Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
RB Advisors has no interest in chasing the early-year rally in equities,
“The stock market rally so far this year seems based largely on speculation rather than fundamentals. Investors appear hopeful the Federal Reserve will soon return to a policy of cheap and abundant liquidity while ignoring the Fed’s repeated warnings to the contrary … The recent bubble in technology/innovation/disruption/cryptocurrencies was undoubtedly fueled at least in part by the Fed’s immense liquidity injection into the economy in response to the pandemic … The Fed and other central banks have begun a concerted effort to withdraw liquidity from the global economy … With inflation well above the Fed’s 2% target and the labor markets historically tight, the Fed no longer has the flexibility to save the day for financial market participants. We believe The Fed Put is dead … Corporate cash flows coming under pressure … We are not currently forecasting a deep profits recession, but we do think earnings and cash flows could suffer during 2023 … Volatility signals leadership change but investors rarely embrace that change.”
“Don’t Speculate on Speculation” – RB Advisors
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A really interesting chart from BMO’s chief economist Doug Porter shows the relationship between domestic money supply and inflation,
“Canada’s money supply continues to have an uncanny knack for calling the big trends in inflation. The broad measure (M2++) peaked way back in early 2021 at its fastest rate in four decades. Lo and behold, Canadian inflation peaked about 18 months later at its own four-decade high. Money supply growth has all but stalled in the past year amid the rapid-fire monetary tightening, pointing to a much deeper pullback in inflation in the year ahead. We’re not fully on board with the chart’s suggestion that inflation could turn negative 18 months hence (i.e., summer of 2024). But, the direction seems pretty reasonable, assuming energy prices remain behaved.”
“‘Printing money’ and Canadian inflation (BMO)” – (research excerpt) Twitter
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BofA Securities head of EMEA research Eric Lopez and thematic strategist Haim Israel selected 15 stocks that benefit from the race to build artificial intelligence chatbots like ChatGTP,
“Big Tech is now engaged in an AI arms race developing their own ChatGPT-like chatbots and incorporating AI into their search engines. Semis/hardware (GPUs, chip equipment) are likely beneficiaries because the training and running of large language models like ChatGPT requires significant computing power. In addition, cloud software analytics also benefit from the increase in data volumes along with cybersecurity as digital threats become more sophisticated. Sectors that could be disrupted are media (video, music, imagery) due to AI-multimodality, with heavy text and white-collar service-based industries potentially see headwinds from job automation…”
In big tech, the picks are Microsoft, Alphabet, Meta, Apple and Baidu. In semiconductors and hardware, it’s NVIDIA, ASML, TSMC and Arista Networks. In software and analytics, the selections are Adobe, Shutterstock, NICE systems, SAP, RELX and Palantir.
“15 companies benefiting from the chatbot/AI arms race (BofA)” – (research excerpt) Twitter
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Diversion: “A Chatbot Is Secretly Doing My Job” – The Atlantic
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Scott Barlow