BofA Securities investment strategist Michael Hartnett tried to provide all the advice investors will need for the next decade in a single sentence in his weekly Flow Show report. Namely, “historic government bond losses reflect a new secular reality, but long-term yields on cash, commodities, small caps, value stocks are just starting to rise, while U.S. equities and tech stocks are just starting to underperform over the long term.”
The strategist’s usual chip writing style gives us a lot to cover in a few words. The first part of the sentence, indicating that the 30-year fixed income bull market is over, probably signals the biggest change in the investment landscape. On the one hand, a sustained rise in borrowing costs (domestic bond yields historically track U.S. yields closely) makes it highly unlikely that Canada’s favorite asset class – real estate – will be as lucrative, or even profitable. , in the years to come.
Mr. Hartnett’s next assertion that cash is entering a period of strong relative performance is worrying. Cash yields are still low and cash outperformance means mediocre to poor performance for the major asset classes of stocks and bonds. It also implies that there won’t be many places where investors can hide losses.
The prediction of an outperformance of commodities is much more welcome for domestic investors. The energy sector’s marked outperformance so far in 2022 – the S&P/TSX Energy Index climbed 36.4% vs. the S&P/TSX Composite Index’s loss of 6.3% TSX – suggests that this process may have already begun, although industrial metal prices remain far from their peaks.
It would take a brave investor to buy small-cap stocks in today’s high market volatility, but Hartnett thinks they should outperform as large-cap stocks pull back.
The last three predictions – value stocks are expected to outperform while US stocks and tech stocks underperform – are all related. In summary, tech stocks, which dominate the S&P 500 and the growth stock universe thanks to their enormity, are set for a long period of underperformance reminiscent of the early 2000s and early 1960s. (J ‘ve posted the relevant BofA graphic on social media here).
Buying tech stocks on a downturn could be a tough habit to break. Analysis of BofA client purchases over the previous week indicated that tech stocks attracted the most investor interest among the 11 major sectors.
The shift from falling to rising rates, growth in value, and the end of the US outperformance relative to the rest of the world’s markets will leave few of the investment trends of the past decade untouched. Investors will have time to absorb the new leadership but should keep an open mind to unfamiliar trends.
— Scott Barlow, Globe and Mail Market Strategist
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actions to ponder
Cameco Corp. (CCO-T) The Contra Guys bought shares of the Canadian uranium miner in 2019 as part of a contrarian bet – and it has worked out very well for them. But now they have just sold their remaining shares. The first reason was valuation. When the last shares were sold last month, the stock was trading at its highest level since 2011, the price-to-sales ratio was at its highest level since 2010 and the price-to-book ratio had not been as raised from before. the financial crisis. Not only was Cameco expensive relative to where it had historically traded, but it was high relative to its peers and the market. There were other reasons too, as Contra writer Philip MacKellar explains.
Tech wreckage shows US megacaps not immune to corrosive Fed tightening
Disappointing earnings for megacaps that have led markets higher for years are dragging their stocks and sending a disconcerting message about a US economy that until recently seemed to be weathering a deluge of interest rate hikes. Reuters measures the damage and explains why all investors should be concerned.
See also: The Fed could be attentive to the favorable alarm for the yield curve
Surprising names join the club of banks offering 5% GICs
Just when you think you’ve figured out the GIC rate game, a new wrinkle appears. Surprising names have risen to the top of the list of best rates on guaranteed investment certificates. Rob Carrick tells us who they are.
Are you bullish on commodities in these times of inflation? This new TSX-listed ETF might be worth a look
Where should you invest to make money in times of inflation? One of the traditional answers is commodities. The prices of raw materials, agricultural products and metals generally increase as the cost of living rises. This translates into higher profits for producers, which in turn drives up their stock price. If you’re buying into this, where should you invest? Gordon Pape has found a new ETF option for Canadian investors and shares his thoughts.
Recession fears threaten perfect record of U.S. stock market gains after midterm
A potential recession could end a run of gains for U.S. stocks that has followed every midterm election since World War II, as Reuters’ Lewis Krauskopf explains.
U.S. junk bond investors face a tough choice as yields rise
A sell-off in the US junk bond market presents investors with a buying opportunity. But as Reuters reports, some are holding back, fearing a looming recession could trigger widespread defaults.
Investors beware – financial markets are plagued by conflicts of interest
Financial markets are fraught with conflicts of interest. Professional portfolio managers have them, as do analysts, rating agencies and some financial media. Investors need to understand this. No one is watching investors’ backs, as investment professor Dr. George Athanassakos tells us.
Metals markets brace for a different kind of slowdown
The world will need a lot more metal to meet its carbon reduction goals. Unfortunately, current prices are too low to incentivize the necessary investment in new mining and smelting capacity. This is a major conundrum that can be added to the confusing mix of bearish absolute prices, existing supply disruption, potential Russian supply disruption and, in several cases, extremely low FX stocks. Confused? Do not worry. So did just about everyone in London at the metals industry’s biggest gathering this week, as Reuters’ Andy Home reports.
Sustainable investing is losing some shine, but proponents still say a good long-term bet
Some of the glow has come from sustainable investing this year amid questions about efficiency and as oil and gas prices and equities climbed as the broader market floundered, but those in the sector say it still makes sense in the long run, reports The Canadian Press.
Others (for subscribers)
The TSX’s Highest Paying Stocks, Plus Risk Data
Thursday analyst upgrades and downgrades
Friday analyst upgrades and downgrades
Number Cruncher: The real test of an IPO is how well its business model holds up in a crisis
Number Cruncher: where active management shone in a volatile year
Should investors follow Canadian pension funds in India?
Crackdown on misleading fund names puts investment managers on edge
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What’s up in the coming days
Are central banks really pivoting? And, if so, does that change the lackluster outlook for the stock market? Ian McGugan will share some thoughts.
This is the center of the rate hike: global market themes for the week ahead
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Compiled by Globe Investor staff