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A roundup of what The Globe and Mail’s market strategist Scott Barlow is reading today on the Web

Citibank analyst Maria Semikhatova published a research report early Monday downgrading the Canadian bank sector,

“Historically, performance of the Canadian bank shares correlated with 1 year forward EPS and profitability outlook. Given muted EPS growth expectations (2% in 2020 and 4% in 2021) and further pressure on profitability (Return on equity at 14.1% in 2020 and 13.8% in 2021) we downgrade the sector to Neutral… Following broadly stable margins in 2019 we forecast average [net interest margin] compression of 6bp next year driven by competitive mortgage pricing in Canada and the implemented rate cuts in the US. Coupled with forecast slowdown in commercial loan growth on both sides of the border we see [net interest income] growth halving to 4% in 2020.”

Ms. Semikhatova also cited expectations for further provisioning for credit losses, and its negative effects on earnings, as a reason for the downgrade.

“@SBarlow_ROB Citi downgrades Canadian banks” – (research excerpt) Twitter

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Morgan Stanley U.S. equity strategist Michael Wilson is frequently branded a pessimist but he is constructive on global equities. In a Monday research report, Mr. Wilson presented two sets of stock ideas.

The first list highlights high quality stocks – those with high returns on invested capital – that are relatively inexpensive. This list includes Facebook Inc., video game provider Take Two Interactive Software Inc., and IQVIA Holdings Inc from the health care sector.

The second list uncovers inexpensive cyclical stocks that Mr. Wilson expects will benefit from global economic reflation. This much larger list includes Borg Warner Inc., Baker Hughes Co (A), Bank of America Corp. and Intel Corp.

“ @SBarlow_ROB MS stock Screen: High quality, high growth” – (full table) Twitter

“ @SBarlow_ROB MS stock screen 2: inexpensive cyclicals” – (table) Twitter

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Merrill Lynch quantitative strategist Savita Subramanian provided some valuable analysis in a Friday research report noting that 2019 was all about U.S. stocks getting more expensive relative to earnings – a pattern that can’t continue,

“The forward P/E has expanded 23% YTD to 17.8x, representing most of the 26% rally in stocks this year… History suggests that years of significant multiple expansion (like in 2019) are typically followed by years of flattish to contracting multiples, and we forecast the entire ~5% upside in stocks next year coming from earnings growth, rather than higher multiples. At 17.8x earnings, we think a lot of good news was baked in already around trade… “

The strategist also measured U.S. sector valuations and found health care and energy attractive, consumer discretionary and utilities expensive.

“@SBarlow_ROB ML: the story of 2019 - multiple expansion” – (research excerpt) Twitter

“ @SBarlow_ROB ML: Relative valuation by U.S. sector” – (table) Twitter

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Diversion: “These are the 10 most-watched YouTube music videos of the decade” – A Journal of Musical Things

Tweet of the Day: “@awealthofcs Does This Make Any Sense?” – (GDP versus equity market capitalization) – Twitter

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