Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
BMO chief economist Doug Porter further detailed the ‘new villain’ of inflation in Canada,
“This is basically the story of the housing unaffordability crisis in one chart. Rents have exploded higher by 8.2 per cent year-over-year in the past 12 months, the fastest pace since 1983. (Recall, a month ago we said that rents are the new villain in the inflation saga.) That’s about 7 percentage points faster than the average annual increase in the 20 years prior to COVID. More importantly, the rise in rents is now far outpacing the underlying trend in personal income. Over the past five years, disposable income per person has perked up to a 3.9-per-cent annualized pace. That’s actually been a touch above average overall inflation over that period (of 3.4 per cent). But it is now miles below rent inflation. This is the first time in 60 years of records that income growth has trailed behind rents—and it’s not even close. Endnote: StatsCan changed the way they calculated rent in 2019, which has markedly increased the volatility, and makes comparisons to earlier years a bit dodgy. However, it’s not clear that the change had any impact on the overall growth rate of rents, and there’s no doubt rent inflation has turned up dramatically in recent years”
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Goldman Sachs U.S. equity strategist David Kostin reviewed corporate conference calls and highlighted the top four issues facing management,
“Managements discussed changes in interest expense in a higher rate environment…The drag of higher interest expense was particularly pronounced for companies’ shorter-term or variable rate debt. Examples: IQV, BAX, DXC, BG, CMA … Debt paydown and leverage ratios were key topics on 3Q earnings calls… Firms shared their perspectives on the health of the consumer. Some companies noted that the consumer and consumer spending have remained resilient…Other firms have noted that consumers are under pressure, particularly from higher prices … Companies continue to discuss AI. Some companies signaled that they expect to continue to allocate capital spending to AI investments. Examples: META, MSFT, GOOGL, MTCH, ADP o Firms have continued to highlight the uses of AI in their business to boost productivity and enhance product offerings. Examples: AJG, CFG, COF, DFS, DPZ”
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RBC Capital Markets head of U.S. equity strategy Lori Calvasina’s year ahead outlook report is called The Top 10 Things We’re Thinking About in US Equities Heading Into 2024,
“#1: We are constructive on the year ahead, with a YE 2024 S&P 500 price target of 5,000 [ which is] the median of five different models that we use which are based on sentiment, our valuation and earnings work, the economy, politics, and the cross-asset dynamic between stocks and bonds … #2: The sentiment set up is constructive for now… #3: Valuations can stay higher than many investors realize… . Implicit in the model is the idea that continued moderation in inflation … can do most of the heavy lifting to prop up the P/E multiple … 4: Our earnings outlook is good enough to justify another year of gains, but also restrains our enthusiasm on 2024 performance … #5: The greater appeal of bonds seems like a dampener of US equity returns, but not necessarily a derailer of them … #6: We see the 2024 US Presidential election as a source of uncertainty in the year ahead… #7: The sluggish US economy that many investors expect in 2024-2025 is the biggest headwind to stock market performance that we see … #8: The new rules of thumb for the post COVID era are still emerging… we are still at the beginning of a new post COVID era of investing, rather than at the end of a short-lived cycle … #9: We expect the tug of war between Growth and Value to continue a bit longer … 10: Small Caps are intriguing in the year ahead”
See also: “RBC strategist’s top 10 market thoughts for 2024″ – Inside the Market (newsletter)
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Diversion: “’Napoleon’ and the Top Five ‘Great Men’ Movies” – The Ringer (podcast)
Scott Barlow