Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
BofA Securities U.S. quantitative strategist Savita Subramanian raised her target for the S&P 500 in part because other strategists are getting bearish. BofA’s sell side indicator uses the asset allocation recommendations of Wall Street strategists as a inverse indicator – stocks historically perform best when strategists recommend underweights in equities,
“”Recession averted” says the consensus economist, but a fresh wave of bear narratives around equities have emerged. The net message of our five target indicators is bullish, yielding a new 2023 year-end target of 4600, up from 4300 … Sentiment is more bearish than bullish, our Sell-Side Indicator implies 15 per cent over the next 12 months. S&P 500 consensus growth expectations are almost an all time low, and ex-the Magnificent 7′s 15-per-cent expectations, LTG [long-term earnings growth expectations] is 5.7 per cent, an all-time low. One in 5 funds have more than 40-per-cent AUM [assets under management] in TMT [technology, media telecom] but are 16-per-cent u/w [underweight] the avg stock”
“BofA lifts its year-end target for S&P 500 by 7%, led by ‘old economy’ stocks” - Reuters.
BMO chief economist Doug Porter highlights the importance of rising rents in the inflation data just as food costs are set to decline,
“The latest upswing in Canadian inflation is being driven mostly by two major factors: 1) a reversal in gasoline prices from friend to foe (yet again), and 2) a renewed pick-up in shelter costs. The latter is due to a variety of forces, but most fingers are pointing at the 30.9-per-cent pop in mortgage interest costs. But rents (at up 6.5 per cent) are a big deal too, with nearly double the weight of interest costs. Even utilities costs are chipping in, with electricity now up 12.3 per cent year-over-year (they were falling as recently as February). The back-up in shelter costs is emerging as the biggest driver of inflation, just as food prices are finally relenting. As suggested in this space yesterday, grocery price inflation looks set to calm a bit further yet. Among the major categories, food prices (which include restaurant meals) are still the leader at 6.8 per cent year-over-year, just ahead of shelter’s 6.0-per-cent rise. But that looks poised to shift in coming months”
The CPI report issued Tuesday was elsewhere termed “A Bad Day for the BoC Critics” by Mr. Porter’s colleague Robert Kavcic, not good news for those looking for an end to interest rate hikes.
Retail sales data will be released Friday. I believe it’s currently the most important series as it will offer the clearest gauge of the extent to which higher interest rates are hurting consumers.
“BMO: “Gimme Shelter … from Shelter Prices”” – (research excerpt) Twitter
Citi global strategist Nathan Sheets sees a global slowdown ahead with central bank rate cuts beginning in early 2024,
“Over the past two years, the global economy has seen high inflation and tightening monetary policy, while global growth has remained at or just below trend. We judge that the economy is approaching a transition point. The previous features of performance have not yet fully played through—but they are looking long in the tooth. And we’re seeing evidence of a new regime characterized by gradual disinflation and decelerating growth. In line with this narrative, we see particular vulnerability for the global economy during the first half of next year, as DM [developed market] growth is expected to post an outright contraction. Accordingly, DM central banks now look to be reaching the peaks of their tightening cycles and, next year, are likely to shift policy toward easing as evidence of slower growth and softer inflation becomes clear. Several major EM [emerging market] central banks have already started to ease policy”
Diversion: “Scientists Recover RNA From an Extinct Species for the First Time” – Gizmodo