Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
B of A Securities published their popular Fund Manager Survey (FMS) for March with the title As Boom as it Gets.
“Bottom line: macro & market optimism among global investors remains very high (taper tantrum, inflation, higher taxation seen as bigger risks than COVID-19, long stocks at 10-year high, long banks at 3-year high); FMS says low wage growth = Q2 bullish risk, disappointing tech/cyclical EPS = Q2 bearish risk… infrastructure package “priced-in” at $1.9tn … clients say >10% pullback in stocks needs 10-year Treasury yield >2.1% … most crowded trade = long tech; asked if Bitcoin a bubble “yes” = 74%, asked are equities a bubble “yes” = 7% … April FMS uber-bullish but no more bullish than Q1; we say positioning is peaking = cautious risk asset returns; bearish contrarians playing “peak EPS” should sell commodities, banks & tech; bullish contrarians playing “peak yields” should buy EM, staples & utilities”
“@SBarlow_ROB BoA Fund manager survey report: “we say positioning is peaking = cautious risk asset returns”” – (research excerpt) Twitter
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A report from RB Advisors, founded by former Merrill Lynch chief quantitative strategist Richard Bernstein, published a research report highlighting how capital preservation strategies are likely to change,
“If nominal growth could conceivably mimic the characteristics of the 1960s or 1970s, it may be worth understanding what asset classes actually provided a greater degree of capital preservation during those periods … Holding cash was beneficial and duration was penalized as interest rates rose… Small stocks significantly outperformed bonds and provided slightly more downside protection. Although small stocks were hardly a riskless investment, they were indeed superior to bonds in both decades… If the definition of capital preservation is maintaining the purchasing power of the portfolio, then bonds were a terrible asset class during both the 1960s and the 1970s because the average return was less than the average inflation rate. "
“The definition of “capital preservation” is changing” – RB Advisors
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Credit Suisse U.S. equity strategist Jonathan Golub released a preview for the imminent U.S. earnings reporting season. My eyes were glazing over until I read the comment about technology stocks in Q2.
“Discretionary EPS is forecasted to grow (100%+), the most of any sector, on a rebound in Autos (500%+), Softline Retail (200%+) and Durables & Apparel (100%+). Gaming, Lodging & Leisure remains a sore spot (-200%+). EPS for Materials is projected to grow 45%, but is expected to contract for Energy and Industrials (largely due to Airlines), before jumping sharply in 2Q as the reopening kicks into full gear. Financials: Delivered the highest EPS surprises (24%) among sectors in 4Q20. Banks are projected to grow EPS at 150% on higher interest rates, stronger investment banking and trading, and improving credit conditions. TECH+: All subgroups are expected to deliver double-digit EPS growth, with Internet Retail (85%) the strongest and Software (15%) the weakest. However, TECH+ is the only group expected to witness decelerating earnings growth into 2Q. Non-Cyclicals: Health Care is the only bright spot with EPS growth of 18%.”
“@SBarlow_ROB CS US EPS preview includes an interesting comment re technology in Q2” – (research excerpt) Twitter
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Newsletter: “Three major U.S. banks simultaneously urge caution about future market returns” – Globe Investor
Diversion: “Very concerning mental health figures amid third wave: CMHA Ontario CEO” – BNN Bloomberg
Tweet of the Day: " @lisaabramowicz1 Banks are the most overweight sector among fund managers for the first time since May 2018: BofA’s April fund managers survey” – Twitter
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Scott Barlow