Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
RBC Capital Markets head of U.S. equity strategy Lori Calvasina strongly suggests that large-cap U.S. growth stock leadership is close to an end,
“While Nvidia’s widely anticipated earnings were generally viewed as strong, it didn’t change the fact that the Large Cap Growth trade has tactical problems that need to be resolved. Growth valuations have only corrected modestly relative to Value and remain well above their long-term average. The weekly CFTC data for asset manager positioning in Nasdaq 100 futures continues to suggest that the Large Cap Growth trade is overowned. Earnings revisions continue to favor Growth relative to Value, but the gap has started to narrow suggesting that Growth’s dominance on the earnings front is fading. Flows to US equity Growth funds have also flipped from positive to negative, while Value flows are still negative but stabilizing… The performance of key trades within the US equity market also speaks for itself. The inflections in Russell 1000 Growth /Value, Small/Large, BKX/Nasdaq 100, and KRX/Nasdaq 100 are all still holding at levels close to key pivot points from the past, and sectors that lagged earlier this year like Energy and Health Care have been leading in August within the S&P 500. The desire for leadership to rotate seems instinctive and strong”
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Citi strategist Drew Pettit examined a potential bubble deflation in renewable energy stocks and made some stock pick suggestions,
“The transition to Clean Energy is not dead. Build outs are in place and penetration in many areas, like power generation, are still low. Demand is still there for products such as electric vehicles. The issue for many investors is timing … Many of the stocks in this selection of Clean Energy names are burning cash/generating negative free cash flow. This group has significantly sold off from 2021 peaks, but when overlaid against the 2000s’ Tech Bubble, more unwind could be ahead, especially if they run out of cash before secular tailwinds prove business models successful…here are a number of pure plays and enablers of Clean Energy that are already profitable, making them less susceptible to the ultimate timing of the green transition. Many of these stocks have above-average growth expectations that are not fully recognized in valuations”
Mr. Pettit screened for global companies with renewable energy exposure that are currently trading at reasonable valuation levels. Stocks that might be of interest to Canadian investors include Renault SA, Toyota Industries Corp., Rockwell Automation, Cummins Inc., AECOM, SolarEdge Technologies Inc. and Shoals Technologies Group Inc.
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National Bank strategist Stéfane Marion explained how the federal government and Bank of Canada are working at cross purposes,
“The federal government continues to make life difficult for the Bank of Canada. Ottawa’s immigration policy is keeping housing inflation high as rental vacancy rates have fallen to historic lows on the back of a surging population (currently growing at 80,000/month). This is happening at the same time the country is reporting weak business investment and a decline in its private non-residential capital stock. This is bad news for productivity growth, which is already among the worst in the OECD … We have one of the largest growing pools of talented people and the cheapest electricity prices in the industrialized world (70 per cent below the G7 average and 35 per cent below the U.S.). Curiously, Ottawa wants to erase this advantage. Last week, the government unveiled a draft proposal to decarbonize Canada’s electricity grid by 2035 … Canada’s electricity grid is already 50% less carbon-intensive than the OECD average … In its current form, Canada’s draft Clean Electricity Proposal (CER) will hamper the country’s potential GDP and is likely to make inflation more persistent”
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Diversion: “Does America or France have better food?” – Marginal Revolution
Scott Barlow