Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
Credit Suisse’s U.K.-based strategist Andrew Garthwaite is forecasting declining global manufacturing activity (as measured by PMI surveys) and underperformance by cyclical stocks as a consequence,
“We have clear-cut stagflationary concerns (inflation surprises rising, macro surprises falling )… We see near-term non energy supply chain issues close to a peak. PMI delivery times, prices paid and new orders versus output have peaked. Moreover, the share prices of companies that are benefitting from the supply chain shortfall (auto semis, shipping, freight) are now underperforming quite sharply … Investment conclusions: i) we go long the dollar tactically (but see this as a bear market rally) - the US is a clear relative winner; ii) buy pricing power (stocks with pricing power that are Outperform rated by Credit Suisse analysts are Diageo, Relx, Kingfisher, Swedish Match, Disney, Moody’s, Coca Cola, and Cnooc); iii) be at least benchmark energy and overweight oil-related plays of Norwegian banks, testing companies (Applus, Bureau Veritas) and Russia; iv) buy the banks given the impact of inflationary pressure on rates… remain underweight non-financial cyclicals-they are pricing in much higher PMI but PMIs will fall; ii) underweight the consumer (suffers from rising energy costs and IP has lagged consumption, valuations are high)”
“@SBarlow_ROB CS’s Garthwaite: “we remain underweight non-financial cyclicals-they are pricing in much higher PMI but PMIs will fall” – (research excerpt) Twitter
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Goldman Sachs chief U.S. equity strategist David Kostin sees TINA (There is No Alternative, to equities) driving stocks higher into 2022,
“Households, foreign investors, mutual funds and pension funds –collective owners of 84% of the US equity market –allocate a record 52% of their combined assets to equities. We forecast stock allocations will climb even higher in 2022 given (1) cash yields near zero and households own 50% of the $28 trillion of US cash assets, and (2) fixed income alternatives to equities appear unattractive on an absolute and historical basis. Companies will be the largest source of net demand for stocks in 2022 ($350 billion) due to record buyback authorizations and strong M&A activity. Households and foreign investors will be net buyers of $300 bn of US stocks. Mutual and pension funds will be net sellers of $400 bn.”
" @SBarlow_ROB GS: TINA will see equity allocations continue to hit records into 2022″ – (research excerpt) Twitter
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CIBC economist Avery Shenfeld defended the Bank of Canada in his latest weekly report,
“Markets have taken cues from a more hawkish Bank of England, an upside surprise in Canadian employment, the jump in oil and gas prices and, of course, firming inflation. The resulting selling in BA [banker’s acceptance] futures had the market pricing in close to four rate hikes in 2022, starting in the spring, and significantly eclipsing what was assumed for the US Fed. But the Bank of Canada’s take on these events is likely to differ … Employment is back to its pre-Covid level, but we were not quite at full employment when the pandemic hit … Higher oil prices will fuel both inflation and some nominal GDP growth for Canada. But this isn’t a return to the glory days for Canada’s energy sector contribution to real GDP. Mega-projects are nowhere in sight, [inflation pressures] it’s mostly from constraints on supply that are tied to Covid-related shutdowns, the cure will come from vaccines around the world and time to rebuild inventories, not from slowing the economy with higher interest rates … the Bank of Canada will be reminding markets what they seem to have forgotten. Canadian GDP fell in Q2, and its Q3 rebound will be in the range of 4% annualized. At annual rates, these two quarters will each be about 3% below the last Bank of Canada forecast”
“Defending Macklem” – CIBC Economics
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Diversion: “The Templar Tunnel: Knight’s Strategic Passageway Was Lost for 700 Years” – Ancient Origins
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Scott Barlow