Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
Credit Suisse U.S. equity strategist Jonathan Golub has ramped his 2021 and 2022 targets for the S&P 500 as a result of the Democratic wins in the Georgia senate race,
“We are raising our 2021 S&P 500 price target from 4050 to 4200, representing 12.1% upside from current levels. This is based on EPS of $175 in 2021 (previously $168), and $200 in 2022 (previously $190), implying EPS growth of 25% and 14% in 2021-22 … Democrats picked up both Georgia Senate seats, paving the way for Biden to implement his agenda more broadly. This should result in additional stimulus, including the expansion of payments to individuals. We do not anticipate more progressive policies on taxes or regulatory issues that might disrupt Technology, Health Care, Financials, Energy or the market more broadly … the likely avalanche of pent-up consumer demand cannot be ignored. Any additional stimulus will further fan these flames. As a result, we are upgrading Pro-Cyclical sectors to Overweight, including Discretionary (ex-Internet Retail), Industrials, Materials, and Energy, and downgrading TECH+ groups, including Technology, Communications, and Internet Retail, to Market Weight. Financial and Health Care remain our highest conviction Overweights.”
“@SBarlow_ROB CS’s Golub jacks S&P 500 target” – (research excerpt) Twitter
U.S. political events have also emboldened Morgan Stanley’s chief economist Chetan Ahya, with important implications for domestic stocks,
“The election results, with the prospect of further fiscal stimulus, provide us with greater confidence on all our three key calls for 2021 … Our global growth forecast of 6.3%Y is almost 1% point higher than the consensus estimates of 5.4%Y in 2021. Within that, our 2021 US growth forecasts of 5.9%Y are a full 2% points higher than the consensus… One of the factors supporting EM growth, in addition to favourable domestic tailwinds, is the spillover effects from stronger US growth, widening US current deficit and a weaker US dollar. Our 2021 EM growth forecasts are 7.4%Y, and again this is higher than the consensus projection of 6.5%Y…US core PCE inflation, we believe, is set to overshoot 2% in this cycle, supported by healthy private sector risk appetites and the continuation of highly reflationary policies even as the US economy makes good progress towards its pre-covid path”
For Canadian investors, the high correlation between the MSCI Emerging Markets index and the S&P/TSX Composite implies that strong developing world economies will translate into domestic stock outperformance.
“@SBarlow_ROB MS: “EMs likely to have a strong growth cycle” – (research excerpt) Twitter
BofA Securities’ quantitative strategist Savita Subramanian downgraded technology stocks in a Wednesday research report while reiterating her bullishness on U.S. small cap stocks,
“Potential tax implications for Tech as well as potential for a stronger cyclical recovery could drive institutional investors out of growth and Technology and into deep cyclicals where they are currently underweight. Renewed hopes for an infrastructure bill (considered a non-starter under gridlock) could benefit Industrials, and Industrials is one of the biggest beneficiaries of rising rates (second only to Financials,)… Democratic sweep should further support our preference for small caps over large caps, given our expectations for greater stimulus/COVID response. And historically since 1979 (with the caveat that the sample size is small), Democratic control of both the White House and Congress has been the most favorable political environment for small cap returns”
“@SBarlow_ROB BoA’s Subramanian downgrades technology, upgrades industrials’ – (research excerpt) Twitter
Newsletter: “The ‘emerging Canadian advantage’ in the energy sector” – Globe Investor
Diversion: “Former Xbox Executives Say Nintendo ‘Laughed Their Asses Off’ When Microsoft Offered To Buy It” – Kotaku
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