A roundup of what The Globe and Mail’s market strategist Scott Barlow is reading today on the Web
Citi strategist Tobias Levkovich attempted to answer a question that’s on many investors’ minds – how ‘high can price to earnings ratios go?’ (my emphasis),
“Questions on how high P/Es can go have been streaming in of late as the Street is worried about a further valuation melt-up. Given the rally in 2019 was mostly a function of P/E ratios expanding (after falling in 4Q18), the investment community is wondering if a 2020 repeat is possible… We do not envision a recurrence given elevated levels of household equity exposure already… we have used inflation rates as proxies, and, on that basis, the S&P 500 is modestly over-valued trading near 20x trailing earnings versus 18.5x when CPI is between 0% and 3%. Hence, EPS growth is needed to drive share prices, in our opinion … Our normalized earnings yield gap analysis still augurs well for stocks with a near 90% chance of market gains in the next 12 months.”
“@SBarlow_ROB Levkovich: "Our normalized earnings yield gap analysis still augurs well for stocks with a near 90% chance of market gains in the next 12 months'’ – (research excerpt) Twitter
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BMO economists believe domestic retail sales data due Friday are a big deal, particularly for the loonie, and I agree,
“The Canadian dollar’s ability to tread water could be threatened by the central bank’s dovish tilt. With the Bank “watching closely” to see if the economy’s Q4 stall reflects something other than temporary waves, the loonie may need to eye the life-jackets … The next big data hurdle for the currency is Friday’s retail sales report. The Bank said it would pay “particular attention to developments in consumer spending, the housing market, and business investment.” With households driving more than half of GDP, their spending decisions will have much sway on Bank policy, and whether the loonie sinks or swims.”
““@SBarlow_ROB BMO: "next big data hurdle for the loonie is Friday’s retail sales report"” – (research excerpt) Twitter
“@BNNBloomberg Poloz is ‘keeping the door open’ for future rate cuts: Frances Donald “ – BNN Bloomberg
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Commodity price moves are always important for Canadian investors but, as global markets await an economic recovery that is already partly priced in to equity prices, the weaker energy prices lately take on even greater significance,
“Oil futures tumbled to the lowest level in weeks on Thursday, amid increasing fears over a demand hit from the coronavirus outbreak in China, where authorities have been forced to lock down a city of more than 11 million people. Oversupply concerns and a disruption to Libyan production have been additional worries for the investors of the commodity.
“China remains the most significant driver of year-over-year oil demand growth,” and oil markets are hypersensitive to all things that could potentially impact consumers in that country, Stephen Innes chief market strategist at AxiCorp, told clients in a note.”
“Crude prices slide on worries about oversupply, China virus fallout” – Marketwatch
“U.S., Canadian oil company bankruptcies surge 50% in 2019: report” – Reuters
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Newsletter: “Bad news for U.S. investors is good news for the TSX” – Globe Investor
Diversion: “All Media Connect Us Before They Tear Us Apart” – Team Human
Tweet of the day:
Scott Barlow