Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
Citi economist Veronica Clark published a report Friday on the Canadian economy entitled The looming threat of a too-hot housing market,
“There has been one notable, if slight, addition to recent [Bank of Canada] communications – ‘early signs of excess exuberance’ in a very-strong housing sector is increasingly becoming a concern for the BoC … Since [November], a renewed climb higher in prices and sales has increased concern that demand could be partly fueled by speculative behavior, as was the case during 2016-17. Home sales reports over the last few months have consistently shown rising demand outpacing new supply and resulting in substantial price increases… Measures of supply versus demand in the housing market (the ratio of sales to new listings for instance), which tend to lead price increases, are undoubtedly higher than in the 2016-17 period. Unlike in 2016-17, however, strength in housing is largely broad based across Canada … The BoC often discusses how a too-hot housing sector poses financial stability risk. A rapid ramp-up in activity and prices is unlikely to be sustainable and could entail a rapid correction, with falling house prices leading to a decline in household wealth and jeopardizing the ability of households to pay debts … In the near term, the BoC, like us, is likely waiting and watching the housing data to see how strength plays out over the coming months. Measures to directly affect the housing market without broader economy-wide implications would be more likely to come from the federal government than the BoC. There have been a number of possible new measures floated, including a foreign buyers’ tax or a “house-flipping” tax, which could be included in the upcoming 2021 Budget.”
“@SBarlow_ROB “Canada Economics Weekly: The looming threat of a too-hot housing market” (Citi) – (research excerpt) Twitter
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Scotiabank strategist Hugo Ste-Marie published Here’s Why You Want to Own Canada Monday morning,
“Let’s face it, despite some recent outperformance, Canadian equities have performed poorly relative to their US peers over the last decade. However, the last time we hit such levels of sustained underperformance, the 2000-2010 TSX outperformance cycle was about to start … Canada is also expected to rebound strongly, with consensus calling for GDP growth of 5.3% this year and 4.0% next year. That bodes well for the TSX, which generated just shy of 60% of its sales outside Canada between 2017 and 2019 (i.e. pre-pandemic years). To provide some perspective, foreign sales account for just over 40% of the S&P 500 total revenues, making the TSX more of a play on global growth … More recently, however, we note a sharp reversal in the relative earnings momentum, where Canadian forward earnings are now rising faster than their US peers the reversal appears mainly driven by the acceleration in commodity prices. Hence, if commodity prices continue to trend higher as we expect, the TSX should maintain its nascent earnings leadership over the S&P 500.”
“@SBarlow_ROB From BNS’ s “Here’s Why You Want to Own Canada”' – (research excerpt) Twitter
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Goldman Sachs U.S. equity strategist David Kostin warned investors in U.S. stocks that “The Taxman Cometh” (my emphasis),
“Although details of the administration’s next fiscal plan have not yet been released, our economists currently expecta package that will include at least $2 trillion in infrastructure spending and could reach $4 trillion if it also funds health care, education, and child care initiatives … The tax plan proposed by President Biden in his election campaign would raise the statutory corporate tax rate on domestic income from 21% to 28%, partially reversing the cut from a rate of 35% passed in the 2017 Tax Cuts and Jobs Act. The plan would also raise the tax rate on foreign income … We estimate the Biden tax plan would reduce 2022 S&P 500 EPS by about 9%.However, our economists believe Congress will pass a smaller increase. Our current $197 EPS estimate assumes the statutory rate rises to 25%, representing a 3% drag on earnings.”
“@SBarlow_ROB GS: ‘the Biden tax plan would reduce 2022 S&P 500 EPS by about 9%”” – (research excerpt) Twitter
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Diversion: “How Many Slaps Does it Take to Cook a Chicken? This YouTuber Built a Slapping Rig to Find Out” – Gizmodo
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