Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
Wells Fargo analyst Christopher Harvey sees the early signs that U.S. food inflation is fading, a trend that hopefully crosses the border,
“This week’s May24 quarterly disclosures from General Mills and McCormick suggest retail food inflation has been sinking fast. GIS’s NoAm Retail year-over-year price/mix effect on sales was -1%, down from Feb24′s +3% and the year-ago +11%. Similarly, the price impact on MKC’s y/y Consumer revenue was -0.8% in the May24 quarter, down from Feb24′s +2.9% and the year-ago +8.5%. Still, May24′s y/y core volumes were weak at both units (GIS, -6%; MKC, +0.3%)”
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BofA investment strategist Michael Hartnett covers a lot of ground with sentence fragments in his weekly Flow Show report,
“The Price is Right: investors “long the rich sectors” (Magnificent 7) & “short the poor sectors” (e.g. REITs/small cap/ARKK); cyclical “middle class sectors” (industrials, homebuilders, resources, Nikkei, DAX) rolling over, MSCI ACWI [all country world index] equal-weighted index now -0.6% YTD … US manufacturing suffers (note manufacturing states of PA, WI, MI will decide election)… The Biggest Picture: Biden & Trump responsible for 2 largest deficits of past 80 years (Chart 2); but inflation #1 issue for electorate, US govt spend -2% (rolling 12-month basis), fiscal excess wanes bigly in Year 1 new Presidential cycle”
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J.P. Morgan’s global research team published their expansive mid-year outlook,
“Global growth is moderating from its robust 2023 pace but the expansion is moving onto firmer ground. The world is becoming less dependent on US demand as global capex and European consumers pick up. These developments are generating a modest recovery in global manufacturing … US [economics]: We expect growth will continue to moderate in 2H24, with a 1.0% average growth pace for the remainder of the year … US: “Higher for longer” has favored size and quality spreads relative to an average company that is more cyclical and rate sensitive. These beneficiaries were amplified by the mania in AI/LLM stocks to a point where Momentum Crowding and Stock Concentration are now at multi-decade extremes. For this trend to continue in 2H, S&P 500 Mega Caps will need to keep revising estimates higher and maintain price momentum. In our view, this will be a challenge with the hurdle for consensus growth high while valuation and investor positioning are at or near highs of this cycle … Among our top long recommendations by sector and in order of preference: 1. Given the latest sell-off, agricultural commodities like sugar and wheat move to the top of our list of preferred longs, with a projected 30% and 25% return, respectively, by year-end. 2. After being dropped from our top long trade recommen[1]dations at the end of April, after reaching our $90 Brent target one month early, oil is back on the list. Given the seasonal uptick in oil demand, refinery runs, and ongoing weather risks, and as OPEC and its allies extend produc[1]tion cuts through 3Q24, oil balances should tighten and inventories should begin to draw during the summer months. Expected inventory draws should be enough to get Brent oil into the high $80s-$90 range by September”
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Citi analyst Atif Malik presented the most succinct framework for AI investment opportunities I’ve seen so far,
“AI infrastructure can be comprised of three pieces: compute (including HBM memory), networking, and external storage. As the AI trend continues, we believe chip companies – primarily the AI accelerators such as Nvidia and the memory chips – will continue to be the early primary beneficiaries, followed by networking companies like Arista which provide products connecting the AI accelerators (Ethernet) this year. Finally, on the devices side, we expect companies such as Apple, Dell, and HPQ to see more on-device AI sales next year”
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Diversion: “Scientists Make ‘Living’ Skin for Smiling Robots in Horrifying Vision of the Future” – Gizmodo