Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
BMO energy analyst Randy Ollenberger is looking for further upside for domestic oil and gas stocks,
“We anticipate another quarter of strong free cash flow for the oil and gas group despite volatile commodity prices. The cash windfall has translated to a significant reduction in net debt and rising shareholder returns. With free cash flow continuing to pour in and balance sheets repaired, we expect the group’s total return to accelerate in the coming quarters, which could lead to a valuation re-rating for the sector. We believe that the downside risk to oil prices in 2023 from a recession is overdone and that the sector remains very attractively valued.”
The reference to total return implies more dividend income for investors in the sector.
“BMO sees more total return from oil and gas sector” – (research excerpt) Twitter
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BofA Securities U.S. quantitative strategist Savita Subramanian sees investors believing the worst is behind us for equities while she believes the market bottom is lower,
“Last week, during which the S&P 500 was -1.6%, clients were net buyers of US equities for the fifth week. They bought stocks ($3.7B) and ETFs ($5.0B; $1.5B in equity ETFs while fixed income ETFs saw their biggest inflows ($3.5B) since Jan’17). Big inflows in the last several weeks suggest that investors may believe that the market has bottomed. One risk: only 20% of our bull market signposts have been triggered vs. 80%+ at prior bear market lows. Clients bought stocks across seven of the 11 GICS sectors last week, led by Tech (fourth week of inflows) and Communication Services (seventh week of inflows). Energy stocks saw the biggest inflows since early August. Real Estate and Materials stocks saw the largest outflows. Clients were big net buyers of stocks in foreign-exposed sectors for the second week vs. sellers of domestic sectors in aggregate. This earnings season, we expect the biggest headwind to y/y sales growth from FX since 2015 (-3ppt) and continue to see risk to large multinationals relative to domestics amid peak globalization.”
The bull market signposts that have yet to be triggered include Fed cutting rates, rising unemployment rates, two-year bond yield declines, and year over year purchasing managers indexes rising.
“BofA’s investors think the worst is over but BofA doesn’t” – (research excerpt) Twitter
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Citi economist Alex Saunders published a roundup of the firm’s dire outlook for the global economy,
“Winter is coming… and so are recessions. Rolling recessions across international markets are our economists’ base case for 2023 … This time is unusual, as stubborn inflation has kept pressure on fixed income, which usually rallies as recession risks rise and economies slow down. Energy also falls but geo-political considerations have kept prices high. We think US equities have priced the most (but not enough) recession risk, and earnings estimates have further to adjust. US bonds have priced the least risk, but it will take some time before bonds react to recession risks given the hawkish Fed. In sectors industrials and financials are underpricing recession risk. Trend-following does well in slowdowns; and we recommend the strategy as a strategic allocation … In relative terms, US equities have the most recession risk priced in and US bonds the least. Base metals have also not priced in risks sufficiently. IG is now pricing less recession risk than HY. In sectors, industrials and financials may underprice recession risk.”
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Diversion: “WHO Warns of Surge in Chronic Disease by 2030 If People Don’t Start Exercising” – Gizmodo
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