Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
BMO bank analyst Sohrab Movahedi published what he called a Q2/24 Express Postview of sector profit reports,
“The “Big 5″ under our coverage beat expectations in Q2/24. Operating earnings were ~$12 billion, up ~5% from a year ago (comfortably better than our expectation of 4% decline). It was a revenue-driven beat to our expectations with both expenses and credit provisions materially as expected. We made no changes to ratings and left our 2025 earnings estimates largely unchanged. We increased our target price by 4% at CM, lowered at TD by ~2% and left target prices unchanged at BNS, NA and RY. We reiterate our view that we are at or near an inflection point with prospects of improving earnings trajectory helped by improving pre-tax pre-provision earnings growth, plateauing of credit provisions and the potential for a recovery in ROEs, all of which are supportive of a higher valuation multiple. Our Outperform rated names among the large banks remain CM, RY and NA”
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Goldman Sachs chief U.S. equity strategist David Kostin surveyed US$6.1-trillion in global hedge fund and mutual assets to uncover trends,
“Seven stock positions were “shared favorites” following the latest rebalance of our Hedge Fund VIP and Mutual Fund Overweight baskets: DHR, FI, KKR, MA, UBER, V, VRT. These stocks are constituents of both GSTHHVIP and GSTHMFOW and have returned 1% YTD. Shared favorites have outperformed the S&P 500 in 64% of months since 2013 with an annualized outperformance of 3 pp. Hedge funds broadened into the AI trade while mutual funds remained close to their benchmarks. NVDA represents Phase I of the AI trade and its shares have soared by +129% YTD. We have defined the subsequent phases of the AI trade as infrastructure (+26% YTD), enabled revenues (-8%), and productivity (-4%). A basket of stocks positioned to benefit from AI infrastructure investments (GSCBAIP2) has performed best YTD, beating the S&P 500 by 16 pp. This helped lift the share of semis in the hedge fund long portfolio to a record high of 6.5% (including NVDA). Share price outperformance has lifted the weight of all AI-related stocks in the hedge fund long portfolio, and the share of hedge funds owning the average stock in each phase of the AI trade incrementally increased as well. In contrast, mutual funds carry benchmark weights in the average AI-exposed stock.
Quick web searches uncovered some of the members of the phase 2 of AI equity basket – ARM, Microsoft, amazon.com, Cisco Systems, Synopsys Inc., Monolithic Power Systems Inc., KLA-Tencor Corp., American Tower Corp. and Vertiv Holdings LLC.
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RBC Capital Markets head of global equity strategy research Lori Calvasina detailed how and why large cap technology stocks have returned to outperformance in Old Leadership Returns With A Vengeance ,
“Whatever bucket of old, safe, secular leadership one picks, it’s bounced back with a vengeance. Growth has hit new highs relative to Value within the R1000 [Russell 1000], the top 5 and top 10 names in the S&P 500 have hit new highs relative to the rest of the S&P 500 index in terms of performance and market cap concentration. There are a few reasons for this sudden stall in the rotation trade. First, the shift has occurred alongside a move up in 10-year yields and fading optimism around cuts. Second, earnings dynamics have shifted. After briefly favoring Value and the broader S&P 500 for much of the 1Q24 reporting season, the rate of upward revisions to sell-side EPS estimates shifted back in favor of Growth companies and the top 10 names in the S&P 500 in recent weeks, similar to what we saw throughout most of 2023. Looking at earnings dynamics a slightly different way, it’s worth noting that while the EPS growth advantage of the Mag 7 is still expected (by consensus forecasts) to shrink relative to the rest of the S&P 500 in 2024 and 2025, estimates of what that shrinkage will look like in 2024 have shifted a bit in the Mag 7′s favor in recent weeks. A third reason is that the strong economic tailwinds that breathed life into the rotation trade earlier this year have weakened slightly”
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Diversion: “TV Viewers Are Getting Old. Do Advertisers Care?” – The Ringer (podcast)