Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
BMO chief economist Doug Porter explains how the TSX can hit new highs when tariffs loom,
“Notwithstanding all the concerns about tariffs and a possible trade war, the Canadian equity market is still like a rolling stone—it hit a record high Thursday. The index has managed to overcome the tariff threat, which can be put down to three factors: 1. It’s being pulled along by the upswing in global markets. True, the S&P 500 (and especially the Nasdaq) has struggled this week, but the Dow is within striking distance from its high. And the TSX is much more closely aligned with the venerable Dow. 2. Famously, the TSX is not exactly a direct reflection of the Canadian economy, given its very heavy weights in energy, materials and financials. 3. Finally, it appears that investors just don’t fully believe the trade threats are real. We would suggest that this may be an overly sanguine take”
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National Bank economists Warren Lovely and Ethan Currie also talked tariffs,
“Let’s concede that the precise nature of the GDP, employment and inflation impacts hinge on the magnitude, scope and persistence of any tariff hit. By the same token, the extent and nature of prospective retaliation matters much … Private sector forecasters haven’t totally capitulated on growth. At least not yet. The consensus envisions 1.7-1.8% real GDP growth for Canada this year. The BoC’s new baseline (with no tariffs) falls in this range (1.8%). The IMF, in a recent update, was a bit more optimistic. At NBC, the pre-existing baseline forecast built in 1.4% real GDP growth in 2025, followed by 1.5% advance in 2026 … But risks are skewed lower, perhaps materially so … A comparatively ‘limited’ trade war, with some degree of retaliation, might result in a less-egregious but still-significant hit to Canadian real GDP of somewhere around 3%-pts … Even in Ottawa’s comparatively limited ‘downside scenario’, $9.4-10.6 billion gets added to the annual federal deficit in the coming two fiscal years. Imagine the first-order budgetary impacts if the hit to real GDP was twice (or three times) as large in a legit trade war”
“[In Focus] Tallying tariffs: Growth gaps, bruised budgets & soft(er) spreads” – National Bank Economics
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RB Advisors is deeply concerned about the narrowness of the U.S. market leadership,
“2023/24 was the narrowest stock market since 1998/99’s technology bubble, which in turn was the narrowest market since the Nifty 50 period of the early 1970s. With only three such periods in the past 50 years, narrow markets are the exception and not the rule … Extremely narrow leadership implies a scarcity of growth opportunities, i.e., there are very few companies that can grow. An extended period of narrow leadership, therefore, implies a terrible secular period during which the economy experiences an extended contraction/recession and the resulting scarcity of earnings growth forces companies to lay off workers and decrease capital spending … Diversification was critical to surviving the post-bubble period. Although the narrow leadership dragged down the overall market performance, many sectors posted significant positive returns … Investors seem unduly confident despite the increased potential for volatility after narrow markets. Diversification today is considered a hinderance to performance by many investors rather than a risk reduction tool or one that might shift portfolios toward under-appreciated investments”
“Narrow markets are the exception, not the rule” – RB Advisors
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Diversion: IN PHOTOS | Canadian Geographic’s Canadian Photos of the Year chase the light” – CBC