Canaccord Genuity Group Inc. · TSX:CF
Canaccord Genuity — Investor Presentation (January 2023)
46 slides from Canaccord Genuity's investor presentation, Jan 9, 2023
Slide 1: Macro & Market Outlook
Macro & Market Outlook Tony Dwyer Chief Market Strategist Canaccord Genuity LLC (US) 212.389.8216 January 09, 2023 See important disclosures in Appendix
Slide 2: Recession Outlook – The Most Predicted Recession Ever
Recession Outlook – The Most Predicted Recession Ever Philadelphia Federal Reserve Anxious Index 1968 – Current – Quarterly Chart Nearly 50% of professional forecasters expect recession in first quarter 2023 Source: WSJ / Federal Reserve Bank of Philadelphia / Canaccord Quarterly Data 2 Driven by yo
Slide 3: Market Outlook – “The” Low Happens During Recession
Market Outlook – “The” Low Happens During Recession The market has never bottomed BEFORE a recession Standard and Poor’s 500 Index is a capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domestic economy through changes in the aggregate market valu
Slide 4: Recession Outlook – Yield Curve Inversions Signaling 2023 Recession
Recession Outlook – Yield Curve Inversions Signaling 2023 Recession Such high percentage of inversions led to recession every time 55% means Recession Source: www.ndr.com / Canaccord Genuity Past performance does not predict future results 4 Driven by your success.
Slide 5: Recession Outlook – Leading Economic Indicators Signaling 2023
Recession Outlook – Leading Economic Indicators Signaling 2023 Conference Board Leading Economic Indicators 1960 – Current – Monthly Year/Year A drop to the current level in the LEI y/y change has indicated or led to a recession Recession Past performance does not predict future results 5 Driven by
Slide 6: Market Outlook – In Levered Era, Pivot Not A Pre-Recession Buy Signal
Market Outlook – In Levered Era, Pivot Not A Pre-Recession Buy Signal S&P 500 Index (SPX) 1988 – Current Weekly Chart 7/31/19 = Initial Rate Cut 9/18/07 1/3/01 6/6/89 The only time the pivot was a buy signal 7/6/95 was when there wasn’t a recession coming in 1995 Recession Standard and Poor’s 500 In
Slide 7: Core Fundamental Thesis Remains Challenged
Core Fundamental Thesis Remains Challenged 1. Over time, the market correlates to the direction of EPS – expected to drop 2. EPS is driven by the direction of economic activity – 2023 recession 3. Economic activity is produced by money availability – historically weak 4. Money availability is driven
Slide 8: Inflation Outlook – Core PCE Peaked But Stubbornly High
Inflation Outlook – Core PCE Peaked But Stubbornly High The Fed’s favored inflation gauge likely peaked in February but remains stubbornly high Source: www.ndr.com / Canaccord Genuity 8 Driven by your success.
Slide 9: Inflation Outlook – Services Offsetting Drop In Goods Inflation
Inflation Outlook – Services Offsetting Drop In Goods Inflation Generational price ramp abating for Durables… …And Nondurables Goods… …But Services is picking up. Source: www.ndr.com / Canaccord Genuity 9 Driven by your success.
Slide 10: Inflation Outlook – Long-term Inflation Expectations “Anchored”
Inflation Outlook – Long-term Inflation Expectations “Anchored” U.S. Breakeven 10-Year Weekly Graph Aug. 1998 to Current Recession/soft-landing low in inflation breakevens 10-year Inflation Breakeven down from peak but well above any prior recession or soft-landing level Recession Past performance d
Slide 11: Credit Outlook – The Market Doesn’t Believe The Fed
Credit Outlook –The Market Doesn’t Believe The Fed Despite the Fed rhetoric, the market expects peak rates below 5% and end of 2023 reduction Source: Bloomberg / Canaccord 11 Driven by your success.
Slide 12: Credit Outlook – The Fed Hikes Have Broken Long-Term Downtrend…
Credit Outlook – The Fed Hikes Have Broken Long-Term Downtrend… The Fed has embarked on a tightening cycle that has broken the long-term downtrend. We continue to believe it is a bad idea to spike rates into a generationally levered system Monthly Chart 1955 to Current Long-term downtrend broken 12
Slide 13: Credit Outlook – …As They Raise Rates In A Historic Way…
Credit Outlook – …As They Raise Rates In A Historic Way… This is the fastest pace of rate hikes since Volker Source: www.ndr.com / Canaccord Genuity 13 Driven by your success.
Slide 14: Credit Outlook – …Into A Generationally Levered System…
Credit Outlook – …Into A Generationally Levered System… There is too much debt relative to Volker’s era to use the same playbook Source: www.ndr.com / Canaccord Genuity 14 Driven by your success.
Slide 15: Credit Outlook – …As Real Rates Are Trending Higher
Credit Outlook – …As Real Rates Are Trending Higher Real 10-Year, 5-year and Fed Funds remains in negative territory but trending back toward neutral Source: www.ndr.com / Canaccord Genuity 15 Driven by your success.
Slide 16: Credit Outlook – Money Supply (M2) Signaling 2023 Recession
Credit Outlook – Money Supply (M2) Signaling 2023 Recession Nominal M2 growth seeing sharp drop to recession indication levels… …while Real M2 change has reached into deeply negative levels for first time since the 1970s Source: www.ndr.com / Canaccord Genuity 16 Driven by your success.
Slide 17: Credit Outlook – Real Liquidity Sharply Lower With M2 & Markets
Credit Outlook – Real Liquidity Sharply Lower With M2 & Markets Real liquidity has dropped to levels associated with recession Source: www.ndr.com / Canaccord Genuity 17 Driven by your success.
Slide 18: Credit Outlook – Chicago Fed Financial Conditions Bordering “Tight”
Credit Outlook – Chicago Fed Financial Conditions Bordering “Tight” The NFCI Index is bordering tighter financial conditions suggested by the drop in Real Liquidity. Above this line tighter financial conditions Source: www.ndr.com / Canaccord Genuity 18 Driven by your success.
Slide 19: Credit Outlook – Bank Lending Standards Also Near Recession Level
Credit Outlook – Bank Lending Standards Also Near Recession Level Lending standards for small and large businesses have tightened while demand for loans has dropped Source: www.ndr.com / Canaccord Genuity 19 Driven by your success.
Slide 20: Credit Outlook – Corporate Credit Yields Remain Elevated
Credit Outlook – Corporate Credit Yields Remain Elevated “Risk-off” and spike in Junk and Investment Grade Bond Yields has been dramatic Source: www.ndr.com / Canaccord Genuity 20 Driven by your success.
Slide 21: Economic Outlook – GDP Rose in Q3 Due To Improved Final Sales
Economic Outlook – GDP Rose in Q3 Due To Improved Final Sales Source: www.ndr.com / Canaccord Genuity 21 Driven by your success.
Slide 22: Economic Outlook – The Unemployment Rate Still Near Historic Low…
Economic Outlook – The Unemployment Rate Still Near Historic Low… U.S. Unemployment Rate 1960 – Current The directional change in the weekly data should soon begin showing up in monthly readings 22 Driven by your success.
Slide 23: Economic Outlook – …But NFIB Hiring Plans Suggest A Turn Ahead...
Economic Outlook – …But NFIB Hiring Plans Suggest A Turn Ahead... The NFIB Hiring Plans Index has deteriorated (inverted left scale) and suggests we should be near a sharp turn in the Unemployment Rate Correlation Coefficient 0.80 Source: www.ndr.com / Canaccord Genuity 23 Driven by your success.
Slide 24: Economic Outlook – ...Which Could Limit Renewed Services Spending
Economic Outlook – ...Which Could Limit Renewed Services Spending Goods spending trending lower… …As services has picked up the slack Source: www.ndr.com / Canaccord Genuity 24 Driven by your success.
Slide 25: Economic Outlook – … Especially If Consumer Confidence Stays Weak
Economic Outlook – … Especially If Consumer Confidence Stays Weak Consumer Confidence still historically poor Source: www.ndr.com / Canaccord Genuity 25 Driven by your success.
Slide 26: Economic Outlook – ISM Manufacturing Survey Suggests Contraction
Economic Outlook – ISM Manufacturing Survey Suggests Contraction Prior instances of the ISM moving above 54 after dropping below 45 signified a new economic cycle. A drop below 45 would suggest a recession. ISM in contraction territory, but has not yet given signal Source: www.ndr.com / Canaccord Ge
Slide 27: Economic Outlook – ISM Manufacturing Contraction Widespread
Economic Outlook – ISM Manufacturing Contraction Widespread Industries reporting growth showing widespread contraction Source: www.ndr.com / Canaccord Genuity 27 Driven by your success.
Slide 28: Economic Outlook – Non-Res Construction Likely To Contract
Economic Outlook – Non-Res Construction Likely To Contract The AIA Billings Index has dropped to a level that suggests contraction in the past when moved ahead by 9 months. There is a high correlation to Nonresidential construction, which suggests a turn lower in Non-Res Construction Source: www.ndr
Slide 29: Economic Outlook – Inventories Turning After Historic Build
Economic Outlook – Inventories Turning After Historic Build Source: www.ndr.com / Canaccord Genuity 29 Driven by your success.
Slide 30: Economic Outlook – Global PMIs Show Much Slower Global Growth
Economic Outlook – Global PMIs Show Much Slower Global Growth % of positive global PMIs dropping… …as new export orders weaken Source: www.ndr.com Source: www.ndr.com // Canaccord Canaccord Genuity Genuity 30 Driven by your success.
Slide 31: Economic Outlook – OECD Data Reinforces Weak Global Outlook
Economic Outlook – OECD Data Reinforces Weak Global Outlook Positive CLIs rapidly slowing… …with m/m gains at zero two months in a row… …while y/y suggesting recession Source: www.ndr.com / Canaccord Genuity 31 Driven by your success.
Slide 32: Earnings Outlook – Consensus SPX EPS Should Prove Too Optimistic
Earnings Outlook – Consensus SPX EPS Should Prove Too Optimistic We believe a weakening economy and inflation should cause 2022 and early 2023 estimates to be too high 32 Driven by your success.
Slide 33: Earnings Outlook – EPS Direction Down In 2023 In Mild Downturn
Earnings Outlook – EPS Direction Down In 2023 In Mild Downturn Our new 2023 SPX Operating EPS est. of $210 is currently well below consensus expectations 33 Driven by your success.
Slide 34: Earnings Outlook – The SPX Correlates to DIRECTION of EPS
Earnings Outlook – The SPX Correlates to DIRECTION of EPS The SPX has most direct correlation to the direction of EPS at 0.95 Source: www.ndr.com / Canaccord Genuity Past performance does not predict future results 34 Driven by your success.
Slide 35: Valuation Outlook – What P/E Is Appropriate After Recent Drop?
Valuation Outlook – What P/E Is Appropriate After Recent Drop? P/E is dropping from historic level. Source: I/B/E/S data from Refinitiv Past performance does not predict future results 35 Driven by your success.
Slide 36: Earnings Outlook – The SPX P/E Driven By Core PCE That Is Elevated
Earnings Outlook – The SPX P/E Driven By Core PCE That Is Elevated SPX P/E should be lower with elevated Core PCE Source: www.ndr.com / Canaccord Genuity Past performance does not predict future results 36 Driven by your success.
Slide 37: Tactical Outlook – Our Key Tactical Indicators Are In No-Man’s Land
Tactical Outlook – Our Key Tactical Indicators Are In No-Man’s Land 1. The SPX continues to be top-heavy driven by Nasdaq 2. The relative NDX underperformance may have a long way to go 3. Our most sensitive tactical indicators are neutral 4. Our intermediate-term tactical indicators are neutral 37 D
Slide 38: Tactical Outlook – SPX Still Too Top-Heavy, Pressuring Indices
Tactical Outlook – SPX Still Too Top-Heavy, Pressuring Indices The top 10 stocks represent 26.1% of the SPX, and seeing first sharp drop from peak like 1973 and 2001 Source: www.ndr.com / Canaccord Genuity Standard and Poor’s 500 Index is a capitalization-weighted index of 500 stocks. The index is d
Slide 39: Tactical Outlook – Nasdaq 100 Relative Performance Unwind
Tactical Outlook – Nasdaq 100 Relative Performance Unwind Nasdaq 100 (NDX) / S&P 500 Index (SPX) 1986 – Current Weekly Chart Based on the last experience of market concentration by top NDX stocks, the relative underperformance of the NDX vs. the SPX may have just begun. Past performance does not pre
Slide 40: Tactical Outlook – Percent Above 10- & 50-Day Are High Neutral
Tactical Outlook – Percent Above 10- & 50-Day Are High Neutral S&P 500 Index (SPX) 1-year Daily Chart The percentage of stocks above the 10-dma & 50-dma are neutral at 83.67% and 67.27%, respectively. % > 10-day moving avg. % > 50-day moving avg. Past performance does not predict future results Stan
Slide 41: Tactical Outlook – Volatility Pulled Back From Extreme
Tactical Outlook – Volatility Pulled Back From Extreme CBOE Volatility Index (VIX) 2-year Daily Chart The VIX closed last week at 21.67 10-Day Rate-Of-Change (ROC) The 10-day ROC is at -5 50 Past performance does not predict future results The Chicago Board Options Exchange Volatility Index reflects
Slide 42: Tactical Outlook – Weekly Stochastic Is In High Neutral Territory
Tactical Outlook – Weekly Stochastic Is In High Neutral Territory S&P 500 Index (SPX) 2013 – Current Weekly Chart The weekly stochastic moved down to a neutral reading of 60 14-Week Stochastic 80 Overbought 30 Oversold Past performance does not predict future results Standard and Poor’s 500 Index is
Slide 43: Tactical Outlook – NAAIM Exposure Index Is Neutral
Tactical Outlook – NAAIM Exposure Index Is Neutral S&P 500 Index (SPX) 06/2006 – Current Weekly Chart The weekly NAAIM Exposure Index is at 43.48% - the low end of neutral NAAIM Exposure Index 90 High Optimism 20 High Pessimism Past performance does not predict future results Standard and Poor’s 500
Slide 44: Appendix: Disclosures
Appendix: Disclosures Analyst Certification Each authoring analyst of Canaccord Genuity whose name appears on the front page of this research hereby certifies that (i) the recommendations and opinions expressed in this research accurately reflect the authoring analyst’s personal, independent and obj
Slide 45: Appendix: Disclosures
Appendix: Disclosures The authoring analysts who are responsible for the preparation of this research are employed by Canaccord Genuity Corp. a Canadian broker-dealer with principal offices located in Vancouver, Calgary, Toronto, Montreal, or Canaccord Genuity LLC, a US broker-dealer with principal
Slide 46: Appendix: Disclosures
Appendix: Disclosures For Canadian Residents: This research has been approved by Canaccord Genuity Corp., which accepts sole responsibility for this research and its dissemination in Canada. Canaccord Genuity Corp. is registered and regulated by the Investment Industry Regulatory Organization of Can
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