Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
Desjardins real estate analyst Kyle Stanley has an optimistic outlook for REITs for 2024,
“Since October 3, the 10-year GoC yield has declined ~90bps while the SPRTRE [S&P/TSX Capped REIT Index] has generated a total return of 8.8% (+7.6% for SPTSX), providing a sneak preview of how we expect 2024 to play out… Get your tickets to the pivot party. We expect rate cuts and a corresponding decline at the short end of the curve to drive funds flows out of money market instruments and back into yield equities, including REITs … Immigration continues to be an important tailwind for multifamily, retail and self-storage fundamentals … Our sector pecking order is: (1) multifamily; (2) retail; (3) industrial; and (4) office; our best ideas follow. IIP [Interrent REIT] —with its concentration in key urban markets that have benefited from healthy market rent growth, IIP is poised to deliver sector-leading FFOPU [funds from operations per unit] growth in 2024. KMP [Killam Apartment REIT] —top-line growth should accelerate in 2024 which, in light of its deeply discounted relative valuation and healthy FFOPU outlook, offers an attractive entry point. PMZ [Primaris REIT] —as our top pick in the retail space, we believe PMZ should continue to outperform in 2024 with its sector-leading balance sheet and the ongoing recovery of Canadian malls. REI [Riocan REIT] —following relative underperformance in 2023, we believe REI is poised for a bounce-back year, particularly given our expectation for an increase in funds flows to the retail REITs.
See also: “Friday’s analyst upgrades and downgrades” - Globe Investor
RBC Capital Markets global energy strategist identified the major oil market themes for 2024,
“Supply Driven Market: We see redux of the supply driven market of last decade when we look forward over the coming 24 months … Non-OPEC countries (Canada, US, Brazil and Guyana) will grow total liquids production by nearly 1.9 mb/d between when the Saudis implemented their unilateral output cuts … Balances & Price Trajectory: Assuming OPEC+ is compliant, we see average stock draws of -700 kb/d in 1H’24, but only -140 kb/d for the full year. On one hand, this highlights the commitment to market management; on the other, it highlights the narrow margin of safety to achieve market equilibrium. We expect WTI and Brent to average $79.00 and $82.50/bbl for the full year 2024 … Physical Uncertainty: Oil has become a ‘show me’ type market. Prices will remain volatile and directionless until the market sees clear data points pertaining to the voluntary output cuts… Risk Deployment: The lack of major, multiple quarter themes or trends into next year leads us to believe that price volatility is in store as traders will seek to catch smaller waves… Global Refining: The driver for our bearish medium-term outlook on the refining complex is the avalanche of refining capacity additions set to come online over the next 12-18 months, which, by our count, is the largest in over four decades … China & India Demand Outlook: Indian automotive sales have now made fresh all-time highs three months in a row. The future for Indian gasoline demand remains resoundingly bright, but this is juxtaposed to passenger EV sales that hit 40% of total vehicle sales in China last month”
Goldman Sachs chief U.S. equity strategist recognized that growth stocks have been outperforming value stocks and expects this to remain the case unless U.S. economic growth accelerates significantly. He recommends growth at a reasonable price stocks and offered the results of a screen “S&P 500 constituents that rank in the top 20% of their sectors based on Growth but do not rank in either the top 40% or bottom 20% of their sectors on Value”. Options most likely to interest domestic investors include Royal Caribbean Group, Las Vegas Sands, Target Corp., Chubb Ltd., General Electric, Ingersoll Rand, First Solar Inc. and Salesforce Inc.
CIBC economist Avery Shenfeld sees hope, eventually, for Canadian renters,
“Bank of Canada Deputy Governor Gravelle weighed in on an issue we at CIBC have been flagging for the past two years: the linkage between an acceleration in the number of immigrants and non-permanent residents (students, temporary workers) and rent inflation. Our own research showed that provincial population growth, almost all tied to immigration, has been well correlated with inflation in rents by province. The very same day, Federal Immigration Minister Miller announced a tightening of the rules for foreign students … Ottawa is also pressing provinces to pare back their postsecondary system’s reliance on higher-paying international students, noting that some of the schools involved are really backdoor immigration mills rather than real centres of learning”=
“Hope for renters, eventually” – Shenfeld, CIBC Economics
Diversion: “And the most-covered song of all time is…NOT “Yesterday” by The Beatles” – A Journal of Musical Things