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A bullish Savita Subramanian, U.S. quantitative strategist at BofA Securities, has a five-point argument for the S&P 500 to hit a new high of 5000 in 2024 (it currently sits near 4,560). Energy, consumer discretionary, financials and real estate stocks are forecasted to benefit most.

Sentiment has improved in recent months on hopes of interest rate cuts next year but Ms. Subramanian sees signs it has more room to improve. Pension fund equity weightings are at 25-year lows for example – a return to public equities would be supportive of higher stock prices. In addition, long-term earnings expectations outside of the dominant Magnificent 7 technology stocks are close to historic lows.

Analysts expect improving profit margins in 2024 and this is reason number two for optimism. Higher wage costs will be fully offset by lower input costs and efficiency gains. The strategist expects higher margins to support stock price gains.

For reason three, Ms. Subramanian believes we are entering a period similar to the 1950s where earnings per share climb while GDP growth slows. Profits continued to improve despite a recession in that case. The combination of lower economic growth while profits improve has been profitable for investors – the benchmark has returned 14 per cent annually on average when this happens.

Reason four is simple – it’s an election year south of the border. Presidential election years have been good for markets historically and despite a politically divided Congress, there is bipartisan support for manufacturing and defense spending.

Reason for 2024 market optimism number five is that U.S. exceptionalism is intact. The most obvious example is the global dominance of the U.S. dollar, which will allow the country to fund its massive federal deficit more easily. The outsized wealth of U.S. Baby Boomers is now being transferred to younger generations and this should help consumer spending.

The U.S. is also weaning itself from Chinese imports in part by re-shoring manufacturing capacity, a trend that supports U.S. economic and earnings growth. The country imports less from China than from Canada or Mexico at this point. S&P 500 foreign sales revenue is falling, from 32 per cent of the total in 2015 to about 28 per cent now.

BofA likes energy stocks because management is focused on returning funds to shareholders and the sector’s free cash flow yield is attractive even with crude at US$70 per barrel. U.S. Consumer discretionary stocks are expected to benefit from recent wage growth while financial stocks enjoy a combination of high quality and low leverage. Real estate is forecast to climb as bond yields fall through the year.

-- Scott Barlow, Globe and Mail market strategist

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The Rundown

Short sales on the TSX: What bearish investors are betting against

Short selling can be a red flag. That’s because studies in peer-reviewed journals have found stocks with significant short interest tend to underperform. So, if any of your stocks are in the crosshairs of short sellers, it might be a good idea to doublecheck the bullish thesis. Larry MacDonald reviews the latest bets against Canadian stocks.

After Munger’s death, Berkshire succession comes into focus

The death of Berkshire Hathaway’s Charlie Munger heralds the end of an era, leaving Warren Buffett as the conglomerate’s lone investing legend and shining the spotlight on managers who have largely operated in their shadow. Investors have faith things will turn out well.

These are the three main types of preferred shares - and an investment idea for each

Preferred shares come in different forms, each with their own risks and opportunities. Like the more conventional bond market, there are a variety of instruments that are affected by interest rates and credit quality. Tom Czitron, who believes a buying opportunity is nearing in these investments, reviews the major categories of preferreds and has some ideas on issues that are worth following.

Holy Trinity for 2024 markets that requires some faith

With a rosy picture of stock and bond gains next year now the running consensus, forecasters are managing an impressive leap of faith over three main assumptions - soft economic landings, hefty interest rate cuts and above-target inflation. Too good to be true? Mike Dolan of Reuters has a reality check.

Soft China and India may undermine gold’s rally hopes

The spot price of gold has climbed to a six-month high, buoyed by hopes that monetary tightening in western countries is largely done and dusted. While signs that the U.S. Federal Reserve and other western central banks have finished increasing interest rates are a definite positive for the precious metal, they’re not the only factor. China and India make up more than 50% of the physical gold market, giving the two Asian heavyweights a major influence on the likely price trajectory. In local currency terms gold is close to record highs in both China and India, and there are signs that this may be starting to impact on retail demand in both countries. Clyde Russell of Reuters tells us more.

Investors exit clean energy funds as higher interest rates bite

The biggest U.S. ETF tracking clean energy shares was on track for record annual outflows as a rapid rise in interest rates, surging raw materials costs and supply chain disruptions make the fund less attractive to investors.

A warning to investors: No one expects the Spanish Inquisition

The quote has become a half-century-old meme thanks to the brilliant comedy troupe Monty Python. The episode that floats the gag involves three cardinals showing up out of nowhere whenever someone says, “I didn’t expect the Spanish Inquisition,” which is in response to something no one saw coming. That’s the thing about optimism bias. People expect bad things to happen to other people, but not them. And that’s something investors should always keep in mind, says portfolio manager John De Goey.

Will AI save the day when it comes to inflation and interest rates? Don’t count on it

Will artificial intelligence have a dampening effect on inflation and interest rates, and a positive effect on productivity and profit margins? Let’s just say we shouldn’t count on it saving the day, says investing professor Dr. George Athanassakos.

Exchange-traded funds

Roundhill to shut Meme ETF due to flagging investor interest

Roundhill Investments announced the closure of its exchange-traded fund tracking the performance of meme stocks nearly two years after its launch, putting another nail in the coffin of the popular pandemic-era trade.

In spot bitcoin ETF race, some pioneers stick to the sidelines

Despite growing excitement that spot bitcoin exchange-traded funds will soon win regulatory approval, some cryptocurrency ETF pioneers plan to sit out what is expected to be a fierce industry battle for market share. As Reuters reports, they worry that the field is too crowded, the regulatory and marketing costs too high, and that demand will not be strong enough to compensate for that.

China sees an ETF boom as investors wait for stocks to trough

Chinese stock investors are plowing money into exchange-traded funds this year at the fastest pace on record as they choose to play a languid stock market passively and wait for it to trough.

Others (for subscribers)

Analysts’ forecast returns, recommendations and yields for all stocks in the TSX

The latest trends in commodities: Cocoa, OJ and gold all testing all-time highs

Wednesday’s analyst upgrades and downgrades

Tuesday’s analyst upgrades and downgrades

Globe Advisor

Six dividend stocks for bargain-hungry investors

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Ask Globe Investor

Question: Please explain the differences between Brookfield Infrastructure Partners LP and its related company Brookfield Infrastructure Corp. and how they pay dividends.

Answer: Brookfield Infrastructure Partners LP (BIP-UN-T) is a limited partnership that receives investment income – including dividends, interest and return of capital – from subsidiary companies. These companies operate infrastructure assets such as toll roads, data centres, utilities and communications towers.

Reflecting the LP structure, the partnership’s distributions typically include a mix of Canadian interest, foreign interest and dividends, return of capital and other income. To eliminate headaches at tax time, I hold the partnership units in a registered account.

Brookfield Infrastructure Corp. (BIPC-T), on the other hand, uses a traditional corporate structure, which allows it to pay dividends that qualify for the Canadian dividend tax credit. That makes BIPC suitable for non-registered accounts, although it is perfectly acceptable to hold the shares in a registered account.

Another key difference between BIP-UN and BIPC is their yields. Although BIP-UN and BIPC pay exactly the same distribution/dividend of US$1.53 annually, BIP-UN’s units trade at a lower price than BIPC’s shares, perhaps reflecting broader investor interest in the latter’s corporate structure and favourably taxed dividends. As a result, BIP-UN has a higher yield of about 5.6 per cent, compared with BIPC’s yield of about 4.8 per cent.

I know someone is going to ask me which security is the better bet. The answer is: I don’t know. The price gap between the two has widened and narrowed over the past few years, and I expect that will continue. My solution to this dilemma is simple: I own both.

--John Heinzl (E-mail your questions to jheinzl@globeandmail.com.)

What’s up in the days ahead

Has a buying opportunity opened up for small-cap stocks? Some notable investors think so. Tim Shufelt will report.

Click here to see the Globe Investor earnings and economic news calendar.

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Compiled by Globe Investor Staff

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