Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
Wells Fargo strategist Christopher Harvey believes Friday’s rally has legs,
“Friday Not a Short-Covering Rally. The Wells Fargo ‘Most-Shorted’ Portfolio (WFSSHORT) underperformed on Friday, as did higher-risk stocks. Value factors outperformed. This suggests Friday’s rally may be more durable than some expect, as it was driven by a pro-cyclical post-jobs report reaction—not by risk/short-covering. Oddly, this market action probably creates some positive investor sentiment since long-only’s are making money and short-sellers are faring better than one might expect.”
“WF says Friday not a short covering rally” – (research excerpt) Twitter
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RBC REIT analyst Pammi Bir sees more volatility in 2023 but likely less than 2022 (my emphasis),
“The path forward will likely prove bumpy… Despite the sector’s sharp correction last year, multiple factors still weigh on investor sentiment. Central banks remain on a tightening path to tame heated inflation, economic growth seems set to stall, geopolitical tensions have yet to ease, tax/regulatory risks persist, and we’re still sleeping with one eye open for new Covid variants … but less turbulent than our recent ride. While the broader macro picture still lacks good visibility, we believe some key ingredients are in place for the sector to deliver positive returns in the year ahead. Notably: 1) fundamentals continue to improve across most property types (~2-3% 2023E SP NOI [net operating income] growth); 2) earnings growth looks decent (4% 2023E); 3) replacement costs remain high; 4) corporate liquidity is strong; and 5) valuations seem reasonable… we believe fundamentals will return to the forefront in 2023, particularly as the economy downshifts to lower gear. Against this backdrop, our investment bias remains skewed to subsectors where we ex pect operational traction to remain more resilient, particularly in multi-family, industrial, self-storage, and defensive retail. Our Outperform ratings include: Allied, Boardwalk, BSR, CAPREIT, Chartwell, Dream Industrial, European Residential, First Capital, Granite, InterRent, Killam, Minto, Morguard N.A. Residential, RioCan, and SmartCentres”
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Suncor Energy Inc. (SU-T) is among Morgan Stanley energy analyst Devin McDermott’s top North American stock ideas,
“Over the past few weeks, some of the risks we highlighted in our 2023 Outlook (see here) have materialized: natural gas prices have corrected significantly lower (Henry Hub -35% over the past month), weakening economic data has put some short-term pressure on crude prices (-8% last week, after remaining fairly stable in Dec), and some negative estimate revisions have begun (’23 oil E&P EBITDA -4% over the past month, gas E&Ps -6%). On a relative basis, the sector has held up well. After underperforming crude prices by a fairly modest ~3% in December (but still beating the market), Energy resumed its multi-month trend of outperformance vs commodities to kick off the new year (E&Ps +7% vs crude last week, all Energy +8%)… While the near-term may stay volatile, we would be a buyer of weakness and remain constructive for 2023… Within oil producers, SU, MRO & FANG offer among the highest FCF [free cash flow] and shareholder return yields at [current futures prices]’
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Morgan Stanley chief U.S. equity strategist Mike Wilson warned that markets may be worse than consensus expects before they get better,
“Can the consensus be right?...This past week, almost all of our client conversations focused on the observation that both the sell and buy side are now closely aligned with the view of a tough first half due to the high risk of a mild recession, followed by a nice recovery in 2H. Our concern is that most are assuming “everyone is bearish” and, therefore, the price downside in a recession is also likely to be mild (SPX 3,500-3,600). On this score, the surprise might be how much lower stocks could trade (3,000) if a recession arrives "
“MS’s Wilson: “Our concern is that most are assuming “everyone is bearish” and, therefore, the price downside in a recession is also likely to be mild”” – (research excerpt) Twitter
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Diversion: “10 Things ChatGPT Can and Can’t Do” – Gizmodo
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