Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
BMO Capital Markets chief investment strategist Brian Belski is getting even more optimistic about Canadian stocks,
“According to our models, there has been both a fundamentally driven broadening out of performance and definitive shift toward more cyclical factors in the TSX so far this year. In fact, all eight of our factor profile categories and 40 of the 57 individual factors we follow are outperforming the S&P/TSX year-to-date. This is in stark contrast to 2023 when only 2 of the eight and 17 of the 57 individual factors outperformed the market. This is the sharpest breadth of factor outperformance since 2020. From our perspective, this fundamentally driven broadening out of performance will be a key tailwind for Canadian equities through the second half of the year. Additionally, the Canadian market has seen a clear cyclical shift from value to growth factors. In 2023, the more defensive valuation and capital usage factors were the only factors to outperform. This year, more cyclical factors such as growth (both trailing and forward growth) and high-risk factors have been the top-performing categories. Interestingly, this is the mirror image of US factor performance, where more cyclical factors outperformed in 2023, and now valuation and capital usage factors are top performing categories year-to-date. From our perspective, this is yet another sign that Canadian equities are poised for a strong catch-up trade in the coming quarters”
Mr. Belski recommends a growth-at-a-reasonable-price (GARP) strategy to benefit from the trend. Notable names on his Tactical GARP Opportunities Model Portfolio include (alphabetical order) Brookfield Corp., Canadian Apartment Properties REIT, Celestica Inc., Canadian Natural Resources Ltd., Cenovus Energy, Emera Inc., Equinox Gold Corp., Finning International, Manulife Financial, Magna International, Nutrien Ltd., Royal Bank, Telus Corp., and TC Energy Corp.
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RBC Capital Markets head of global equity strategy Lori Calvasina summed up a U.S. earnings season that is coming to a close,
“On outlooks, the macro backdrop, and demand, we continued to see both positive and negatives highlighted. On the positive side, companies noted more capital raises in biotech, healthy travel demand, less concern about an economic slowdown broadly, resilient consumers, easier 2 nd -half comps, continued tech investment, ramping AI efforts, and reshoring. On the negative side, companies noted weak end markets broadly, cautious consumer spending, inflation and labor pressures, post-COVID normalization, pushback to pricing, the anticipation of higher interest rates for longer, and cautious corporate decision-making. We exit reporting season with the sense that the strength in fundamentals has softened a little … Complaints about uncertainty in Fed policy haven’t been coming up much … Consumer commentary continued to be mixed and have a bit more of a negative tilt than prior quarters. Weakness in the low end vs. resiliency at the high end remained a key theme”
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In a Separate BMO report, senior economist Sal Guatieri predicted the future course of a bottoming housing market,
“April data on Canadian existing home sales out next week should show that sales and prices are carving out a bottom … the market has been in correction mode ever since rate hikes pricked the pandemic bubble. Sales have steadied just below normal levels, while benchmark prices have found a floor after falling 14% from the roof. Given the 54% climb in the prior two years, that’s a fairly painless landing. Regions that flew closer to the sun fell the hardest, but almost all areas are stabilizing now. A lucky few—Calgary, Saskatoon, St. John’s, Moncton—are still climbing the ladder. Three forces will propel the market’s recovery: falling interest rates, an improving economy, and favourable demographics. The population is both growing and skewing younger … The oldest Millennials (43 years) are moving into bigger homes, while the youngest (28 years) are pining to get a foot in the door. Their task will be lightened once rates start to fall, likely this summer. But, unlike after the financial crisis or pandemic shutdown, the expected recovery won’t be V-shaped”
“Canadian Housing: Soft Landing, Soft Takeoff” – BMO Economics
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Diversion: “Isaac Asimov predictions from 1981″ – Marginal Revolution
Scott Barlow