Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
BMO Capital Markets analyst Ben Pham previewed earnings results in the income-heavy energy infrastructure sector,
“Q1/24 earnings season kicks off on April 29 with GEI. We have made estimate changes to more than 70 per cent of our coverage and generally expect more ‘in-line/beats’ over ‘misses’ but the magnitude of surprises will probably be contained. Following our analysis of public data sources, proprietary models, and detailed discussions with our coverage, we point to notable potential Q1/24 beats from PPL [Pembina Pipeline], ALA [Altagas Ltd.], and NPI [Northland Power Inc.], and potential quarterly misses from GEI [Gibson Energy Inc.], EMA [Emera Inc.], and BEP [Brookfield Renewable Corp.]. We recommend positioning accordingly into Q1/24 results.”
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Quantitative strategists at BofA Securities believe the Canadian economy has turned the corner and headed higher,
“Following 18 months of underperformance, stars are aligning again for the TSX. Our Canada Cycle Indicator (CCI) is now in a clear upturn, improving from the bottom in November 2023. Rising Leading Indicators and commodity prices were the biggest drivers of the uptick. The CCI has been a reliable coincident indicator for the TSX vs. SPX, especially in recent history (r-sq: 0.5 over the past five years). The upturn suggests the TSX could recover from deep underperformance vs. the S&P 500. Earlier this year, we highlighted that higher commodity prices are needed for the TSX to outperform the S&P 500. Escalating geopolitical tensions, plus rising electrification demand, have driven commodity prices higher. The recent jump in gold prices also helps (Gold Miners: 7% of TSX). Inflation and geopolitics remain the biggest risks to equities. War is inflationary and the second inflation wave in the 1970s was fuelled by the Yom Kippur War. Own the TSX to hedge”.
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Scotiabank strategist Hugo Ste-Marie sees resource stocks beating profit estimates as earnings seasons begins,
“The TSX Q1/24 reporting season unofficially starts next week with 26 companies reporting. Overall, Q1/24 EPS are slated to drop back down to $329 (down 9.6 per cent quarter-over-quarter, down 0.2 per cent year-over-year), at the low end of the three-year range. Nevertheless, we believe there is high beat potential, mostly from the resource space where commodity prices exceeding sell-side estimates are still not fully reflected in consensus numbers. Industrials and Discretionary also possess decent chances of beating, while Financials is most at risk of a miss … At this stage, only Utilities have some growth pegged in. Still, we see upside potential in Resources (rising production, spot prices above consensus levels), Industrials (rebounding PMIs, resilient job growth), and Discretionary (vehicle/retail sales above consensus, rebounding PMIs). Meanwhile, Financials are more at risk of a miss (weak Canadian capital market activity, rising financial stress)”
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BofA Securities also posted the results of their monthly global fund manager survey (FMS),
“Most bullish FMS since Jan’22; biggest jump in global growth optimism since May’20, record jump in allocation to commodities, FMS cash levels drop to 4.2 per cent from 4.4 per cent; bull sentiment not quite at ‘close-your-eyes-and-sell’ levels (i.e. cash less than 4 per cent) but risk assets tactically much more vulnerable to bad news than good … first time since Dec’21 investors say global growth (net 11 per cent) to accelerate, 78 per cent say global recession unlikely, ‘no landing’ expectations surge to 36 per cent (was 7 per cent in January), ‘soft landing’ falls to 54 per cent, hard landing at 7 per cent (was 30 per cent in Oct’23) … : biggest tail risks = inflation (41 per cent) & geopolitics (24 per cent); catalysts to drive defensive risk-off: 33 per cent say 4.5-per-cent U-rate, 30 per cent say 10-year UST yield more than 4.5 per cent, 29 per cent say oil higher than $100/bl; most ‘crowded trades’ long Mag 7 (52 per cent) & short China (16 per cent)”
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Diversion: “10 Most Memorable Dystopian Movies” – The Ringer (podcast)
Scott Barlow