A daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
BofA Securities’ U.S. quantitative equity strategist Savita Subramanian, somewhat tongue in cheek, lists the two biggest risks for 2023 as: No. 1. Not owning equites and No. 2. Owning the wrong equities,
“Our 2023 outlook is for a year of two halves: near-term downside risk amid a recession, earnings cuts and QT / persistent inflation driving the S&P 500 to as low as 3000, then a snap-back as uncertainty, rates volatility and earnings revisions improve (Year Ahead). This view is now firmly consensus on the buyside and the sell side … Our long-term valuation model now forecasts healthy +5%/yr price returns over the next decade, compared to negative returns predicted at the beginning of 2022 … 2022 emphasized the risk of being invested in the wrong stocks. 62% of stocks are ahead of the S&P 500, the best market breadth since the Tech Bubble. Just by simply owning the equal-weighted S&P 500, one could have outperformed the cap-weighted S&P 500 by 7ppt YTD … We expect another volatile year and recommend owning High Quality stocks (Sleep at night). But today’s High-Quality stocks look different than a few years ago (e.g. Energy & Financials are much higher quality today). We expect dividends to represent a much bigger chunk of total returns going forward – we highlight steady eddy Quintile 2 [second quintile highest dividend yield]. We expect re-shoring to drive a robust capex cycle over the next few years”
At base, Ms. Subramanian’s advice is to own U.S. stocks, but not any of the 50 largest companies.
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BMO senior economist Sal Guatieri highlights a big change in inflation pressure – it is now focused on services instead of goods,
“Look no further than the two ISM surveys to see what the Fed is up against. While goods inflation is now falling with help from lower resource prices and improved global supply chains, services prices continue to boil, largely due to rapid wage growth. In fact, the price gap in the ISM surveys is the widest on record (back to 1997). Without a material decline in services inflation, the Fed stands little chance of achieving price stability.”
“BMO notes a change in U.S. inflation pressure” – (research excerpt) Twitter
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Also from BMO, the firm’s U.K.-based metals and mining analyst Colin Hamilton published Metals & Mining: Key Themes for 2023 but, there’s 18 themes, more than I can handle here. Most of note,
“What is becoming clear is that goods prices are weakening as consumers push back against price hikes, particularly in the U.S., while service costs (notably shelter) remain brisk … For metals, we expect durables demand to be particularly weak, given the pull-forward of such spending during the pandemic … [Chinese] real estate developer activity may not be the force it was in previous cycles, but it may not be as much of a drag on global metals demand into 2023 … For raw materials however, visible inventory cover is extraordinarily low. This is true not just for metals but for oil as well, and yet this situation garners little attention … Strategic buying could exacerbate the supply problem. It is not only consumers that are worried about security of supply. In a world where energy transition spending is increasingly crucial to medium term energy independence, numerous governments are seeking to ensure they are not constrained in their plans by a lack of raw material supply … Whether to solve raw material constraints, boost operational efficiency or to drive decarbonization, the global metals and mining industry has started to invest more significantly in technology. Almost every major copper miner is funding new pilot processes to boost recoveries from low grade raw material, while alternative ironmaking is having a strong renaissance. Furthermore, the level of investment in small modular nuclear reactors has picked up significantly. "
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Diversion: “The Best TV Shows of 2022″ – The Ringer
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