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

The year ahead market forecasts for sell-side strategists and economists show a degree of uncertainty and tentativeness that I can’t remember ever seeing before. This makes it difficult to trust the accompanying stock selections and trade ideas. But Merrill Lynch quantitative strategist Savita Subramanian has developed a list of more defensive U.S. stock picks – based on free cash flow expectations and high balance sheet strength - that looks promising,

“Note that our 11 stocks for 2019 have a higher average S&P Quality Rank than the index overall, and an average free cash flow (FCF) yield of 6% vs. the index’s 4%.”

Ms. Subramanian picked one stock within each of the major market sectors. Prominent names include Walt Disney Co., Exxon Mobil Corp. and Microsoft Corp.

“ @SBarlow_ROB ML quant: 11 stocks for 2019 based on quality and FCF growth” – (full table of picks) Twitter

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The Financial Times looks at previous market peaks in 2007-2008, 2000, 1987 and 1973 and finds that current panic over inverted yield curves is likely overdone,

“The concern is that [the two-year/ten-year U.S. yield curve] will invert. It is true that this has presaged each of the last seven US recessions, but it has also happened before without gloom following immediately in its wake. It is typically 21 months before recession occurs — and incidentally, the S&P 500 has carried on rising after the moment of yield inversion too. Beyond this evidence, consider the fact that the bond market is now a function of Central Bank policy and no longer the indicator it was. In other words — don’t panic.”

“Bear markets and corrections: some lessons from history” – Financial Times (paywall)

“U.S. yield curve to invert in 2019, recession to follow: Reuters poll” – Reuters

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Bank of Montreal economist Doug Porter is becoming increasingly concerned about the Canadian housing market,

“Looking back to the pre-crisis days (say, 2005), Canadian home prices have more than doubled over that period, clocking an annual average gain of more than 6% (i.e. more than 4 ppts north of inflation). Suffice it to say, that’s quite a different path than U.S. prices have carved out over that time. Even with a solid recovery in the past few years (and a 6% y/y rise in the past 12 months), they have not kept pace with inflation since 2005, due to the brutal 2007-11 correction ... Finally, note how closely Canadian prices tracked U.S. prices from 2000 to 2006, during what is often considered a U.S. bubble. Just sayin’.”

“@SBarlow_ROB BMO's Porter getting increasingly worried about Canadian housing market” – (research excerpt) Twitter

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Also from the FT, a column wonders at the market hatred of U.S. banks in the same way that I wrote about the seemingly inexplicable weakness of Canadian bank stocks earlier in the week,

“The reversal in animal spirits cannot be understated. The one-year forward earnings estimate for the group has jumped 19-36 per cent in 2018. As such, the fall in stock prices implies a contraction in their collective forward earnings multiple of around 40 per cent. All six banks are cheap, trading at or below 10 times earnings. Goldman has fallen to just 7 times. Returns on equity for the group in 2018 have comfortably ascended into double-digits even as price-to-book values fall.

"The banks’ harshest critics worry that the economy is slowing. If so, that will trigger the dual effects of both the Fed backing off rate rises in 2019 and increasing loan losses. But the probability of this worst-case scenario does not quite match up with such low equity valuations. Unless one just hates the banks.”

“US banks: Wail Street” – Financial Times (paywall)

“Bond markets are holding European lenders prisoner” – Reuters

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Tweet of the Day:

Diversion: "Man Found in Greasy Restaurant Duct Was Stuck for 2 Days Before Being Rescued " - Gizmodo

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