Population growth is ‘Canada’s demographic heat dome’, says National Bank economist

Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow

National Bank economists Warren Lovely and Taylor Schleich described population growth as “Canada’s demographic heat dome,”

“Looked at a thermometer (or consulted a weather app) lately? Well a good number of Canadians are currently suffering under a socalled ‘heat dome’, atmospheric temperatures dialed up to downright dangerous levels. And so it is with Canada’s population growth, as StatCan’s latest national headcount again makes clear …Diving into the latest quarterly data, we see that Canada’s population moved past 41 million as of April 1st. The country added a net 1.273 million new bodies in the past year alone. If that sounds like super-charged population growth it is. It’s nonetheless useful to put these population counts in some perspective. On an outright basis (i.e., in level terms), you won’t find a larger fourquarter increase in Canada’s population, the prior period’s record eclipsed by the narrowest of margins. In percentage terms, Canada’s population is bubbling up at a 3.2% yearly pace, roughly three-times the pre-pandemic run-rate. As most surely realize, Canada’s national economy has not been growing anyway near 3.2%, which is to say real GDP per capita is contracting—and has been for some time … even if it the worst of the ‘demographic heat dome’ soon breaks, Canadians are still likely to be feeling the lingering impacts on the economy for some time”

“Canada’s ‘demographic heat dome’ can’t break soon enough” – National Bank Economics

***

Barclays global macro strategist Ajay Rajadhyaksha recommends an overweight in equities but doesn’t sound thrilled about it,

“We have consistently recommended overweighting global equities over global fixed income in this publication. It is a call that has become harder to hold on to, however. Stocks have gone on a massive run over the past seven months; the All-world index, the S&P 500 and the Nasdaq are all up about 25% in the past seven months. It is true that Big Tech earnings have continued to deliver. But political risks are rising (most recently in France), a global trade war looms, progress on inflation has been uneven, and the equity rally is being driven by an ever-shrinking group of just a few names. Being long equities is no longer an easy decision … The U.S. bond rally has now gone too far. The market is already priced for a significant easing cycle beyond 2024 … Higher rates have been associated with underperformance in risk assets in recent years whenever fiscal issues have come to the forefront. While large stock market sell-offs would likely be in an environment where the Fed is forced to cut, a substantial sell-off could also be sparked by higher rates if fiscal and U.S. monetary policy risks again come to the forefront … We believe the names enabling more efficient interconnect in segments such as module OEMs, analog and DSP [digital service providers] will drive the second wave of AI investments and are still under-priced for the opportunity set (especially given the run-up in power utilities)”

***

BMO senior economist Robert Kavcic described why domestic equities are once again lagging the S&P 500,

“Canadian stocks, always a valuation darling but rarely an outperformer, have returned to their lagging ways. Since the end of April, the TSX has struggled to stay positive, while the S&P 500 has pushed nearly 10% higher to record levels. As is often the case, this is mostly the result of composition. Banks and energy have struggled heading into the summer, which is always a tough backdrop for the TSX. In the meantime, technology has lurched more than 20% higher in the S&P 500 (with a more than 30% weight). Even within the S&P 500, outsized gains in a few technology names are playing a big role. While the standard index is up almost 10%, the equal-weight S&P 500 is up just 2% since the start of May”

***

Diversion: “Shocking: AC/DC leads a list of the best drinking songs” – A Journal of Musical Things