Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
Scotiabank strategist Hugo Ste-Marie attempted to assess the some market winners and losers from the election result,
“US equities rallying, small caps surging. While US equity futures were up over 1% very early in the morning, when Trump was declared President elect, gains accelerated even more, with S&P 500 futures now pointing towards a 2%+ open this morning. Still, two points worth noting here: 1) Nasdaq futures are up less than S&P 500 futures (strong dollar + rotation into laggards), and R2000 futures are powering ahead with a 6%+ gain! Hopes for less regulation and tax cuts are boosting investors’ sentiment, and equity futures are pointing towards strong gains at the open. International equities - some winners and losers. While we see green in Europe and most of Asia, China ended lower, with HK off more than 2%, likely on tariffs fears. Canadian equity futures (TSX 60) are also rising, but to a lesser extent (0.9%). US equities appear well positioned to continue to outperform … Bond yields are surging especially at the long-end of the curve, with 10s up 17 bp to 4.45% and 30s gaining 21 bp to 4.66%%. Fears of mounting deficits/debt and sustained inflation explain the move upward … Currencies - dollar reigns supreme. USD is firmer against most major currencies (DXY up 1.8%), including the CAD, which is reverting back below the US$0.72 level again. The Trump election suggests the interest rate differential between the Fed and the BoC, which is already wide by historical standards, could widen even more … No real surprise here, copper is really the one underperforming overnight, losing over 3%. As flagged in our commodity report in September ... a Trump victory is likely to slowdown the green transition”
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Equity market futures ramped higher on the Trump win, and Wells Fargo strategist Christopher Harvey thinks a rally to year-end is in the offing,
“We raise our 2024 SPX target to 5830 from 5535, assuming 21.6x (was 20.5x) 2025E EPS of $270 (no change). The multiple expansion assumes our Econ Team’s year-end 10yr UST forecast of 3.8% and the current investment-grade (IG) credit spread of 83bps … This year many outperforming portfolios have been aligned with Growth and Price Momentum factors. A broadening out of the market and a move down cap will be a challenge to many active managers — as it was back in July (see exhibit below). Buy the Election. In the late summer/early fall we advised investors not to “sell the first rate cut,” but rather “buy the election” as 12mo returns following the last six presidential elections and the last six easing cycles have seen median and average returns for the major indices in the double digits. Also, in our view we have under-appreciated economic growth, a solid earnings season (SPX Q3 to date: EPS 6.6% and sales 1.5% above consensus), tight credit spreads, and positive momentum … . We have an overweight on the Banks, and would buy on strength as the regulatory change with a new administration is expected to support group multiples and earnings”
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Wolfe Research analyst Tobin Marcus discussed the importance of the vote count in the House of Representatives,
“The House is still up in the air—we expect a red sweep, but we may not know for a while. We’ve always argued that conditional on a Trump win, Republicans would likely win the House and thus secure a GOP trifecta … We would guess Rs narrowly win given the breadth of Trump’s gains … House control is relevant to markets primarily in terms of fiscal questions—tax cuts, IRA rollback, ACA tax credits, Medicaid cuts, and deficits/rates. If Rs fall short in the House, that would be bullish for clean energy and for healthcare names levered to Medicaid/ACA, and bearish for REITs and MLPs based on sector-specific tax risks. Other elements of the Trump policy agenda don’t depend on Congress. His proposals on tariffs, immigration, and deregulation rely on Presidential authority, with no need for legislation, so markets can price these without waiting for the House”
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