Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
Goldman Sachs U.S. equty strategist David Kostin provided a helpfully succinct roadmap for investors in his Weekly Kickstart report,
“Recent discussions have focused on peaking US GDP growth and the capital gains tax hikes proposed by President Biden. Investors buying S&P 500 as growth peaked have typically realized negative short-term returns and weak 12-month returns, consistent with the 3% upside to our year-end target of 4300. Although cyclical outperformance usually fades as growth slows, accelerating global growth supports owning internationally-exposed cyclical stocks. S&P 500 returns have also been weak ahead of past capital gains tax hikes, but selling was short lived and reversed afterward. We estimate $1+ trillion in unrealized capital gains for the wealthiest US households, but also large cash balances that should support equity demand.”
Mr. Kostin’s phrase “accelerating global growth supports owning internationally-exposed cyclical stocks” is good news for domestic resource-related stocks but possibly less so for exporters dependent on U.S. economic activity.
“@SBarlow_ROB GS’s Kostin with a good succinct roadmap for investors’ – (research excerpt) Twitter
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Citi U.S. equity strategist Tobias Levkovich’s view is not much different than Mr. Kostin’s, but, in As Good as it Gets, he frames his outlook in more pessimistic terms,
" Our Panic/Euphoria Model remains in euphoric territory too. With historical probabilities still calling for a roughly 10% drawdown, it is hard to be upbeat. We stress that we do not envision a bear market, barring exogenous shocks, but the risk/reward ratio seems unfavorable … he spread between buying winners and avoiding losers has been the best strategy for the past four years by a wide margin. The intense focus on stocks versus bonds, or even within currencies and commodities, were money makers, but equity selection has been more impressive … Consensus top-down earnings are now pushing close to $200 in 2022 though no corporate tax hike or profit margin pressures are captured in those forecasts. Stock prices appear to be discounting much good news, thus the focus on catalysts for a market correction continues with many clients wondering about inflation, taxation, Fed policy adjustments, elevated profit expectations, vaccine-resistant Covid strains, and potential problems with additional fiscal bills’ passage.”
“@SBarlow_ROB Citi: Now is ‘As good as it Gets’ for Investors” – (research excerpt) Twitter
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Morgan Stanley does not believe Bank of Canada hawkishness will feed through to the Fed, while providing some illuminating charts on domestic job growth versus the U.S.,
“There are other important differences between the BoC’s approach to tapering and the Fed’s approach. First, the labor market. Until the BoC’s January meeting, the Governing Council had not provided clear guidance for when it would start tapering asset purchases (analogous to the Fed’s ‘substantial further progress’ ). The BoC had signaled the “recovery being well underway” as the point at which it would conclude its asset purchases (and move to reinvestment), but not when it would begin to reduce its purchases, like the Fed… Deputy Governor Schembri appeared to supply that answer in a speech the next day. Schembri highlighted that the 850k jobs lost since the onset of COVID-19 was a key benchmark the BoC was using to measure the strength of the recovery. Since then, the Canadian labor market has shown surprising resilience. Statcan announced that the Canadian economy added over 560k jobs. The rebound in Canada labor market relative to the US is notable”
“@SBarlow_ROB MS: “% of total jobs lost from pre-pandemic levels: US vs. Canada”' – (charts) Twitter
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Diversion: “India Is a Warning” – The Atlantic
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