Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
BMO chief economist Doug Porter noted that strong U.S. job creation data Friday help opened the door for the Federal Reserve to begin tightening monetary policy,
“Whatever quibbles there may be with the employment report, the underlying picture was a firmer U.S. job market than expected. And let’s again stress the notable half-point fall in the unemployment rate to 5.4%. While still almost 2 ppts above the pre-pandemic lows, it happens to be precisely in line with the median jobless rate of the past three decades (to the decimal point). An average jobless rate is hardly a ringing endorsement for a super-easy monetary policy. And there’s more. In the prior cycle, when the jobless rate dipped to that level in spring 2015, the Fed was well into tapering and less than 9 months away from hiking rates. When it fell to that level in mid-2004, the Fed had already begun hiking. And in 1995? The tightening cycle was already done!”
I’m not sure how markets will react to Fed tapering this time but I think we’re going to find out soon.
“@SBarlow_ROB BMO: Strong data paves way for Fed taper and hikes” – (research excerpt) Twitter
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Citi chief U.S. equity strategist Tobias Levkovich details some strange patterns in oil stocks,
“The Energy sector has outpaced the S&P 500 sharply year to date (climbing 30.8%) and has slightly outperformed over the past 12 months (appreciating by 33.4%). Spot oil prices have surged 41.2% thus far in 2021 and are up by roughly 66.0% over the past year, intimating that equity investors do not believe the crude rebound is sustainable given some supply response via rising rig count … In this context, we submit that the jury is still out on investor comfort with the oil/gas space due in part to environmental concerns but also the industry’s low ROE … Valuation is generally attractive on our proprietary metrics for most of the sector’s sub-industry groups, but innovation and disruption can harm these approaches, as was seen with media, telecom as well as brick and mortar retailing, for instance. The potential for private equity firms to swoop in and opportunistically buy companies with depressed share prices in polluting areas is hampered by ESG pressures, and therefore, we do not expect that catalyst to develop. Thus, we maintain a Neutral posture.”
“@SBarlow_ROB Citi: U.S. markets don’t trust oil and gas stocks yet” – (research excerpt) Twitter
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Credit Suisse U.S. equity strategist Jonathan Golub made the case for the S&P 500 hitting 5000 next year,
“We are raising our 2021-22 EPS estimates to $210 from $200 and $230 from $215, and initiating our 2023 forecast at $250, implying 47.5%, 9.5%, and 8.7% growth over the next 3 years. 2022-23 EPS estimates include $10 of tax drag each year. We reiterate our 2021 S&P 500 price target of 4600, and are initiating 2022 at 5000. This represents 3.7% upside through year-end 2021, and 12.7% through year-end 2022… Over the past 5 quarters, analysts have significantly underestimated EPS, a trend we expect to continue. While economic data disappointed, input costs surged, and inventories destocked, EPS topped estimates by 16% in 2Q on stronger revenues (+5%) and margins (+11%). We see upside to estimates as empty shelves are restocked and pricing power is maintained.”
“@SBarlow_ROB CS’s Golub not messing around” – (research excerpt) Twitter
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BofA Securities U.S. quantitative strategist Savita Subramanian updated her list of top ten stocks for both growth and value investors. Cardinal Health Inc. was replaced by PNC Financial Services Group Inc. on the value list due to an analyst downgrade.
The growth list is Amazon.com Inc., Facebook Inc., Alphabet Inc., Marathon Petroleum, Netflix Inc., NRG Energy Inc., T-Mobil U.S. Inc., Twitter Inc., Vertex Pharmaceuticals and West Pharmaceuticals.
The value list is now Allstate Corp., Carrier Global Corp., Laboratory Corp of America Holdings, Marathon Petroleum, Morgan Stanley, M&T Bank Corp., NRG Energy Inc., Principal Financial , PNC Financial, and T-Mobil U.S. Inc.
“@SBarlow_ROB BofA: Top ten U.S. picks for growth and value” – (table) Twitter
“@SBarlow_ROB BofA: Stock selection criteria for growth and value 10 lists” – (research excerpt) Twitter
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Diversion: “Footage of the First Cruise Ship Roller Coaster in Action Looks Like it Will Make You Extra Sea Sick” – Gizmodo
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Scott Barlow