Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
BMO chief investment strategist Brian Belski recommended a higher-risk strategy,
“We continue to believe investors should be utilizing Canadian small cap equities for value and GARP equity positions with a tilt toward traditional cyclical areas of the market. Although we continue to advocate cautious selectivity in small cap versus large cap equities given the macro landscape, we believe there are many strong GARP opportunities that exist within the small cap universe. In fact, Canadian small cap stocks currently offer attractive value in a value market, while earnings expectations have already started to rebound from trough levels seen in the first half of the year. Overall, we believe as interest rates AND recession fears fade, so too will concern around earnings, providing the key catalyst for further valuation re-rating and broadening of market performance. Interestingly, our models show that small cap cyclical areas (Consumer Discretionary, Industrials, and Technology) offer both strong relative value and forward growth profiles above their large cap peers”
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In many cases, U.S. fixed income is not a good tax-friendly investment for domestic portfolios, but RB Advisors’ recommendation to buy TIPS is an interesting indication of market conditions,
“Real Yield (TIPS): Treasury Inflation-Protected Securities (TIPS) currently offer compelling value with 10-year real yields at approximately 2.5 per cent. This is the first opportunity investors have had to lock in real returns above 2 per cent since the Financial Crisis and the top 25th percentile of yield since TIPS were first issued in 1997. Despite increased nominal yields and inflationary pressures — particularly given a 34-per-cent surge in oil prices since June — inflation expectations have remained relatively stable. If inflation expectations were to rise, TIPS could experience a significant increase in returns. Conversely, if nominal yields were to decrease while inflation expectations remain steady, TIPS returns could be on par with those of Treasuries”
“Opportunities in fixed income” – RB Advisors
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CIBC economists Andrew Grantham and Katherine Judge assessed the effects of immigration on rental costs across the country,
“Many different opinions have been expressed surrounding the economic impact of immigration on the Canadian economy, meaning that deciding what to believe is difficult. Is the rapid rise in the population driving inflation, not just in housing, but in other areas as well? Is immigration responsible for the decline in per capita GDP, as we place too much focus on bringing in additional labour, rather than trying to raise productivity? We challenge some of these assumptions with the use of provincial level data and conclude that, even though population growth is having a clear effect on housing costs, there is far less evidence that it is impacting wider inflation or watering down per capita GDP. In fact, the reverse is true in some areas of the country, with immigration helping to grow some provincial economies even in the face of aging populations… Three of the provinces that have seen the strongest increases in population since 2019 have also seen the biggest rise in housing costs — PEI, Nova Scotia and New Brunswick. While Alberta is a bit of an outlier because it too has seen rapid population growth, the economy there was suffering more than others before and during the pandemic when oil prices were low”
There are some excellent charts in the report for those who click through.
“What to believe? Using provincial data to assess the economic impact of immigration” – CIBC Economics
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Diversion: “There’s another company that will clone artists’ voices. This is getting weird.” – A Journal of Musical Things
Scott Barlow