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

America’s National Public Radio published an in-depth look at the Solarwinds network hack, and the details are terrifying – foreign agencies could, for instance, very well control major utilities through network breaches or take down national broadband networks.

In light of stories like this, I remain surprised that network security software providers aren’t among the top performing stocks in the world.

Growth is still solid in the sector, as Morgan Stanley analyst Hamza Fodderwala reported Thursday,

“Security Demand Trends Remain Strong.. We continue to expect strong security demand in 2021, driven by: 1) pent-up demand for larger deals coming into fruition after projects were delayed last year due to the pandemic, 2) a heightened threat environment, with a significant rise in both frequency and sophistication of cyberattacks over the past year, and 3) as a result, a higher level of CIO/CSO priority to secure a more distributed workforce post pandemic - all of which is increasing complexity and expanding the attack surface area for enterprises. Our recent checks also indicate stronger 2H budget flush from US Federal and State/Local government, given the rise in state-sponsored cyberthreats and growing efforts to modernize existing IT infrastructure. Top incremental spending priorities include Cloud Workload Protection (PANW Prisma Cloud, Zscaler), Identity Management (Okta, SailPoint, CyberArk) and Endpoint Detection & Response (CrowdStrike).”

“@SBarlow_ROB I still dont under stand why network security stocks aren’t doubling every 3 months in wake of Solarwinds hack (MS)” – (research excerpt) Twitter

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Goldman Sachs U.S. equity strategist Ben Snider started his most recent report with a blunt statement,

US economic growth is peaking. Our economists expect sequential annualized US GDP growth to register a 10.5% pace in 2Q 2021, the strongest quarterly growth rate since 1978 … Although our 2Q growth forecast is above consensus expectations, GS Economics and most forecasters agree that US GDP growth will slow modestly in 3Q 2021 and continue to decline sequentially during the next several quarters … Decelerating growth is usually associated with weaker, but still positive, equity returns and higher volatility… equities often struggle just as growth peaks and begins to decelerate. Investors buying the S&P 500 when the ISM Manufacturing index registered above 60 – typically coinciding with peak growth – have experienced a median return of -1% during the subsequent month and a paltry +3% return during the subsequent 12 months. The most recent ISM reading, for March, was 65 … cyclical outperformance characterizes accelerating growth environments but typically gives way to ‘quality’ factors and more defensive industries as economic growth slows.”

“@SBarlow_ROB GS: U.S. economic growth is peaking” – (research excerpt) Twitter

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Citi chief global economist Catherine Mann seems to agree with Goldman Sach’s perspective, predicting wild swings in portfolio positioning in the coming quarters,

“Markets have to price in the simultaneous spikes in growth and a surge in inflation in the near term in 2021. Then they need to pivot to a slowing inflation and growth environment (differentially across different economies) for 2022. (Figure 4 and Figure 5) Within this time frame, they also have to calibrate whether and when central banks might normalize, or whether the central banks might first have to respond to market turbulence as markets digest data inflections and policy prospects… market pricing has to come to grips with the longer-term 2024/2025 expectations of growth and inflation that is much slower than it is projected to be in 2021 …

" @SBarlow_ROB Citi: Volatility and wild swings in portfolio positioning ahead’ – (research excerpt) Twitter

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Diversion: “The Suicide Wave That Never Was’ - The Atlantic

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