‘We suspect that an ‘air pocket’ of equity market turbulence is out there’: Citi strategist

‘We suspect that an ‘air pocket’ of equity market turbulence is out there’: Citi strategist

Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow

Citi’s U.S. equity strategist (and Montreal native) Tobias Levkovich joins the chorus concerned about the short-term path of equity markets (my emphasis),

“US equity fund inflows over the last couple of weeks … have pushed up stock market indices with a notable value bias. Vaccine news has further buoyed spirits … the Russell 2000 has outperformed the S&P 500 since the end of September (by roughly 1500 bps) indicating a shift toward cyclicality and away from overly crowded secular growth names … The key question we hear now is – has the market discounted all the good news about recovery and reflation? Clients appear concerned about the possibility that it is too late to jump in. A few fund managers are reviewing charts and assessing the extent of breakouts and others feel that the S&P 500 is extended with minimal upside. Our Panic/Euphoria Model continues to suggest caution … In the past, P/E multiples exceeding 20x have resulted in poor returns looking out 12 months. At the very least, we suspect that an “air pocket” of turbulence is out there, be it caused by lack of government stimulus, the rising numbers of new infections lifting fears of economic weakness, geopolitical events or something else, including unsustainable upward EPS estimate revisions not to mention the timing of vaccine availability”

“@SBarlow_ROB Citi: “we suspect that an “air pocket” of [equity market] turbulence is out there” – (research excerpt) Twitter

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Public spending deficits have reached mammoth proportions in Canada, but bond markets remain largely untroubled. CIBC economist Avery Shenfeld explains why,

“For the bond market, this year’s deficit isn’t actually as material as you might think. Not because it isn’t a huge number by historical standards … whether we’re still near $350 bn, or well over $400 bn, we’re certainly talking about “real money”, a deficit level that is far from what can be sustained beyond this year. But there’s reason believe that, by 2022-23, the deficit can be hundreds of billions less than we’re now seeing … On the revenue side, there’s likely $100 billion or so in missing funds in Ottawa’s coffers due to the depressed level of activity, money that should come flooding back in a post-vaccine world… the key to fiscal sustainability in the medium term, and to avoiding the need for heavy future tax burdens, is to keep a firm handle on the billions here and billions there allocated to programs that will outlast the pandemic and that don’t have offsets somewhere else in the expenditure pie”

“@SBarlow_ROB CIBC: “for the bond market, this year’s deficit isn’t actually as material as you might think” – (research excerpt) Twitter

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A Bloomberg feature detailed the new “Green Supermajors’ in the energy sector with a number of surprising facts and informative graphics,

“The tipping point may come next year, when Goldman Sachs Group Inc. projects that spending on renewable power will overtake that of oil and gas drilling for the first time. And it’s all happening as the electrification of automobiles and heating in buildings start to take root. ‘Over the long term, electricity is going to steal market share from other sources of energy,’ says Shayle Kann, a managing director at Energy Impact Partners, a New York-based investment fund. Clean supermajors overtook fossil fuel giants. Florida-based NextEra Energy Inc., the world’s most valuable utility, briefly surpassed Exxon Mobil Corp. in market capitalization in early October. It wasn’t a one-off. Enel, Iberdrola and Orsted are now worth more than comparable oil majors, underscoring how mainstream clean energy bets have become for investor “

“The new energy giants are renewable companies” – Bloomberg

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Newsletter (Friday): “Bank of America’s favoured sectors for 2021 are good news for Canada” – Globe Investor

Diversion: “The Monster Publishing Merger Is About Amazon” – The Atlantic

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Published at Mon, 30 Nov 2020 12:50:34 +0000