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

Morgan Stanley strategist Michael Wilson’s contribution to the firm’s Sunday Start report is the most talked about research this week by a considerable margin, as he compared current market conditions to scaling Mount Everest,

“Either by choice or out of necessity investors have followed stock prices to dizzying heights once again as liquidity (bottled oxygen) allows them to climb into a region where they know they shouldn’t go and cannot live very long. They climb in pursuit of the ultimate topping out of greed, assuming they will be able to descend without catastrophic consequences. But the oxygen eventually runs out and those who ignore the risks get hurt … With the turn of the new year, the surviving climbers decided to make another summit attempt, this time taking an even more dangerous route with the most speculative stocks leading the way … With the P/E now at 18.6x and the ERP at just 155bp, we are in the thinnest air of the entire liquidity-driven secular bull market that began back in 2009. Meanwhile, interest rates are breaking out to the upside with inflation turning back up and a Fed pause now off the table … Bottom line: the bear market rally that began in October from reasonable prices and low expectations has morphed into a speculative frenzy based on a Fed pause/pivot that isn’t coming. And, while the economic situation appears to have improved at the margin, this will not forestall the earnings recession that has a long way to go, based on our negative operating leverage scenario that is well under way”

“”The bear market rally that began in October from reasonable prices and low expectations has morphed into a speculative frenzy based on a Fed pause/pivot that isn’t coming” (MS)” – (research excerpt) Twitter


Citi global strategist Robert Buckland’s message to clients was similarly cautionary,

“Last year’s losing trades have started 2023 very strongly. Global equities, especially tech stocks, are up. Oil and defensive stocks have lagged. However, markets often change leadership into the new year, only to revert back to the previous themes later on. We suspect 2023 will follow this well-worn pattern … Christmas Lunch Trades — These are crude contrarian calls that sell last year’s winners and buy the losers. They are popular at year-end stock-picking competitions, hence the name … Head-fake — Christmas Lunch strategies often perform better early in a year as investors price in a reversal of the previous year’s themes. They then fade as it becomes clear that not much has changed. Don’t Chase It — We think most of this year’s contrarian trades will fizzle out, as they usually do. Hence, we wouldn’t chase the headline equity indices higher, and prefer oil stocks to tech. China-reopening is one trade we would chase.”


Also from Morgan Stanley, commodity strategist Marius van Straaten outlined a bull case for uranium that will please Cameco investors,

“While the global energy crisis appears to be de-escalating, the uranium (U3O8 concentrate) price remains stuck around the US$50/lb level (Exhibit 5). Despite the nuclear fuel’s favourable supply-demand fundamentals, uranium remains a slow-moving market. That said, a major potential catalyst is still on the horizon. There remain calls in both the EU and US to eventually restrict the imports of Russian (processed) uranium. Western utilities are planning for anywhere in between a full ban on Russian nuclear fuel imports to a more (self-sanctioned) gradual phase out. A move away from Russian nuclear fuel services could particularly apply pressure on Western uranium enrichment capacity. This matters, because rather than becoming a headwind for U3O8 concentrate demand, an enrichment bottleneck could actually drive up demand by as much as 14%.”

“MS’s bull case for uranium” – (research excerpt) Twitter


Diversion: “See National Geographic’s 2022 Photos of the Year” – Gizmodo

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