The Globe and Mail’s market strategist offers nine thoughts on the research, analysis and ephemera that’s crossed his desk this week.
1. Scotiabank strategist Huge Ste-Marie was the latest to note a common fear of market strategists – the fact that a significant number of interest rate cuts have already been priced in. Futures prices reflect a 90-per-cent probability of four Federal Reserve rate cuts next year, although many strategists are now doubting we’ll see that many, setting the scene for disappointment and market volatility.
2. The global energy research team at RBC Capital Markets chose a series of “Dark Horse Stocks” as part of their 2024 outlook for the industry. The concept wasn’t described in detail, but I’m assuming these are out of consensus or underestimated picks. The chosen stocks are Baytex Energy Corp. BTE-T, Gibson Energy Inc. GEI-T, Transalta Corp. TA-T, Superior Plus Corp. SPB-T and Chevron Corp CVX-N.
3. BMO analyst Sohrab Movahedi summarized the most recent earnings season for the major banks, noting that National Bank NA-T, RBC RY-T and CIBC CM-T beating consensus profits forecast while Scotiabank BNS-T and TD TD-T missed. Operating income was lower by roughly 9 per cent year-over-year for the sector.
4. BofA Securities U.S. quantitative strategist Savita Subramanian now ranks communications services as the most promising market sector in the short term, replacing energy in the top spot. The most applicable valuation metrics – price to operating cash flow, price to book value and forward price to earnings – indicate significant upside. Major stocks in this category include AT&T Inc. T-N, Meta Platforms Inc. META-Q, Verizon Communications Inc. VZ-N, and Alphabet Inc. GOOG-Q
5. TD economists explained how the domestic economy dodged a technical recession as the negative result in the third quarter was offset by a positive revision to second-quarter GDP growth.
6. Citi global commodity strategist Max Layton sees the potential for short-term rallies into Chinese New Year in early February, but is cautious on most resource prices for 2024. Mr. Layton is neutral to bearish on oil prices as non-OPEC supply growth continues. As a firm, Citi expects a significant slowdown in developed world industrial growth that will limit upside for metals prices. The strategist is bullish on gold with a US$2,150 target.
7. Morgan Stanley Wealth Management chief investment officer Lisa Shalett believes that while markets in 2023 defied the pundits in a positive way, “tailwinds … may be far weaker” for equities in 2024. Profit forecasts have declined, increasing forward price to earnings levels. Financial conditions have already loosened and credit spreads begin the year at the tightest in 18 months, leaving few opportunities for upside unless “a new version of good news” arises.
8. RBC Wealth Management investment strategist Jim Allworth is tepid about equities for 2024 but excited about fixed income. He writes that higher, attractive yields make bonds “a fully useable and desirable adjunct to equities in a balanced portfolio” after 15 years of low yields.
9. BofA Securities thematic investing strategist Haim Israel presented a remarkable statistic – the US$270-billion spent annually on bottled water globally is more than double the amount required to provide safe drinking water across the planet.