The Globe and Mail’s market strategist offers seven thoughts on the research, analysis and ephemera that crossed his desk this week.
1. BMO bank analyst Sohrab Movahedi offered good and bad news about the sector ahead of earnings reports later this month. The bad news is that earnings are expected to be down about 8 per cent year-over-year thanks primarily to higher provisions for credit losses. The good news is that the stocks are as inexpensive as they were in the depths of the financial crisis and significant upside is apparent (to the analyst, anyway) once more economic transparency is available.
2. BofA Securities’ monthly survey of global fund managers reported expectations of lower bond yields next year at a 20-year high.
3. RBC Capital Markets analyst Tom Narayan noted a slowdown in electric vehicle demand – a recent U.S. survey saw the percentage of buyers willing to consider an EV drop to 52 per cent from 81 per cent in 2021. He expects lower prices, more SUV options and better charging infrastructure to spur a recovery.
4. Goldman Sachs currency analyst Kamakshya Trivedi sees a positive year ahead for the loonie but not in a way that many Canadians will notice. The analyst expects a continuation of U.S. dollar strength against the euro and yen, and, because the loonie’s value is historically correlated to greenback strength, the domestic currency will be strong relative to most non-U.S. currencies. Travel to the U.S., however, will not get cheaper for Canadians.
5. Scotiabank strategist Hugo Ste-Marie recapped TSX third-quarter earnings with 85 per cent of stocks having reported. He applauded the 2.3-per-cent year-over-year gain that was the first positive result in four quarters. The strategist warned, however, that only 78 per cent of profits were in line with GAAP accounting standards and that this type of earnings quality deterioration has preceded market volatility in the past.
6. David Kostin, a Goldman Sachs U.S. equity strategist, released his forecasts for 2024, predicting an underwhelming 6-per-cent return for the S&P 500. He expects continued outperformance of the dominant Magnificent 7 mega cap stocks – Alphabet, Amazon.com, Apple, Meta Platforms, Microsoft Co., Nvidia and Tesla – because of faster expected sales growth, higher profit margins and strong balance sheets. Mr. Kostin recommends companies from his high-quality basket, which results from a stock screen emphasizing profitability, leverage, valuation, consistent earnings growth and return on equity. Stocks from the basket most likely to interest Canadian investors include Alphabet Inc., Home Depot Inc., PepsiCo. Inc., Paychex Inc., Cadence Design Systems Inc., Microsoft Corp., American Tower Corp. and Meta Platforms Inc.
7. TD Securities head of U.S. rates strategy Gennadiy Goldberg expects a U.S. recession beginning in the second quarter of 2024 and a 180-degree pivot to cutting rates by the U.S. Federal Reserve. Mr. Goldberg forecasts a full 250 basis points of U.S. rate cuts beginning in the middle of next year and a decline in the 10-year U.S. Treasury yield from the current 4.46 per cent to 3.15 per cent by the end of 2024. TD expects domestic rates to fall also but not as quickly or dramatically.
Scott Barlow