Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
Wells Fargo senior global market strategist Sameer Samana thinks investors should buy the dip in the crude oil sector,
“The [crude] sell-off has been driven primarily by concerns of slowing economic growth in the U.S. as well as worries that planned future increases in oil production by the Organization of the Petroleum Exporting Countries (OPEC) will overwhelm demand, leading to further declines. Our view is that markets are probably overreacting to both issues, which presents an opportunity in Commodities and the Energy equity sector. With respect to U. S. economic growth, while it is fair to say things are slowing (and we have anticipated this slowdown), we do not currently believe the economy is headed for a hard landing Instead, we expect a saucer-shaped path, where growth downshifts until the economy works off excesses and rebuilds savings. It is also worth noting that international growth is starting to recover and should help soften any deterioration in oil demand. On the OPEC front, while the timing for returning supply to markets is not ideal, most investors eventually expected an uptick The fact that it is some months away gives additional time for economies outside the U.S.. to continue improving and for the US. economy to move further along the base of the saucer. We believe investors should use the recent weakness in oil prices to add exposure to Commodities and the Energy equity sector, both currently rated favorable in our guidance. The chart below suggests that crude oil is oversold within an uptrend and may find support in the high $60s or low $70s”
Wells Fargo energy analyst Roger Read focuses primarily on U.S. companies but does have an overweight rating on Suncor Energy.
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BofA Securities equity and quantitative strategist Savita Subramanian is adamant that a new U.S. market cycle is underway and that large-cap value stocks are set to outperform,
“We remain constructive on the S&P 500 for largely the same reasons as in but our conviction has waned given the thawing of extreme bearish sentiment … Stagflation is back on bears’ lips. But zooming out from the last few quarters reveals that delinquencies, PMI, labor tightness, retail sales, and most other gauges of economic health are simply normalizing from unsustainably high levels. We see healthy, not recessionary, macro trends … the buyside disagrees with us: funds are overweight expensive growth stocks and have the lowest beta tilt since the GFC. But our US regime indicator is in ‘Recovery’, supporting value and risk … Value sectors Energy and Financials have been capital starved, trained to survive higher hurdle rates, Energy has newfound supply discipline and large banks may be the only lenders left after regionals and private credit/equity took the lion’s share post-GFC.”
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BMO senior economist Robert Kavcic muses about whether the housing market might provide a letdown after the interest rate cut,
“Most market participants have been eagerly awaiting this cut, and there will surely be a psychological boost now that the peak of this rate cycle has most likely been set. But, at the same time, a 25 bp trim to variable rates from 23-year highs is very little actual relief when most borrowers have already moved to lower fixed-rate mortgages … Over the latest 12 months, variable-rate mortgages have made up less than 10% of new lending … if the market is mostly operating on fixed rates right now, this week’s move doesn’t alter the calculus much … Even with the correction in home prices and the recent decline in fixed mortgage rates, affordability is still strained. Immediately returning affordability to pre-COVID levels would require either mortgage rates backing down to slightly below 4%; a 12% decline in home prices; or a like-sized jump in income levels—in reality, some combination of all three plays out over time. But the point here is that valuations are still a limiter on how quickly the market can rebound in the short term … Sales in Toronto and Vancouver were each down roughly 20% y/y in May, while active listings were up significantly—83% higher than a year ago in Toronto and 46% in Vancouver. The number of active condo listings in Toronto has never been higher, and single-detached listings are approaching post-GFC highs”
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Diversion: “Interstellar Space Clouds Triggered the Ice Ages, Research Suggests” – Gizmodo