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

Markets have been volatile this week, but BofA Securities global quantitative strategist Nigel Tupper reassured investors that the equity rally has a long way to run (my emphasis),

“The Global Wave [indicator of global economic activity] has improved for the ninth consecutive month as the synchronized upturn in macro data continues across the globe. Upturns typically continue until central banks have been raising rates for six months or more, so the next peak could be faraway. This is a positive signal for equity markets because earnings move with the Global Wave. This is a positive signal for the cyclical regions including Asia and Emerging Markets. This is a positive signal for cyclical and Short Duration sectors including Materials, Energy, and Financials. This is a positive signal for inexpensive cyclicals which we call Boosters. This is a positive signal for Cyclical Growth rather than Stable Growth stocks.”

“@SBarlow_ROB B of A’s Tupper thinks cyclical sectors have a long way to run” - Twitter

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Citi is running a conference featuring a number of major global oil company executives.

Wednesday’s discussion emphasized the industry’s reluctance to invest in new supply,

“Despite the rise in oil prices, the industry looks reticent to raise investment back to pre-pandemic levels. The rationale is that there is little conviction over the price signal that oil markets are giving until OPEC+ (>5 mbpd of capacity offline) has been fully restored … The CFO of Chevron, Pierre Brebar, made the argument well when he stated that the signal from the equity market is to keep investment constrained. One could ignore that sentiment and take a medium-term view, but then the argument becomes one of “where do marginal oil prices really sit?’ The marginal long-run cost of supply only works when everyone is producing at capacity; today >5 mbpd (c. 5% of global supply) remains offline through coordinated OPEC+ cut s… So the message is that investment will be kept in check for now.”

The lack of investment increases the potential for a mid-term supply deficit but the speed of global de-carbonization remains an open question.

“@SBarlow_ROB Citi: oil industry capex to remain low” – (research excerpt) Twitter

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Also from Citi, global strategist Robert Buckland reinforced the bullish tilt of Mr. Tupper at BofA,

“As for the actual EPS performance in year one of the cycle, current experience is very similar to the past. On average, global EPS has risen 36% in the first year of EPS recovery, and 23% in the second. This time round, the consensus expects 36% in the first year and 11% in the second. Our charts suggest that share prices may have run too far in the short term, but any dip should be bought. The power of the ongoing EPS recovery should keep the market on track. It really doesn’t pay to be too bearish in a year when global EPS is likely to rise by 30%+. Perhaps a cautious stance is more appropriate next year, when EPS momentum is expected to fade.”

“@SBarlow_ROB Citi: “share prices may have run too far in the short term, but any dip should be bought” – (research excerpt) Twitter

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Newsletter: “Why this week’s volatile markets can’t be chalked up to ‘inflation angst’” – Globe Investor

Diversion: “Five reasons why you don’t need to panic about coronavirus variants” – M.I.T. Technology Review

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