Canaccord Genuity Group Inc. · TSX:CF
Canaccord Genuity — Investor Presentation (June 2023)
45 slides from Canaccord Genuity's investor presentation, June 2023
Slide 1: Core Fundamental Thesis Remains Challenged
Core Fundamental Thesis Remains Challenged 1. Over time, the market correlates to the direction of EPS – Still expected to decline further 2. EPS is driven by the direction of economic activity – Foresee late 2023 recession 3. Economic activity is produced by money availability – Remains historicall
Slide 2: 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 2022 but remains stubbornly high Source: www.ndr.com / Canaccord Genuity 2 Driven by your success.
Slide 3: Inflation Outlook – Goods Inflation Driver Of Powell's "Disinflation"
Inflation Outlook – Goods Inflation Driver Of Powell’s “Disinflation” Goods Price Index uptick… …as well as Nondurables Goods… …while Services still in uptrend. Source: www.ndr.com / Canaccord Genuity 3 Driven by your success.
Slide 4: 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 Heightened recession fears helping lower inflation expectations Recession/soft-landing low in inflation breakevens Recession Past performance does not predict future results 4 Dri
Slide 5: Credit Outlook – The Fed Hikes Have Broken Long-Term Downtrend…
Credit Outlook – The Fed Hikes Have Broken Long-Term Downtrend… The Fed is at tail end of 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 Historic spike in rates 5 Driv
Slide 6: Credit Outlook – …As Fed Raises Rates In A Historic Way…
Credit Outlook – …As Fed Raises Rates In A Historic Way… This is the fastest pace of rate hikes on record Source: www.ndr.com / Canaccord Genuity 6 Driven by your success.
Slide 7: Credit Outlook – …While Continuing To Reduce Balance Sheet …
Credit Outlook – …While Continuing To Reduce Balance Sheet … Mortgages Treasuries Source: www.ndr.com / Canaccord Genuity 7 Driven by your success.
Slide 8: Credit Outlook – …Into A Generationally Levered System
Credit Outlook – …Into A Generationally Levered System There is too much debt relative to Volcker’s era to use the same playbook Source: www.ndr.com / Canaccord Genuity 8 Driven by your success.
Slide 9: Credit Outlook – Sharp Cuts On Recession Fear Have Been Priced Out
Credit Outlook – Sharp Cuts On Recession Fear Have Been Priced Out Market now pricing in one cut by January FOMC meeting Source: Bloomberg / Canaccord 9 Driven by your success.
Slide 10: Recession Outlook – Yield Curve Spread Signaling 2023 Recession
Recession Outlook – Yield Curve Spread Signaling 2023 Recession 2-Yr/10-Yr UST YC 3-Mnth/5-Yr UST YC Such wide Yield Curve spread after pronounced decline precedes recession Recession Past performance does not predict future results 10 Driven by your success.
Slide 11: 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 with a long lead time 55% means Recession Source: www.ndr.com / Canaccord Genuity Past performance does not predict future results 11 Driven by your success.
Slide 12: Credit Outlook – Quantifying Yield Curve To Recession Timing
Credit Outlook – Quantifying Yield Curve To Recession Timing It has been 11 months since the YC inverted…that is the median lead time to recession YC inverted last July and median inversion duration is 12 months. Source: www.NDR.com / Canaccord 12 Driven by your success.
Slide 13: Credit Outlook – Money Supply (M2) Remains Historically Negative
Credit Outlook – Money Supply (M2) Remains Historically Negative Money Supply (M2) Year/Year 1960 – Current The fastest Fed tightening cycle post WW2 has caused M2 to remain in negative territory for the first time in history Recession 13 Driven by your success.
Slide 14: Credit Outlook – Real Liquidity Bouncing But Historically Weak
Credit Outlook – Real Liquidity Bouncing But Historically Weak Real liquidity remains historically negative, but less weak due to slowing economy Source: www.ndr.com / Canaccord Genuity 14 Driven by your success.
Slide 15: Credit Outlook – C&I Bank Lending Standards Recessionary Before SVB
Credit Outlook – C& I Bank Lending Standards Recessionary Before SVB Lending standards suggest recession …as loan demand deteriorates Source: Federal Reserve / Canaccord Genuity 15 Driven by your success.
Slide 16: 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 have been dramatic Source: www.ndr.com / Canaccord Genuity Past performance does not predict future results 16 Driven by your success.
Slide 17: Economic Outlook – Expect GDP Growth To Fade In 2nd Half Of 2023
Economic Outlook – Expect GDP Growth To Fade In 2nd Half Of 2023 Source:www.ndr.com Source: www.ndr.com/ Canaccord / Canaccord Genuity Genuity 17 Driven by your success.
Slide 18: Economic Outlook – Leading Economic Indicators Signaling 2023 Recession
Economic Outlook – Leading Economic Indicators Signaling 2023 Recession Conference Board Leading Economic Indicators 1960 – Current – Monthly Year/Year LEI y/y drop indicating soft landing The economy has been in a recession every time the LEI y/y had dropped to the current level Recession 18 Driven
Slide 19: Economic Outlook – The Unemployment Rate Still Near Historic Low…
Economic Outlook – The Unemployment Rate Still Near Historic Low… U.S. Unemployment Rate 1950 – Current Each recession begins with a spike in the Unemployment rate from a low level. It goes down on an escalator and up on an elevator Recession 19 Driven by your success.
Slide 20: Economic Outlook – …and NFIB Hiring Plans Suggest A Turn Ahead...
Economic Outlook – …and NFIB Hiring Plans Suggest A Turn Ahead... The NFIB Hiring Plans Index has deteriorated (inverted left scale) and suggests a sharp turn in the Unemployment Rate may have begun Correlation Coefficient 0.80 Source: www.ndr.com / Canaccord Genuity 20 Driven by your success.
Slide 21: Economic Outlook – …Leading Employment Measure Agrees…
Economic Outlook – …Leading Employment Measure Agrees… S&P 500 (SPX) 1975 – Current – Monthly Log Chart Conference Board Employment Trends Index 12-Month ROC Any initial reading <-1 has led to recession and further market downside ? Recession Past performance does not predict future results 21 Drive
Slide 22: Economic Outlook – ...Which Could Stall Services Spending Bounce…
Economic Outlook – ...Which Could Stall Services Spending Bounce… Goods spending trending lower… …As services has picked up the slack Source: www.ndr.com / Canaccord Genuity 22 Driven by your success.
Slide 23: Economic Outlook – …And Impact Early Rise In Consumer Confidence
Economic Outlook – … And Impact Early Rise In Consumer Confidence Consumer Confidence still historically poor, but rebounding Source: www.ndr.com / Canaccord Genuity 23 Driven by your success.
Slide 24: Economic Outlook – ISM Manufacturing Survey Remains In Contraction
Economic Outlook – ISM Manufacturing Survey Remains In 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
Slide 25: 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 has suggested contraction in the past when moved ahead by 9 months. There is a high correlation to non- residential construction, which suggests a turn lower in non-res construction Source:
Slide 26: Economic Outlook – Inventories Weakening After Historic Build
Economic Outlook – Inventories Weakening After Historic Build Overall biz inventories turning lower… …with wholesale inventories turning… …along with retail, even ex-vehicles Source: www.ndr.com / Canaccord Genuity 26 Driven by your success.
Slide 27: Economic Outlook – Global PMIs Remain Weak
Economic Outlook – Global PMIs Remain Weak % of positive global PMIs remain weak… …as new export orders churn Source: www.ndr.com / Canaccord Genuity 27 Driven by your success.
Slide 28: 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 2H/2023 estimates to be too high 28 Driven by your success.
Slide 29: Earnings Outlook – Our 2023 SPX EPS Est. Remains Below Consensus
Earnings Outlook – Our 2023 SPX EPS Est. Remains Below Consensus Our 2023 SPX Operating EPS est. of $210 is currently well below consensus expectations 29 Driven by your success.
Slide 30: Earnings Outlook – Recession May Suggest Much Lower Margins
Earnings Outlook – Recession May Suggest Much Lower Margins Margins have never been double digit in soft landing or recession Source: www.ndr.com / Canaccord Genuity 30 Driven by your success.
Slide 31: 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 31 Driven by your success.
Slide 32: Valuation Outlook – What P/E Is Appropriate?
Valuation Outlook – What P/E Is Appropriate? P/E is stabilizing following drop from historic level. 19.2 Trailing 18.7 Forward Source: I/B/E/S data from Refinitiv Past performance does not predict future results 32 Driven by your success.
Slide 33: 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 33 Driven by your success.
Slide 34: 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. If there is a recession, it would be historically unique for the SPX to have already bottomed (or put in the low) 2. The initial Fed rate cut may NOT be a buy signal 3. The SPX continues to be top-heavy, driven by Nasdaq, which m
Slide 35: 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 36: 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 Past performance does not
Slide 37: Tactical Outlook – SPX Still Too Top Heavy…
Tactical Outlook – SPX Still Too Top Heavy… The top 10 stocks represent 32.6% of the SPX- highest since the early 1970s Source: www.ndr.com / Canaccord Genuity Past performance does not predict future results Standard and Poor’s 500 Index is a capitalization-weighted index of 500 stocks. The index i
Slide 38: Tactical Outlook – …Which May Begin To Favor Small Cap
Tactical Outlook – …Which May Begin To Favor Small Cap Russell 2000 (RTY) / S&P 500 Index (SPX) 10-Year Weekly Relative Chart The Russell 2000 has given back early year relative performance and is bouncing off the pandemic relative low Source: Bloomberg / Canaccord Genuity Past performance does not
Slide 39: Tactical Outlook – Percent Above 10 & 50-dma Neutral
Tactical Outlook – Percent Above 10 & 50-dma Neutral S&P 500 Index (SPX) 1-Year Daily Chart The percentage of stocks above the 10-dma & 50- dma are at 81.71% and 52.09%, respectively. % > 10-day moving avg. % > 50-day moving avg. Past performance does not predict future results Standard and Poor’s 5
Slide 40: Tactical Outlook – Volatility Is Dropping Back To Late 2021 Level
Tactical Outlook – Volatility Is Dropping Back To Late 2021 Level CBOE Volatility Index (VIX) 2-Year Daily Chart The VIX is back down to 14 10-Day Rate-Of-Change (ROC) The 10-day ROC is at -12 50 Past performance does not predict future results The Chicago Board Options Exchange Volatility Index ref
Slide 41: Tactical Outlook – Weekly Stochastic is Overbought
Tactical Outlook – Weekly Stochastic is Overbought S&P 500 Index (SPX) 2018 – Current Weekly Chart The weekly stochastic is in extreme overbought territory at 97 14-Week Stochastic 80 Overbought 30 Oversold Past performance does not predict future results Standard and Poor’s 500 Index is a capitaliz
Slide 42: 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 NAAIM Exposure Index is neutral at 53.92% NAAIM Exposure Index 90 High Optimism 20 High Pessimism Past performance does not predict future results Standard and Poor’s 500 Index is a capitalizati
Slide 43: 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 44: 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 45: 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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