Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
Credit Suisse analyst James Sweeney believes “more danger is ahead” for the global economy,
“Global industrial production momentum is experiencing its sharpest swing ever. We expect a September peak [previous three month divided by three months previous to that in industrial production] near 30%. Global risk appetite has tracked [industrial production] growth in the usual way during this pandemic. We worry about the market response to falling PMIs and negative data surprises after the coming peak. The current surge in growth is due to shutdowns ending; it will not be enough to lift the level of activity back to its historical trend this year. We expect a large output gap in goods production to persist. In addition to the points above, we briefly address the big question of whether globalization itself is threatened.”
" @SBarlow_ROB CS: “More danger is ahead” for global economy” – (research excerpt) Twitter
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Citi U.S. equity strategist Tobias Levkovich suggested that tech stocks are due for a pause in his weekly “Monday Morning Musings” report,
“As the Nasdaq 100 index hits new highs, outpacing the S&P 500 beyond that seen in 2000, the ongoing query is how long can this last? ... About 45% of the S&P 500 market cap weight is comprised of the IT sector plus Media & Entertainment and Internet Retailing now, equivalent to the TMT concentration high of early 2000. We have stressed that the dot.com bubble involved stratospheric valuation on less proven business models than the current major four or five names that are much more powerful industry leaders with relatively moderate P/Es (though not cheap ones). Such elevated proportions of market indices have not lasted, however, and thus growing complacency can lead to serious portfolio damage if everyone decides to exit at the same time.”
The strategist also highlighted potential tax-related risks in the event of a Joe Biden win in the upcoming U.S. presidential elections.
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Nomura strategist Masanari Takada continues to track the asset flows for the world’s most aggressive, fast moving funds,
“Major hedge funds are becoming more and more engaged in the bull trade in Chinese and Asian equities. Indirectly, this encourages other investors to become more willing to take on risk in global equity markets … markets are showing more signs of trades premised on resumed inflation, including the buying of some commodities and a rise in implied inflation expectations. As of now, CTAs [Commodity Trading Advisor funds – algorithm-driven high turnover funds] and other trend-following funds appear to be focusing their buying on only certain commodity futures, including precious metals (gold, silver, etc.) and lumber. In contrast, there has been less buying demand for energy and agricultural products, such that interest in commodities has become notably polarized. Looking at this split from another angle, the upward price momentum has been especially strong in commodities for which spoilage is less of a concern (and storage costs are low). This suggests that one factor in play is growth in demand for hedges against future inflation.”
“@SBarlow_ROB Nomura: Commodity market polarization’ – (research excerpt) Twitter
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Column: “The strongest force behind the market rally could push loonie much higher” – Barlow, Inside the Market
Diversion: “Bill Gates is Angry [about COVID testing]” – Marginal Revolution
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Scott Barlow