A myopic focus on large-cap technology stocks combined with a broader reacceleration of S&P 500 profits is creating a once-in-a-generation investment opportunity, according to a research report from New York-based Richard Bernstein Advisors LLC (RBA).
The research team at RBA is led by founder Richard Bernstein, former chief U.S. quantitative strategist at Merrill Lynch. They are extremely bullish on most of the U.S. market outside of the Magnificent 7 group of technology giants – Alphabet, Nvidia Corp., Tesla Inc. , Microsoft, Apple, Amazon and Meta – that have outperformed since the pandemic began.
The strategists believe that forecasts for a soft landing in the U.S. economy are too pessimistic. They believe the economy, and profits by extension, are set to ramp higher. They note that in July, economists predicted no growth for the U.S. economy in the third quarter. Estimates climbed quickly to 3.0 per cent but even this wasn’t enough – the preliminary GDP estimate recently came in at 4.9 per cent. Nominal GDP growth – which excludes the impact of inflation – is near 8.5 per cent, which should help corporate profits.
To further support their case, RBA points to the OECD Leading Economic Indicators for the U.S., which has historically been correlated to the profit cycle. The leading indicators have troughed and began a move higher, implying a similar move for broader earnings growth.
RBA compares the relative valuation levels of the Magnificent 7 stocks and the equal weighted S&P 500 to a “misbalanced seesaw.” The former’s PE ratio is above 40 while the equal weighted benchmark, which is essentially an average of everything else, is about 15 times. The strategists expect that the seesaw, which currently favours the Magnificent 7, is about to swing the other way.
RBA’s projected scenario is dependent on a strengthening in U.S. economic growth causing an increase in the number of companies representing strong earnings growth, enough of them to draw investor assets away from the Magnificent 7. The best way for investors to gauge the success of failure of the forecast is to watch U.S. economic growth closely.
Investors who agree with Bernstein’s views may find an exchange-traded fund like the Invesco S&P 500 Equal Weight ETF (RSP-A) quite attractive right now.
— Scott Barlow, Globe and Mail market strategist
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Stocks to ponder
Air Canada (AC-T) The airline is generating strong profit growth amid surging demand from travel-hungry customers. But the stock is in a steep nosedive, suggesting that investors are growing increasingly worried about the future, reports David Berman.
The Rundown
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Bitcoin, the original crypto rebel, is racing into the heart of the financial establishment with an exchange-traded fund that tracks its price. But will it strike gold? Here is what some strategists and fund managers are saying.
Bond fund managers head for third year of losses for first time in decades
Many of the world’s biggest bond funds are facing their third straight year of losses for the first time in roughly 40 years, as a relentless U.S. economy sends bond yields to their highest levels in more than a decade. Yet far from being put off, investors are loading up on bonds again in 2023 after bailing out of the market last year, drawn in by the same run-up in yields that has caused so much pain, as Reuters reports.
Micro stocks shine in China’s flagging share market
China’s annus horribilis has seen its stock markets fall, funds run up losses and foreign investors run for the exit. But areas of the market dominated by small stocks and frequented by the country’s retail investors have done surprisingly well, as Reuters reports.
Bears bet big that nickel can close the product gap
The LME three-month nickel price has been on the slide for most of the year, sucking in momentum-tracking technical funds. Currently trading around US$18,000 per tonne, nickel is down by 42% on the start of January and challenging chart support levels dating back to late 2021. The technical weakness is a mirror on an overwhelmingly bearish fundamental picture. The global nickel market is entering a period of massive oversupply thanks to an Indonesian production boom. Everything is pointing to still lower prices. However, this being devilish nickel, things are not that simple, says long-time metals journalist Andy Home.
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What’s up in the days ahead
Ian McGugan takes a look at the growing divergence between Canadian and U.S. households – and how it points to trouble ahead for consumer stocks in this country.
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.
