Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
Macquarie analyst Viktor Shvets predicts 2025 will be “a year of constrained chaos” - the title of his most recent research report:
“We view ’25 as one of constrained chaos, as political choices reverberate across economies and markets, with guardrails working hard. 1. Three key US guardrails: electoral cycles (with mid-terms a focal point from early ’26); state and judicial power; capital markets. 2. Despite preference for fossil fuel, Trump is unlikely to derail new and green industries, as it would have global repercussions (especially vis-à-vis China). 3. Any pick-up in inflation, mortgage rates and risk premia will force a policy change. Thus, we maintain that the worst impulses and policy choices will likely be expelled by elections and/or capital markets. In this environment, we advise investment continuity (quality & growth) rather than betting on cyclicals, value or Trump trades (e.g. energy, financials), as today’s environment is very different to ’16. Economy has already recovered, but people have not yet absorbed higher prices (hence, despair), and most assets are at historical highs. Constraints should blunt chaos, protecting on the downside but limiting upside while rewarding consistency.”
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BofA Securities conducted a portfolio manager survey after the U.S. election and investment strategist Michael Hartnett reported results,
“Global growth expectations leap from -10% [of respondents expecting higher growth] in Oct to 23%, highest since Jul’21; US growth expectations jump from -22% to 28%. Global inflation expectations flip from -44% in Oct to 10%, 1st time since Aug’21 investors forecast higher inflation in next 12 months. Probability of “soft landing” down from 76% to 55%, “no landing” jumps from 14% to 33%, “hard landing” unchanged at 8%. FMS [fund manager survey] cash level rose from 3.9% to 4.3% for full month of Nov (clients raised cash pre-election), but post-election respondents reported 4.0% cash levels. Surge in investors overweight US stocks (from 10% to 29%, highest since Aug’13,), overweight small vs large (6% to 35%), overweight high yield vs investment grade (-3% to 41%, 3-year high).”
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Barclays analyst Amos Fletcher raised his price target for copper significantly,
“Higher copper prices needed to incentive supply: Our view is that at least $5.00/lb is required to generate a 15% unlevered IRR [internal rate of return] on a typical brownfield copper project [one with existing infrastructure that could be expanded] in Chile today, or for a 10% unlevered IRR on a greenfield project in Argentina. This reflects a 190% increase in brownfield capital intensity and a 22% increase in operating costs over the last five years, in turn supported by a number of structural trends: declining grades, mining equipment efficiency frontier, falling labour productivity and a 40% increase in permitting timelines over the last 15 years, among other factors. We raise our long-term copper price forecast to $5.00/lb from $3.75/lb as a result”
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Wells Fargo strategist Austin Pickle urges caution,
“For those investors hoping campaign promises translate into policy-targeted asset outperformance, we would urge caution. There are several instructive examples where investors put too much emphasis on perceived benefits of potential policy changes, only to see policy fail to materialize or policy benefits fail to translate into anticipated returns. For instance, when President-Elect Donald Trump won the 2016 election, the common thought was that the incoming administration would enact policies that would benefit areas like small caps, real estate, and traditional energy companies. Each of these saw a post-election pop that was near or above the broad S&P 500 Index through year-end 2016. However, this enthusiasm ended up being short lived as the fundamental supports for these investments were lacking and each underperformed considerably through the following 2020 election. A similar reaction and result occurred after President Joseph Biden took office with enthusiasm for clean-energy friendly policies. This encouraged short-term outperformance of related companies, only to have the group considerably underperform over the next four years.”
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Diversion: “Musical duo Simon & Garfunkel recently had emotional reunion after years of silence” – CBC