A daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow.
BMO chief economist Doug Porter discussed the question on most investors’ minds lately in Peak Inflation: Are We There Yet?,
“The answer to the title question is no, not quite, even with the deepening slide in a broad array of commodity prices. The coming June USCPI release is expected to show another meaty monthly rise, probably lifting headline inflation to nearly 9%. And then the yearly comparisons turn a bit more difficult in the summer, as there actually was a brief lull in inflation a year ago. However, the slide in oil prices, in particular, raises the tantalizing possibility that inflation could top out soon, and — more importantly — perhaps even recede faster than expected in the year ahead. Clearly, much more than oil will determine whether inflation is finally close to cresting, but there are a variety of indicators now heading south. However, peaking is one thing; central banks will want to see inflation coming down markedly in the next 18 months … While far from normal, supply chain issues are improving. Some of the most visible signs (ships waiting at sea), and some of the less visible (supplier delivery delays) are backing down to much more normal levels … Some large US retailers are seeing rising inventories … While the levels and the details may differ , almost every major measure of inflation expectations—consumer and business—has lurched unnervingly higher in recent months … Wage gains—while strong and rising—are still trailing well behind headline inflation… Suffice it to say that this is a recipe for hefty wage increases in the year ahead”
“Peak Inflation: Are We There Yet?” – BMO Economics
Morgan Stanley US equity strategist, correctly bearish since late 2021, believes the strong US dollar leaves “unfinished business” for the bear market,
“The dollar’s surge higher amid safe haven demand and hawkish Fed policy presents a headwind for US earnings. US companies in aggregate generate ~30% of sales abroad. The rate of change on the dollar exhibits a strong negative correlation over time vs. S&P 500 earnings revisions. USD strength comes at an inopportune time for corporates already facing margin pressure and increasingly weaker demand. 2Q earnings season should be a negative catalyst for equities in the coming weeks … The sector weights within the 12-month momentum factor have changed significantly YTD and over the past 3 months. Tech’s weight has fallen significantly, while weights in defensive sectors (Staples, Health Care, and Utilities) have risen. In terms of weighting level, Health Care is now the largest sector, followed by Staples, Energy and Utilities. This rotation lines up nicely with our defensive positioning we have been recommending since last November.”
“MS: “Stronger dollar poses another risk to US earnings”” – (research excerpt) Twitter
BofA Securities Global Proprietary Signals analysis provides guidance on when markets might bottom,
“Our leading indicators imply 0% global earnings growth in the next 12-months versus consensus expectations of 9%. A study of prior US recessions reveals that earnings tend to lag market gyrations, inflecting with an average delay of about seven months after the market peaks. So if you are looking for clues to a market bottom, we present a handful of alternatives (margin debt | BAA spread | ISM Manufacturing PMI | earnings revisions ratio | S&P500 stocks at 52-week lows) instead that have a commendable track record.”
Scotiabank strategist Jean-Michel Gauthier detailed the rapid slowdown in Toronto real estate values in a Friday research report,
“June data from the Toronto Real Estate Board highlighted a rapidly decelerating housing market in Toronto. Sales were down 8.7% month-over-month on a deseasonalized basis (-59% from 2021 high) with the median house selling price down 4.2% sequentially as well (-14% from the February 2022 all-time high). Looking at measures of market tightness also reveals rapidly declining buying interest: … The average house selling price as a % of the listing price has plunged back to 100% from an all-time high of 116% hit in February. In other words, as recently as 4 months ago, buyers were engaged in generalized bidding wars that saw the average home go 16% above its listing price. For comparison, that ratio was 95% at the depth of the housing trough in 1995/1996 and 96% at the worst of the financial crisis, while the previous high stood at 111% in early 2017 ahead of the imposition of a tax on foreign. buyers. The average number of days on the market has also sharply risen, albeit from a low base.”
“Scotiabank: “Toronto Housing Market Cooling Fast “” – (research excerpt) Twitter
Diversion: “Can You Cure Mental Illness? Two Centuries of Trying Says No” – The Atlantic
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