Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
The headline finding in BofA Securities’ popular monthly fund manager survey (FMS) is that 72 per cent of active managers believe inflation pressures are temporary. This leaves room for a negative, inflationary surprise in the quarters ahead if wage and input cost prices don’t begin to level off.
For Canadians, it’s perhaps more notable that commodities are now the most overweight market sector relative to history,
“FMS bottom line: investors bullishly positioned for permanent growth, transitory inflation & a peaceful Fed taper via longs in commodities, cyclicals & financials … 72% say inflation is transitory, 23% say inflation is permanent; FMS shows growth & EPS expectations have peaked but investors say investment cycle transitioning from early to mid-cycle (68% don’t expect recession until 2024 at earliest) … FMS on Sectors & Regions: banks #1 sector OW, chunky cyclical (materials, industrials, UK, Eurozone) positioning persists, but tech saw largest June jump in exposure, while defensives exposure cut again (UW in Utilities largest since Feb’17); asked what performs best next 4 years FMS investors say (barbell of) value stocks & tech stocks.”
“@SBarlow_ROB BoA fund manager survey summary” – (research excerpt) Twitter
“@SBarlow_ROB BoA: “long commodities’ is now the world’s most crowded trade’ - (research excerpt, chart) Twitter
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CIBC analyst Dennis Fong believes investors have given up on the heavy oil sector too soon,
“Despite the accelerating adoption of electric vehicles, we believe slower adoption in commercial vehicles could drive resiliency for heavy and synthetic oil as these grades produce more diesel and jet fuel over gasoline. We estimate the markets are currently discounting ~20 years of remaining life to oil sands equities, despite demand for those hydrocarbons extending past 2050, suggesting upside for the group … We believe oil sands production could see resilient demand as heavy and synthetic grades produce up to ~39% middle distillates per barrel compared to conventional light barrels, which produce up to ~29%. Further, we see incremental potential and resilient demand for end products like asphalt as infrastructure spending persists post-pandemic. .. Electric vehicle uptake has and will continue to be a risk to oil demand growth, but the development of technology, market penetration and its practicality are not likely to make a significant impact until 2030 at the earliest.”
Mr. Fong currently has outperform ratings on Canadian Natural Resources Ltd., Suncor Energy Inc., Whitecap Resources Inc., Crescent Point Energy Corp and MEG Energy Corp.
“@SBarlow_ROB CIBC: Investors have given up on heavy oil too early” – (research excerpt) Twitter
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The giant spike in North American lumber prices didn’t last long, but BMO economist Carl Campus doesn’t believe supply constraints have gone away,
“Since peaking at US$1670/mbf [thousand board feet] in mid-May, the Random Lengths framing lumber composite price has tumbled by over $600 and appears destined to sink below the $1000 mark for the first time since midMarch—neatly unwinding the prior two month surge. So what happened? While fundamentals for U.S. housing demand remain largely intact (i.e., low interest rates, work-from home trends, etc.), the softer-than-expected April housing starts (released back on May 18th) was clearly a turning point for market sentiment. With demand finally blinking, the supply side appears to have gained a better footing”
“@SBarlow_ROB BMO explains lumber price volatility” – (research excerpt) Twitter
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Newsletter: “Stocks with pricing power to combat inflation” – Globe Investor
Diversion: “It’s Going to Be Way Too Hot in the [Western U.S.] This Week” – Gizmodo
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