This edition of Market Factors starts with timely advice on tax-loss selling, including candidates for buybacks. Section two covers fast money trades on U.S. interest rates that underscore the colossus that is the Treasury market. New music - trip hop no less- is the subject of the diversion, and we have quick hits as always.
Investment ideas
Tax-loss candidates
CIBC analyst Sid Mokhtari published a helpful report identifying tax loss selling candidates. He first noted that the process begins earlier every year, with clients asking for the report starting in September.
Mr. Mokhtari’s report is useful for both conservative investors looking to simultaneously manage tax expense and portfolio risk, and also more aggressive investors looking for bargain opportunities in individual stocks.
The analyst first looks for stocks down more than 20 per cent from their 2026 high (as of Oct. 15), with negative year to date, one month and three-month returns. Historically, these stocks produced negative returns to year-end 60 per cent of the time, underperforming the benchmark by an average of 2.2 percentage points. The same group of stocks outperformed the TSX by an average of 2.4 percentage points in January, with an 80 per cent probability of positive returns.
In terms of nominal performance, the average decline for tax-loss candidates between Oct. 15 and Dec. 15 has been 1.3 per cent in the past 11 years.
Mr. Mokhtari identified 10 TSX 60 large-cap stocks that qualify as tax-loss selling candidates: Rogers Communications Inc. (RCI-B-T), BCE (BCE-T), Gildan Activewear Inc. (GIL-T), Brookfield Corp (BN-T), Intact Financial Corp. (IFC-T), WSP Global Inc. (WSP-T), CAE inc. (CAE-T), Kinross Gold Corp. (K-T), First Quantum Minerals Ltd. (FM-T) and Telus Corp. (T-T).
All of these stocks are listed as buyback candidates once the superficial loss rules are observed (after 30 days in most cases), suggesting they could potentially rally in early 2027. Other buyback candidates include Premium Brands Holdings Corp. (PBH-T), Denison Mines Corp. (DML-T), Stantec Inc. (STN-T), Ivanhoe Mines Ltd. (IVN-T), Pan American Silver Corp. (PAAS-T) and Allied Properties REIT (AP-UN-T)
The report also includes small cap tax-loss selling candidates but cautions that the lack of liquidity for smaller companies can lead to poor selling prices for all but the first investors to sell. Recognizable names on the list include Cogeco Inc. (CGO-T), AGF Management Ltd. (AGF-B-T), Canopy Growth Corp. (WEED-T), Ballard Power systems Inc. (BLDP-T), Platinum Group Metals Ltd. (PTM-T) and Dream Unlimited Corp. (DRM-T).
Bonds
Fast money in fixed income
A Friday research report from BofA Securities equity derivatives analyst Chintan Kotecha highlights the mammoth scale of global debt markets and the speculation that surrounds them.
Mr. Kotecha follows Commodity Trading Authorities (CTAs), the algorithmically driven fastest-of-the-fast money. His report noted that CTAs were beginning to unwind their short positions on U.S. bonds. This includes 10-year Treasury futures, 30-year bond futures and ultra-long bond futures. CTA funds remain short two-year and five-year bonds through derivatives markets.
This next part is the section that made me laugh out loud – there is now roughly US$280-billion worth of positions of derivatives on the U.S. 10-year bond. This implies that short covering activity (in the event it happens during a bond rally) will amount to US$170-billion worth of bond exposure buying for every basis point of a bond rally.
This is an extraordinary amount of money that is merely the measurable speculation value – crumbs - on a bond market that is exponentially larger. These numbers remind me of Carl Sagan talking about the scale of the universe.
Portishead, known for popularizing trip-hop music in the mid '90s.
Diversions
Neo-trip hop
There’s a trip hop revival in the world of music and I couldn’t be happier about it. I was alerted to the trend by Instagram account @theturtlenek who noted four new bands, all of whom are great finds.
Effe is probably the band I like the most. They don’t sound exactly like Massive Attack and Portishead regrettably, but Until June is still a terrific song.
Viko63 is the most entertaining of the recommendations. The lyrics are in German – the one language least suited to the slower pace and smooth sounds of trip hop – but they somehow make it work.
Modheaven is just starting out and their Spotify traffic is negligible. The sound is closest to ‘90s hip hop which means I’m a new fan. The Coast is my favourite song so far.
Officer John is also great. The song Stay is not very trip hoppy but I like it.
At the very least the four bands can make up a great playlist for the background at your next dinner party.
For those who like their music a lot more rage-y, my colleague Tim Shufelt recommended Turnstile. He saw them live recently and jokingly said the energy level was so high that the vibe was “unsafe”. Never Enough is likely to go on my next workout playlist. Be forewarned, it’s heavy.
The essentials
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Globe Investor highlights
Wondering why the loonie hasn’t benefited from sharply higher oil prices? I have some charts that illustrate why
Norman Rothery updates his Dividend Monster Portfolio
Ted Dixon on TSX stocks seeing both insider buying and buybacks
A Q&A with CIBC’s Sid Mokhtari and his fresh bevy of actionable trading ideas
The Fairfax rally has stalled. David Berman is seeing an opportunity here for new investors
Scott Clayton provides a screen of Canadian dividend stocks that should do well even if inflation continues to rise
Quick hits
Investors looking for pie-in-the-sky opportunities in the market need to look no further than Morgan Stanley’s recent report on quantum computing-related semiconductor stocks. Analysts Joe Moore and Ella Tulchinsky estimate a quantum market of US$10-billion by 2030, rising to a potential US$100-billion by 2040. The analysts concede that the investment story is predicated on the development of a commercially viable quantum computer but that doesn’t stop them from putting a US$62 price target on top pick Quantinuum Inc. (QNT-Q) that represents 88 per cent upside from current levels. To be fair that target has been reduced from US$78.
Apollo Asset Management economist Torsten Slok’s daily email last Thursday argued that because AI investments were expected to return more than 10 per cent for the foreseeable future, well above bond yields even after the recent runup, the sector was not susceptible to rising borrowing costs. This thought was met with considerable derision on finance social media and further selling of tech stocks that implied the rumours of tech invincibility were much exaggerated.
Read this week’s earnings and economic calendar here