Daily roundup of research and analysis from the The Globe and Mail’s market strategist Scott Barlow
Morgan Stanley’s research department highlights U.S. equity strategist Michael Wilson’s faith in oil stocks in the coming months,
“MS Chief US Equity Strategist Mike Wilson highlights that with the Fed appearing to be less concerned about inflation or looser financial conditions, reflation trades are coming back into vogue. Mike thinks that the internals of the market appear to be onto this with some of the strongest breadth coming from the commodity cyclicals. On this front, Mike points out that large cap Energy is a classic late cycle winner that has underperformed the market materially since last September, but has shown strong relative performance and breadth recently. Mike thinks this recent outperformance continues. He recommends staying up the cap and quality curve within the sector. He points out that the sector’s relative performance versus the S&P 500 has lagged the price of crude year-to-date, and Morgan Stanley’s Global Commodities Strategist, Martijn Rats, recently raised his Brent forecast to $90/bbl by 3Q given incrementally tighter supply/demand balances. This view on the commodity plus inflecting relative earnings revisions, strong breadth and compelling valuation (8th percentile of historical EV/EBITDA levels) suggest to Mike that the divergence between oil prices and the sector’s relative performance is likely to close via a catch up in Energy equities”
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Wells Fargo global investment strategist Michelle Wan warned clients not to get carried away with equity exposure,
“The stock market rally is quite visible, but risks are not always apparent in the numbers. Historically investors have used the equity risk premium (ERP), a variable that incorporates investors’ views on risks, as one gauge of the relative investment attractiveness between stocks and bonds. We measure the S&P 500 Index ERP as the earnings yield for that index minus the U.S. ICJ-year Treasury bond yield. Typically, lower ERPs have corresponded to lower expected returns over the long run. Today, ERPs are at their lowest since 2008 largely because bond yields have risen to decades’ levels … For over a decade after the great financial crisis, ERPs remained positive and mostly above bond yields, consistent with a protracted bull market period for U.S. Large Cap Equities. The post-pandemic regime of rising interest rates led to a decline in ERPs. Today’s S&P 500 Index ERP near zero indicates that investors are not being paid much, if anything, for taking the greater risk of volatility in large- capitalization equities”
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BofA Securities U.S. quantitative strategist Savita Subramanian defended the S&P 500′s higher (on the surface) valuation levels relative to Europe,
“BofA’s three quantitative models now all reflect an upturn in the equity cycle … While Europe is often seen as “Value,” we debunk the valuation discount that Europe has. We recommend owning U.S. cyclicals for the “upturn.” We hear “the S&P 500 is egregiously expensive vs. Europe.” At first glance, it is true: the S&P 500 trades at 21x, vs. just 14x for European equities, a 50% premium, near record highs. However, 75% of that premium simply comes from the composition difference – i.e., the S&P 500 has more asset-light sectors like Tech. Adjusting for the composition difference, the premium shrinks to just 12% … The current premium of 12% implies the U.S. economy outgrowing the European economy by 2.6ppt this year, just slightly higher than our house forecasts of +2.7% vs. +0.4%, respectively. Energy security in the US is also a major advantage over Europe, especially with brewing geopolitical risks … Power is increasingly becoming a major constraint in building AI data centers, leading to increased demand for electrification, and mega construction projects drive increased business activity domestically”
TORONTO – Canada’s main stock index was up more than 100 points in late-morning trading, helped by strength in base metal and utility stocks, while U.S. stock markets were mixed.
The S&P/TSX composite index was up 103.40 points at 24,542.48.
In New York, the Dow Jones industrial average was up 192.31 points at 42,932.73. The S&P 500 index was up 7.14 points at 5,822.40, while the Nasdaq composite was down 9.03 points at 18,306.56.
The Canadian dollar traded for 72.61 cents US compared with 72.44 cents US on Tuesday.
The November crude oil contract was down 71 cents at US$69.87 per barrel and the November natural gas contract was down eight cents at US$2.42 per mmBTU.
The December gold contract was up US$7.20 at US$2,686.10 an ounce and the December copper contract was up a penny at US$4.35 a pound.
This report by The Canadian Press was first published Oct. 16, 2024.
TORONTO – Canada’s main stock index was up more than 200 points in late-morning trading, while U.S. stock markets were also headed higher.
The S&P/TSX composite index was up 205.86 points at 24,508.12.
In New York, the Dow Jones industrial average was up 336.62 points at 42,790.74. The S&P 500 index was up 34.19 points at 5,814.24, while the Nasdaq composite was up 60.27 points at 18.342.32.
The Canadian dollar traded for 72.61 cents US compared with 72.71 cents US on Thursday.
The November crude oil contract was down 15 cents at US$75.70 per barrel and the November natural gas contract was down two cents at US$2.65 per mmBTU.
The December gold contract was down US$29.60 at US$2,668.90 an ounce and the December copper contract was up four cents at US$4.47 a pound.
This report by The Canadian Press was first published Oct. 11, 2024.
TORONTO – Canada’s main stock index was little changed in late-morning trading as the financial sector fell, but energy and base metal stocks moved higher.
The S&P/TSX composite index was up 0.05 of a point at 24,224.95.
In New York, the Dow Jones industrial average was down 94.31 points at 42,417.69. The S&P 500 index was down 10.91 points at 5,781.13, while the Nasdaq composite was down 29.59 points at 18,262.03.
The Canadian dollar traded for 72.71 cents US compared with 73.05 cents US on Wednesday.
The November crude oil contract was up US$1.69 at US$74.93 per barrel and the November natural gas contract was up a penny at US$2.67 per mmBTU.
The December gold contract was up US$14.70 at US$2,640.70 an ounce and the December copper contract was up two cents at US$4.42 a pound.
This report by The Canadian Press was first published Oct. 10, 2024.
