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

BofA global quant strategist Nigel Tupper’s proprietary Global Wave benchmark uses multiple inputs to measure the strength in the global economy and the market backdrop. The indicator has now peaked, indicating flat global equity returns in the coming months,

“The three weakest components of the Global Wave are Consumer Confidence - which fell in 78% of countries last month, Global Credit Spreads - which widened 56bp over three months, and the Global Earnings Revision Ratio - which remains above 1.0 but has fallen from extreme highs ... In this cycle, if inflation is transitory and central banks don’t need to aggressively tighten to place brakes on inflation and growth, then the global economy could be saved from a meaningful downturn … Subsequent to previous peak signals, the MSCI All Country World Index averages 0% in the next six months, and defensive regions (the US), defensive sectors (Telecom, Health Care, Consumer Staples), and defensives styles (Quality, Dividends) outperformed, on average.”

“BofA: “The Global Wave has peaked””- (research excerpt) Twitter

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Morgan Stanley’s U.S. equity strategist Michael Wilson warns that Fed tapering is likely to cause equity market volatility,

“Tapering is tightening for markets, if not the economy. Due to the much greater than expected rise in inflation, the Fed is pivoting to a more aggressive removal of monetary accommodation. We believe this is warranted and supported by an administration that appears less focused on the stock market as a barometer of its success. Furthermore, tapering is different than in 2014 for 3 reasons: 1) the Fed is exiting QE twice as fast this time, 2) asset prices are much richer today and 3) growth is decelerating rather than accelerating … Earnings stability a key factor to consider. We screened for names with earnings stability at a reasonable price in our outlook and provide an updated version of the screen today. We think earnings stability and valuation will be the key determinants of stock performance over the coming months as the market grapples with a more hawkish Fed and execution risk due to higher inflation and continued supply/demand imbalances.”

Mr. Wilson’s “Fresh Money Buy” list of tactical stock picks now includes Exxon Mobil Corp., Humana Inc., Mastercard Inc., McDonald’s Corp., SBA Communications , Simon Property Group Inc., Synchrony Financial , and Welltower Inc.

“MS: ‘Tapering is tightening for markets, if not the economy”” – (research excerpt) Twitter

“MS: Fresh Money Buy List” – (table) Twitter

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Goldman Sachs U.S. equity strategist David Kostin is concerned about remarkably narrow market breadth, but thinks things will be ok in the very near term,

“Most S&P 500 stocks participated in the rally between November 2020 and April 2021. But market breadth has narrowed substantially in recent months. Just five stocks (AAPL, MSFT, NVDA, TSLA, GOOGL) have contributed 51% of S&P 500 returns since April. When market breadth narrows, the trend typically continues for four additional months while momentum ‘leaders’ tend to outperform. Historically, periods of sharply declining market breadth are followed by weak returns and deeper-than-average drawdowns. Despite narrowing breadth, major drawdown risk during coming months appears limited due to light positioning, strong earnings growth, and share prices already reflecting likely Fed tightening”

“GS: “Just five stocks (AAPL, MSFT, NVDA, TSLA, GOOGL) have contributed 51% of S&P 500 returns since April.”” – (research excerpt) Twitter

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Credit Suisse analyst Andrew Kuske reported his top investment picks in the yield-heavy energy infrastructure sector,

“We start with the three sub-sectors to categorize top picks: (a) Energy Infrastructure with a large cap preference for TC Energy Corp. [5.9 per cent forward yield] and a small cap focus on Tidewater Midstream & Infrastructure Ltd. [3.2 per cent ] (b) Power & Renewables highlights Brookfield Renewable Partners LP [3.7 per cent] and Northland Power Inc. [3.2 per cent] in the pure renewables and TransAlta Corp [1.5 per cent] as a transition stock; and, (c) Utilities: we focus on the letter “A” with ATCO Ltd. [4.4 per cent] and AltaGas Ltd. [4.3 per cent] as unique value oriented hybrid stocks with re-rating potential (new and continuing, respectively). Worth mentioning as a name to watch is the Brookfield Asset Management’s [0.9 per cent] continued evolution with the acceleration of developments, monetizations and fund raising cycles.”

“CS: Top picks in yield-heavy Canadian energy infrastructure sector” – (research excerpt) Twitter

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Diversion: “Fleeing Global Warming? ‘Climate Havens’ Aren’t Ready Yet” - Wired

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