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Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow

Morgan Stanley U.S. equity strategist Michael Wilson was among the first to forecast the sustainability of the market rally after the March 2020 bottom but is now turning more cautious (my emphasis),

“The bullish narrative of a recovering/reopening economy is very much the consensus view. That doesn’t make it wrong, but markets are discounting machines and may already reflect the recovery from last year’s sharp recession. This year, equity markets have continued to advance but with violent rotations that have left many portfolios gored like the annual running with the bulls in Spain … As demand comes roaring back, we are likely to witness supply shortages. This means higher costs or even missed sales altogether. We suspect these higher costs will not be passed on completely and believe incremental operating margins may have peaked for the cycle… Peak rate of change in tailwinds favors Quality. ... We downgrade Consumer Discretionary to Underweight and upgrade Staples to Neutral.”

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The key takeaway for investors here is that the catch-up rally in lower quality stocks could have already run its course and larger cap, higher-quality balance sheets could again outperform.

“@SBarlow_ROB MS’s Wilson: “violent rotations that have left many portfolios gored” – (research excerpt) Twitter

***

Speaking of rallies that may be exhausted, Credit Suisse global strategist Andrew Garthwaite doesn’t see much more upside for oil producers (my emphasis),

“The [integrated oil company] sector was 3std [standard deviations] overbought in early March: even from current levels, energy normally underperforms by 8.3% on a 6-month view … We do not think we are heading for an oil super-cycle because: i) super-cycles tend to need constant positive demand surprises. We see medium- and long-term oil demand being revised down as a result of the shift to renewables, EVs and increasing plastic recycling; ii) OPEC currently has 7.3mbd of spare capacity (and accounts for only a third of output compared to half in the 1970s) and the threat of stranded oil implies that discipline risks breaking down earlier than in the past; iii) while US shale now has much better capital discipline, the rig count is still up 88% from lows and the FCF breakeven is $40pb”

“@SBarlow_ROB CS: No oil supercycle ahead’ – (research excerpt) Twitter

***

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BofA Securities chief investment strategist Michael Hartnett believes that the investor frenzy for ‘real assets’ has just begun,

“5 reasons to own real assets: 1. Real assets are cheap (price of real assets relative to financial assets at lowest since 1925), 2. Real assets are a hedge for War against Inequality, inflation & infrastructure spending, 3. Real assets diversify portfolios, 4. Real assets are under-owned, 5. Real assets are scarce & more valuable in coming digital currency era… Real assets are generally defined as tangible assets with intrinsic value, typically far less liquid than financial assets. Our indicator of real assets tracks 3 broad categories: real estate (US/UK residential property and farmland); commodities (precious metals, industrial metals, oil, agricultural commodities); collectibles (wine, art, diamonds, cars) … Own real estate, commodities, and collectibles, either directly or through financial products like REITs, ETFs and specialized funds focusing on infrastructure, homebuilding, precious metals, farmland, timber, wine, etc.”

I’d be careful extrapolating this view to Canadian housing prices which are already extended. The collectibles market is already red-hot as the NFT [Non-fungible token] transactions highlight.

" @SBarlow_ROB BoA: 5 reasons to own ‘real assets’’ – (research excerpt) Twitter

" @SBarlow_ROB BoA: “All-time lows…real assets relative to financial assets since 1925”' – (chart) Twitter

***

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Diversion: “Reputed Mafia Fugitive Busted in Caribbean After Police Find His Italian Cooking Channel on YouTube” – Gizmodo

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