Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
Morgan Stanley chief investment officer has been too bullish in recent quarters but was partially vindicated with recent market volatility. His weekly report includes a Fresh Money Buy List of stock picks that is now tilting defensive,
“Our view remains that growth is now the primary concern for equity investors, rather than inflation and rates. In that context, bond markets believe the Fed is behind the curve and this risk is not priced into current equity multiples, in our view. While data will determine the ultimate direction of policy and markets, we don’t think it will be definitive in the short term, leaving markets to trade in a range (5000-5400) that assumes a soft landing is still the base case. Given we closed the week at the top end of that range, we still think it makes sense to skew more defensively in one’s portfolio … Today’s note features a Quality + Defensive single stock screen as we continue to recommend this cohort amid macro uncertainty. This screen is limited to stocks with Morgan Stanley Overweight ratings as we focus on long ideas where our analysts have conviction”
The three stocks added to the list are Public Service Enterprise Group, Abbvie and Northrop Grumman Corp. The rest of gratifyingly focused list is CenterPoint Energy Inc., Coca-Cola Co., Colgate-Palmolive Co., McDonald’s Corp., SBA Communications, Verizon Communications and Walmart Inc.
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BMO senior economist Robert Kavcic made some observations about labour force stresses that are a bit alarming in socioeconomic, political terms,
“The 6.4% unemployment rate is up 1.6 ppts from the 2022 cycle low and 0.9 ppts in the past year, while the employment rate has plunged below 61%, matching the lowest level since 1999—the job market simply can’t absorb the influx of people, and hasn’t been able to for a while … Employment conditions for Canada’s youth are not good. The youth (15-24) unemployment rate rose to 14.2% in July, the highest non-pandemic reading in over a decade. By comparison, prime-age unemployment is up 0.4 ppts year-over-year … Job growth in the private sector has stalled, and that’s concerning. Private-sector employment was up 0.6% y/y in July and 0.5% annualized over the latest 6 months, a sharp slowdown from earlier in the cycle. Headline employment has masked this weakness because the public sector keeps on hiring, with employment there up a massive 4.8% y/y …: Industries typically considered more at the mercy of the economic cycle are exhibiting more hiring weakness. Notable examples include manufacturing, construction and trade”
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Citi published its monthly report on the world’s top performing investment themes,
“Cyber Security is currently the most attractive theme backed by strong Estimates Momentum. The recent Citi CIO survey also highlighted continued growth potential for this theme as well as signs that cyber security budgets can be more robust than other IT spends against reallocation to AI projects. The group of least attractive themes still contains several Sustainability-related themes. These themes rank towards the bottom on Momentum as well as Quality/Risk metrics. Novel Biothreats is the bottom ranked theme again as it is expensive and has had poor momentum.
Strong Healthcare Theme Performance — In July, 8 out of the 10 best performing themes were Healthcare themes. In part this seems driven by the defensive role of the sector during the risk-off market in the latter half of the month … The largest jump was for the Video Gaming and Virtual Reality themes which went from 79th ranked to 38th and 49th to 11th respectively”
Companies with exposure to the most top themes are Samsung Electronics, SK Hynix, Amazon.com, Alphabet Inc., TSMC, Samsung Electro-Mechanics, MercadoLibre, LG Electronics and Alchip.
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JP Morgan strategist Mislav Matejka expressed bearish views in more strident terms than Wall Street usually uses,
“We remain concerned about the backdrop for stocks, there could be further bouts of weakness as we progress through summer. Activity is weakening, negative earnings revisions resumed, concentration risk and geopolitical uncertainty are elevated. Fed will start cutting, but this might not drive a sustained leg higher, as the cuts might be seen as reactive, and behind the curve.”
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Diversion: “Which concerts are the most expensive to see on a per-minute basis?” – A Journal of Musical Things