A morning roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
The title of Citi U.S. equity strategist Tobias Levkovich’s Wednesday report is definitive – “Fading the Market Bounce” - but the text is a bit cryptic.
Mr. Levkovich clearly doesn’t trust this week’s equity market rally as his comments on investor sentiment underscore (my emphasis),
"It is hard to imagine that all of the coronavirus effects [on profits] are built in at this juncture. While there may be some good news on a potential slowing of the outbreak’s spread outside of the Hubei province, we are reticent to think that the impact is behind us now … Pretty much every client we talk to wants to buy the dip, and that is not comforting. It implies that people are very long the market and are willing to let share prices to go higher… We also need to highlight to investors once again that flattening yield curves predict more volatility, and that means that 2H20 faces challenges, as vol usually is accompanied by equity market wobbles. Hence, with a 3,375 year-end projection for the S&P 500 and the index only about 1%-2% away from that level, we just do not see a very good risk/reward setup currently.”
“@SBarlow_ROB Levkovich: "Pretty much every client we talk to wants to buy the dip, and that is not comforting" – (research excerpt) Twitter
“ @SBarlow_ROB C: panic/Euphoria and trailing Pes” – (chart) Twitter
***
Nomura analyst Ting Lu attempted to forecast the coronavirus’ effects on Chinese economic growth under five different scenarios ranging from “good” - early containment of the virus - to “worst.”
China’s growth is a key driver of Canadian equity returns because they are the largest source of demand for most of the world’s commodities and thus determine resource prices and the majority of mining stock revenues.
The Nomura estimates range from a small drop in 2020 GDP to 5.6 per cent to a much sharper decline to 3.9 per cent as the worst case scenario.
“ @SBarlow_ROB Nomura: Scenario analysis - economic impact of coronavirus on China GDP” – (table) Twitter
***
Tesla Inc.’s stock has gone berserk in recent days, and Kevin Muir from the Heisenberg report has a very interesting theory that does not involve short covering but does involve Nortel Networks for those who click through for the full post,
“Why are they reaching for the stock? It has become the go-to name for the ESG (environment social governance) crowd. I don’t want to discuss the merits of their logic, but let’s face it, how can you not own Tesla with a big ESG mandate? It’s become the poster child for this rapidly growing segment of the market. Don’t believe me? I think you can actually see the money flowing out of fossil fuel energy names and into Tesla. Look at this intraday chart of Tesla versus the inverse of the XOP ETF”
There is a lot of investor money headed towards ESG funds and ETFs. The portfolios that did not include Tesla on Monday had to scramble and buy it to keep performance competitive, and they did not care at what price.
“Macro Tourist Shorts Tesla, Explains What He Thinks Drove Crazy Rally” – Heisenberg Report
***
Newsletter: “The biggest lie in personal finance” – Globe Investor
Diversion: “How once mighty Bombardier became politically toxic in Quebec” – CBC
Tweet of the Day:
Scott Barlow