Declining Job Losses Particularly Good for Lifecos - Desjardins

The news on Friday that job losses in the U.S. are declining at a smaller pace than expected is good for stocks and even better for Canada's life insurance companies, says Desjardins Securities analyst Michael Goldberg.

Mr. Goldberg said in a note to clients:

With job losses getting smaller and doing better than consensus forecasts, investors are likely to view the jobs data as one of the 'green shoots' they have been looking for that signal pending economic recovery and contribute to improved investor confidence which has driven the stock market recovery since early March. We view this as particularly good news for lifecos.

He noted that since March 9, when the current rally in North America began, Canadian stocks have outperformed U.S. stocks, Canadian banks have outperformed the market and Canadian lifecos have outperformed the banks.

The catalyst for the banks has been reduced fear surrounding potential dividend cuts, Mr. Rosenberg said. Meanwhile, life insurance companies owing to their higher beta, have benefited simply from the rally itself.

"What is good for stocks generally is even better for lifecos," he wrote, adding Manulife remains the most sensitive of the lifecos to stock market performance.

Mr. Rosenberg was quick to remind clients, however, that while job losses may be moderating, there are now 5.9 million fewer people employed (4.3%) than at the cycle peak 16 months ago.

That means less income to spend, and people, businesses and banks are still vulnerable to bankruptcies, he wrote.