North American Portfolio Strategist Martin Roberge believes that capitulation must be near for Canadian resource cyclicals. Figure 1 in his report shows, in absolute terms, resource cyclicals are now as cheap as they were at the bottom of the market in October 2008 when the world economy was supposed to go bust.
Martin also notes that the failure of gold and gold equities to play their safe-haven roles through the Greece drama and the Chinese equity rout sent a major red flag which proved bears right. The confirmation that gold is no longer a put option on markets and on deflation is a major game changer.
Martin writes that uneasiness is palpable whether it is through uninspiring earnings results from some US mega caps, the generally low quality of earnings beats (i.e., heavy cost-cutting and share buybacks), the commodity price rout tied to China growth concerns and the Fed's desire to hike rates in September, investors are paring back risk exposure. The S&P/TSX has borne the brunt of increased risk aversion, dropping five consecutive sessions in a row.
The Canaccord Genuity research included in the Legacy Wealth Weekly is solely for Canadian residents. To subscribe to our weekly newsletter,click here.