Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
BMO chief strategist Brian Belski is not as excited about oil and gas stocks as Canadian investors might like,
“Yes, there are certainly upside risks to the Energy sector, especially as supply/demand imbalances persist. In fact, the current rally has not even dented its deep value position, according to our models, as the sector has barely kept pace with improving earnings. The shift to production and cash flow discipline has seen profitability restored to the longer-term average, even before the current oil price rally. Furthermore, epic stimulus measures and highly disciplined supply constraints have pushed oil demand to outstrip supply for five consecutive quarters, the longest and deepest negative supply imbalance since the 2006-2008 pre-financial crisis period. Yes, there likely remains many opportunities for more aggressive investors. However, we believe there remains significant global supply capacity, and as such production discipline and unity remain key for a more bullish outlook from these levels. While supply imbalances can certainly last for an extended period, this is a significant risk and as such, we remain market weight the sector with a defensive tilt toward cash flow.”
“@SBarlow_ROB BMO: Excess global supply limits upside for energy stocks” – (research excerpt) Twitter
Citi global economist Aaron Liu sees trouble ahead for risk assets,
“Slowing China growth and global inflation concerns could bring headwinds to risk assets — China’s coal and power supply crunch is expected to persist into the winter, increasing stagflation risks and growth pressures … The US rates market has some nonlinear risks ahead, and around 30% of Citi’s survey participants expect yields to end up above 1.75% … Global equities are likely to be under pressure in coming months. Rising bond yields and fading EPS momentum are headwinds to equity valuations, and we remain cautious on EM [emerging markets]. The Levkovich Index (previously US Panic/Euphoria) at the start of the 3rd quarter was generating a 100% historical probability of down markets for the US in 12-months’ time. Global equities rose up after Fed announced “unlimited QE” in March last year, but they lost some momentum after S&P 500 Index doubled from its pandemic bottom. Almost simultaneously, Citi Economic Surprise Indices turned negative for all three of the major economies.”
“@SBarlow_ROB Citi: “Global equities are likely to be under pressure in coming months” – (research excerpt) Twitter
Also from Citi, analyst Scott Chronert published a report listing ten sectors where disruptive innovation is most possible.
These are 3D architecture in semiconductors, AI monitoring of airline passengers, alternative meat/proteins, ammonia propulsion in jet engines, de-polymerizing of plastics, carbon capture and the alchemy of air, mRNA vaccines, online malls, NFTs and psychedelic drugs.
I found the ammonia for jet engines the most interesting,
“Emissions caused by air travel is becoming an increasing societal focus. Although responsible for only 2-3% of global man-made CO2 emissions, we estimate that at the current rate of long-term growth and efficiency improvements, aviation emissions will triple to become ~10% by 2050. The key benefit of an ammonia-fueled aircraft is that it is relatively easy and feasible to adapt from current aircraft.”
Click through to see a brief discussion of each potential development.
“@SBarlow_ROB Citi: ten sectors where disruptive innovation likely in the near term” – (research excerpt) Twitter
Diversion: “Real estate agents caught on hidden camera breaking the law, steering buyers from low-commission homes” – CBC
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