whole are not oversold to the point they can be bought blindly.
Mr. Mokhtari sees Choice Properties REIT, Smartcentres REIT, Northwest Healthcare Properties REIT and H&R REIT as oversold.
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Morgan Stanley global strategist Andrew Sheets provided a succinct summary of his forecasts for the months ahead,
“The next several months see the weakest DM [developed market] growth, the most risk to US EPS and the biggest uncertainties for liquidity through end-2024. Own the DXY [trade-weighted U.S. dollar] and DM high-grade bonds for defense. Play offense in Asia equities, where better macro dynamics support double-digit upside. Commodities lag”
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BofA Securities Research Investment Committee (RIC) argued that the 60/40 portfolio is all-but dead, according to BofA’s weekly ‘Must Read Research This Week’ summary,
“The old ‘60/40′ is on the verge of another lost decade. A conventional model portfolio of 60-per-cent stocks and 40-per-cent long-term government bonds endured one of its worst years ever in 2022, as US stocks lost 18 per cent and long-term US Treasury bonds lost 31 per cent. Jared Woodard and the Research Investment Committee warn investors of concentration and correlation risks in the S&P 500, with only 9 stocks making up 30% of the index, most of them in the tech/growth sectors. Thirty years ago, the S&P 500 was a well-diversified index and stocks were only 10-12-per-cent correlated to each other. Today, correlations are often 50 per cent, rising as high as 80 per cent. To combat some of these risks, Jared stresses the importance of active asset allocation and the team flags liquid ETFs as a way to help diversify equities. As for bonds, he recommends a Dynamic Prudent Yield strategy that goes beyond Treasuries and Investment-Grade bonds, adding munis, preferreds and convertibles to one’s portfolio.”
Canadian investors, who do not have the same options for the tax-advantaged fixed income component, can hope BofA is incorrect.
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Diversion: “Killer Whales Are Not Our Friends”- The Atlantic
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