Investment

Scotiabank strategists share investment themes for 2023

Published

2 years ago

December 13, 2022

As we head towards the end of the year, a new report from Scotiabank is highlighting key investment themes for 2023.

In a report to investors on Monday, a team of Scotiabank strategists predicted limited gains from current levels in equity markets during the new year. However, the strategists said longer-term opportunities are likely to emerge in the first half of the year and may provide an appealing entry point for investors.

“Investors’ mindset should thus transition from seeing the glass as half-empty to seeing it as half-full, as we will eventually look through the EPS [earnings per share] valley,” the report said.

Some of the key themes identified in the report included shifting concerns from inflation to recession, another prospective turn in monetary policy and potential indications of an ideal equity market entry point.

INFLATION TO RECESSION

Inflation is projected to ease in 2023; however, the report said this will likely be replaced by recessionary concerns.

“All leading indicators we track…continue to point, at best, toward a period of economic stagnation, but more likely toward a phase of contraction,” the report said.

Inflation may remain above the targets set by central banks in the new year, but it should come down from peak levels due to stabilizing supply chains and a decline in commodity prices, the report said.

It also said the costs associated with moving goods by truck and ship have “dropped abruptly,” and commodity costs are now below peak levels.

Additionally, the report noted that all U.S. recessions, since 1970, have seen receding inflation figures.

MONETARY POLICY PIVOT

Monetary policy conducted by the U.S. Federal Reserve could take another sharp turn, the report said. The Fed’s interest rate is expected to hit five per cent early in 2023 before it adopts a “wait-and-see approach.”

The Fed and other central banks around the world conducted a significant tightening campaign in 2022, the report said, in a series of moves that drove up the cost of credit and resulted in banks restricting its availability.

“Hence, what could start as a pause in the tightening phase is likely to morph into easing in late 2023 as macro data deteriorate further,” the report said.

Previous transition phases between monetary tightening and easing have been “rapid,” the report said. Dating back to the 1960s, the strategists estimated it can take around five months on average for the Fed to pivot on its monetary policy approach.

“An easing cycle starting late next year appears very likely if macro data keep worsening,” the strategist said.

ENTRY POINT

The current bounce in equity markets is unlikely to last, according to the report, which suggested investors “resist FOMO (fear of missing out) once again.”

Despite the pessimism held by the strategists on current market gains, a few things might signal an appropriate entry point for investors into equity markets.

Firstly, the report identified a pause in rate hikes from the Fed as something that will need to be seen for an entry point to emerge, not simply a slowing of the pace of rate increases.

Secondly, the strategists said a “reset” in earnings expectations would need to take place.

“Bottom-up EPS [earnings per share] forecasts are still calling for TSX and S&P 500 earnings to expand next year (about four per cent in both markets), which is unlikely to happen,” the report said.

Next, a bottoming in leading economic indicators like the yield curve would need to happen, according to the report, which notes the majority of previous market bottoms occurred after the yield curve inversion was finished.

A yield curve inversion occurs when short-term bonds have higher yields than longer-term bonds, which is the opposite of the typical pattern and is a potential signal for an upcoming recession.

Lastly, the strategists identified that signs of capitulation will be need to be seen before an entry point can be identified.

“Investor sentiment surveys are accordingly depressed, but equity allocation remains too high and cash allocation too low to call a bottom,” the report said.

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Investment

Tesla shares soar more than 14% as Trump win is seen boosting Elon Musk’s electric vehicle company

Published

1 week ago

November 6, 2024

Anne Joseph

NEW YORK (AP) — Shares of Tesla soared Wednesday as investors bet that the electric vehicle maker and its CEO Elon Musk will benefit from Donald Trump’s return to the White House.

Tesla stands to make significant gains under a Trump administration with the threat of diminished subsidies for alternative energy and electric vehicles doing the most harm to smaller competitors. Trump’s plans for extensive tariffs on Chinese imports make it less likely that Chinese EVs will be sold in bulk in the U.S. anytime soon.

“Tesla has the scale and scope that is unmatched,” said Wedbush analyst Dan Ives, in a note to investors. “This dynamic could give Musk and Tesla a clear competitive advantage in a non-EV subsidy environment, coupled by likely higher China tariffs that would continue to push away cheaper Chinese EV players.”

Tesla shares jumped 14.8% Wednesday while shares of rival electric vehicle makers tumbled. Nio, based in Shanghai, fell 5.3%. Shares of electric truck maker Rivian dropped 8.3% and Lucid Group fell 5.3%.

Tesla dominates sales of electric vehicles in the U.S, with 48.9% in market share through the middle of 2024, according to the U.S. Energy Information Administration.

Subsidies for clean energy are part of the Inflation Reduction Act, signed into law by President Joe Biden in 2022. It included tax credits for manufacturing, along with tax credits for consumers of electric vehicles.

Musk was one of Trump’s biggest donors, spending at least $119 million mobilizing Trump’s supporters to back the Republican nominee. He also pledged to give away $1 million a day to voters signing a petition for his political action committee.

In some ways, it has been a rocky year for Tesla, with sales and profit declining through the first half of the year. Profit did rise 17.3% in the third quarter.

The U.S. opened an investigation into the company’s “Full Self-Driving” system after reports of crashes in low-visibility conditions, including one that killed a pedestrian. The investigation covers roughly 2.4 million Teslas from the 2016 through 2024 model years.

And investors sent company shares tumbling last month after Tesla unveiled its long-awaited robotaxi at a Hollywood studio Thursday night, seeing not much progress at Tesla on autonomous vehicles while other companies have been making notable progress.

Tesla began selling the software, which is called “Full Self-Driving,” nine years ago. But there are doubts about its reliability.

The stock is now showing a 16.1% gain for the year after rising the past two days.

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Investment

S&P/TSX composite up more than 100 points, U.S. stock markets mixed

Published

4 weeks ago

October 16, 2024

Anne Joseph

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.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

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Economy

S&P/TSX up more than 200 points, U.S. markets also higher

Published

1 month ago

October 11, 2024

Anne Joseph

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.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

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