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

Early in the year, Morgan Stanley strategists Andrew Sheets and Michael Wilson predicted consistently high market volatility, strong profit growth but lower price earnings ratios, peaking global growth, and a “rolling series of bear markets” that would extend from volatility-based assets to FAANG stocks. They were right on all counts so I’m going to keep presenting their research for as long as their hot streak lasts.

Mr. Sheets wrote about why this market correction is different in a research report released over the weekend,

“I don’t think it’s as simple as ‘higher rates and steeper curves are bad for markets’… Stocks have begun reacting differently to bonds because a number of forces are colliding … Despite all that’s changed in the market narrative since June 2013, the yield on US 10-year bonds above expected inflation stayed between 0 and 90bp. While stocks historically have traded well at higher real yields, breaking a range introduces uncertainty .. breaches collided with popular, stretched positions, most prominently value versus growth. As of early last week, value globally had not been as cheap relative to growth in nearly 20 years … What next? The situation is far from hopeless, and there’s a plausible path to a year-end rally, but we’re not there yet.

"What could drive a recovery? While recent moves have caused equity investors pain, I’d argue that it’s been mitigated overall by the popularity of being underweight duration, overweight US dollars and balanced in overall exposure. Many equity markets have now de-rated materially, and sentiment measures like Morgan Stanley’s Global Risk Demand Index (GRDI – US Pat. No. 7,617,143) and CANARIs have approached more constructive levels.”

“@SBarlow_ROB “Stocks are reacting differently to bonds because a number of forces are colliding” – Sheets “ – (research excerpt) Twitter

Related: Goldman Sachs’ Michael Kostin, like Morgan Stanley, is worried about corporate profit margins, although he thinks market downside from here is limited

“@SBarlow_ROB kostin is not worried about downside from here, is worried about margins” – (research excerpt) Twitter

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FT Alphaville, in a move certain to annoy numerous activists in Vancouver and Toronto, argues that more homebuilding will not reduce the affordable housing crisis,

“[for] the question of why a growing number of people are being priced out of the property market, with rising house prices accelerating away from household incomes… the answer is financialisation … … the ‘housing crisis’ needs to be understood primarily as a product of the banking system, not a function of construction volumes - it represents a market failure, not a supply/demand imbalance.”

“No, the housing crisis will not be solved by building more homes” – FT Alphaville (free to read with registration)

Related: “Canada falls from grace on global housing markets” – Report on Business

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Tweet of the Day:

Diversion: “The ridiculous amount of money baby-boomer rockers still make on tour” – Quartz

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