Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
BofA Securities’ widely-read monthly survey of global portfolio managers underscored a definitive switch to value stocks that was evident in the report title, “Springtime for Value” (my emphasis),
“Most bullish FMS [Fund manager Survey] since Feb'20; we do not think positioning is dangerously bullish … investors say it’s no longer a “bear market rally”, expect higher growth (net 79% = highest since Dec'09), profits & inflation, expect a COVID-19 vaccine announcement early Q1′21, and believe 10-year Treasury yield lower 0.5% by year-end … Asset allocation stubbornly skewed toward US growth stocks; but Aug FMS shows “green shoots” for “inflation assets”…rotation to Europe & EM stocks ($-debasement theme), banks, small cap & value stocks. FMS contrarian trades: risk-on vaccine & higher rates = cyclical rotation best played via long small cap value, short tech; risk-off political volatility (roughly 70% think flip of US Senate is risk-off) best played via short healthcare stocks.”
“@SBarlow_ROB BoA fund manager survey, “Springtime for value”” – (research excerpt) Twitter
Newsletter: “Value investing on the rebound. Plus, a surging cannabis stock the Street loves” – Barlow, Globe Investor
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Citi economist Jin-Wook Kim asked the important question “COVID-19 Vaccine: Who Will Get a Shot and When?” in a Monday research report,
“The front-runner candidate for COVID-19 vaccine from the UK may deliver phase 3 clinical trial results by the end of November or early December, likely prompting a quick review by the regulators. A manufacturing partner in India (Serum Institute of India) is planning to produce 300-400 million doses of University of Oxford/AstraZeneca’s vaccine by the end of 2020 … The sum of the companies’ global COVID-19 vaccine production target by the end of 2020 is around 400-500 million doses … COVID-19 vaccine pre-orders from the US (800 million doses), EU (800 million doses), Japan (490 million doses) and UK (340 million doses) would prioritize distribution of early vaccine outputs to the DM region in 1H 2021.”
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Morgan Stanley U.S. equity strategist Michael Wilson is forecasting higher U.S. long bond yields because of monetary and fiscal stimulus, bond auctions showing signs the market is having trouble digesting increased supply and the performance of interest rate-sensitive equity sectors,
“The five industry groups where performance vs the market shows the most significant positive correlation to changes in the 10-year yields are Banks, Diversified Financials, Capital Good, Energy, and Materials. Cap Goods, Energy, and Materials are more levered to higher breakevens, while Financials tend to benefit when … real yields rise. Mike continues to believe that a further reopening and massive fiscal stimulus will support demand while cost cuts will drive operating leverage. Together, he thinks this is a powerful combination supporting earnings growth”
Outperformance by bank, capital goods, energy and materials supports the idea of value stock leadership (these sectors are all well represented in value indices).
“@SBarlow_ROB MS: long yields going higher” – (research excerpt) Twitter
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CIBC economist Avery Shenfeld explained why markets are currently not concerned with rising public debt in “Why Deficits Aren’t Raising Alarm Bells,”
“The very reason that the BoC can’t do QE forever without triggering inflation is the same reason why we won’t see these outsized deficits forever: the pandemic will pass and the economy will get better. The timing is uncertain, but the “fact” of the recovery isn’t, because the downturn didn’t arise from a shock to demand or competitiveness, but from spending restraints imposed by public health needs. As that recovery comes, likely on a heels of a vaccine, the need to defend against inflation will have central banks end their QE programs. But at the very same time, the deficits will plunge, as will net issuance, and fall even faster as a share of GDP which now sits at a very weak level.”
“@SBarlow_ROB From CIBC report “Why Deficits Aren’t Raising Alarm Bells” – (research excerpt) Twitter
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Diversion: Still enjoying The Ringer’s The Re-watchables series of podcasts,
“‘Caddyshack’ With Bill Simmons and Sean Fennessey” – The Ringer
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Scott Barlow