Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
Morgan Stanley strategist Michael Wilson remains confident that a new bull market has begun, but he is expecting volatility in the near term,
“Most noticeable to us last week is the almost universally bullish view from investors, including retail. In fact, it’s very hard to find a bear on 2021-- a dramatic shift from even 3 months ago. The high efficacy of the vaccines combined with a market friendly election outcome (divided Congress) are good reasons. However, price action appears exhaustive and the market seems ripe for another correction. Treasury Secretary Mnuchin’s unexpected request to the Fed to return funds amounts to a quasi tightening at the time of the year when liquidity needs are rising. With equity markets back to resistance, another correction has likely begun with a classic sell the news reaction to the vaccines. While many expect some choppiness, most don’t think the S&P 500 can pull back more than a few percent, or 3450.”
“@SBarlow_ROB MS: “Price action appears exhaustive and the market seems ripe for another correction”” – (research excerpt) Twitter
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Goldman Sachs U.S. equity strategist David Kostin, in what I’m hoping is a new trend, wrote about professional investor reaction to his bullish 2021 year-ahead outlook report,
“We discussed this week our forecast that the S&P 500 will rise to 4300 (+20%) by the end of 2021 with a broad cross-section of investors and corporate managers. Those who believe we are too bullish generally point to the risk of rising inflation and interest rates. However, we see little reason to expect much higher inflation in the next few years, and our economists believe the Fed will remain on hold until 2025.Investors who think we are too cautious point to the continued strong growth of the mega-cap FAAMG stocks along with a likely “catch-up” of the other 495 S&P 500 constituents … The five largest stocks (AAPL, MSFT, AMZN, GOOGL, and FB) comprise 22% of the equity cap of the S&P 500 and are collectively forecast to grow revenues and EPS through 2022 at a CAGR [compound annual growth rate] of 15% and 17%, respectively. The remaining 495 stocks –accounting for 78% of the index –are forecast to post CAGR in sales and EPS of 7% and 19%... Consider that the five ‘FAAMG’ firms will post median sales growth in 2020 of +18% compared with -5% for the rest of the 495 stocks in the S&P 500. The corresponding EPS growth rates are +17% and -25%.”
“@sbarlow_ROB “we see little reason to expect much higher inflation in the next few years, and our economists believe the Fed will remain on hold until 2025″” – (research excerpt ) Twitter
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BofA Securities analyst Kenjin Hotta believes that the switch to electric vehicles will prove a major benefit to robotics providers,
“When auto OEMs [original equipment manufacturers] develop an EV-specific architecture, they not only change the design of the powertrain but also adapt the body design for optimization of vehicle performance. Therefore, the body shop, which uses by far the most robotics in an auto assembly plant, will require large amount of investments… as BEV volumes increase, we also expect to see many more factories being built dedicated to BEV [battery electric vehicle] production, which will be a source of new demand as well … we estimate BEV-related robots will post at least 20% CAGR over the next 10 years … We see robotics manufacturers such as Fanuc, Yaskawa, KUKA (Media Electric), and ABB as key beneficiaries. We also expect companies such as Wuxi Lead, Mitsubishi Electric and IPG Photonics to benefit as suppliers of key equipment used in manufacturing of batteries or components”
“@SBarlow_ROB BoA: EVs require more robots - 20% CAGR ahead for robotics providers” – (research excerpt) Twitter
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Newsletter (Friday): “How to invest for the rise of Gen Z” – Globe Investor
Diversion: “Here’s how to write an AC/DC song in 30 seconds” – A Journal of Musical Things
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Scott Barlow