Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
BMO chief economist Doug Porter noted the “first wave” of inflation hitting the domestic economy,
“Canadian industrial product prices jumped 1.6% in April, following an upwardly revised 1.8% lurch in March. This lifted the index up a towering 14.3% above year-ago levels. While some of the outsized leap reflects base effects, note that the rise in the past six months alone is running above 20% annualized, the fastest since 1974. And, lest you think this is mostly a rebound in energy, the ex-energy index is up 10.3% year-over-year. Producer prices are a decent leading indicator for CPI, albeit they are no doubt whippier than consumer prices. And, they don’t include hard hit services. But they also don’t include piping hot housing. So while we doubt CPI will climb nearly to the same extent as producer prices, the risks to the upside are clanging clearly.”
“@SBarlow_ROB BMO: First wave of inflation hits Canadian economy” – (research excerpt) Twitter
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Wells Fargo analyst Christopher Harvey continues to track the remarkable transformation in the MSCI USA Momentum Index, which follows performance of the U.S. stocks with the strongest price momentum.
For a decade, the index was dominated by technology companies but things are changing quickly,
“The 68% turnover in last week’s MSCI USA Momentum Index reflected just how different the top outperformers are vs. pre-pandemic. The top industries by weight are now Banks and Diversified Financials; Capital Goods and Energy also made gains. As a group, this reflects how well the more economically-sensitive names trended over the last 6-12 months. On the other hand, signs of the stay-at-home and duration trades struggling in a recovery/reflationary environment are notable in the slashed weightings of Software, Semis, Consumer Durables & Apparel, Interactive Media, and Health CareEquipment & Services. Largest adds (by weight) were JPM, BRK, DIS, BAC, WFC, AMAT, GS, and MS. Largest deletes were MSFT, NVDA, AAPL, AMZN, ADBE, TMO, DHR, CRM, NKE, and NFLX. "
Momentum investment strategies are premised on the tendency of stocks with the strongest price momentum attracting more investment assets and continuing to move higher. This bodes well for U.S. financials and raises risks for former market darlings Microsoft Corp., NVIDIA Corp., Apple Inc. and Thermo Fisher Scientific Inc.
“@SBarlow_ROB The remarkable transformation in the MOMO index continues (Wells Fargo)” – (research excerpt) Twitter
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Candace Browning Platt, the global head of research at BofA Securities, published a report Tuesday synthesizing more than 50 of the firm’s economic and market indicators into basically one paragraph,
“The bull market in global equities, underpinned by booming economic growth, abundant liquidity (additional USD1.9tn of liquidity expected to be injected in 2021 by major central banks) and a robust tape (84% or 42 out of 50 MSCI AC [All Country] World countries are currently trading above their 200-day moving averages), stays intact. Despite sharp corrections in select pockets such as expensive growth stocks and concept stocks (from YTD peaks, clean energy: -31%, disruption innovation: -28%, China technology: -25%, SPACs: -23%), the market as a whole has sustained the rally, even digesting the latest shockingly-high inflation print in the US. However, coming on the heels of c.85% rise from the 2020-lows, it is unrealistic to expect an encore of such a performance – instead we think the time is ripe to switch over from pure beta trades to alpha strategies. To that end, we remain tilted in favor of markets that cater more to growth-sensitive sectors and/or anticipate accelerated vaccination going into the second half, such as value, cyclical, small-cap and re-opening plays.”
“@SBarlow_ROB From “BofA GPS: Global Proprietary Signals Broadening upcycle”” – (research excerpt) Twitter
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Newsletter: “‘Now comes the hard part’ for investors” – Globe Investor
Diversion: “‘Memento’ With Bill Simmons and Chris Ryan” – The Ringer ‘s Rewatchables podcast series
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Scott Barlow