September 27, 2022
A day by day roundup of analysis and evaluation from The Globe and Mail’s market

A day by day roundup of analysis and evaluation from The Globe and Mail’s market strategist Scott Barlow

Earnings revisions, among the many most essential elements driving fairness market returns, proceed to weaken in keeping with Morgan Stanley’s U.S. fairness strategist Michael Wilson,

“As anticipated, earnings revision breadth has moved into adverse territory however isn’t adverse sufficient but to take NTM [next 12 months] EPS down. Within the absence of an apparent shock like a recession, corporations are gradual to information down. This time ought to be no totally different which implies shares can grasp round present ranges till 2Q earnings season … Actual Property has seen the strongest revisions over the previous 4 weeks. Meals Beverage & Tobacco, Industrial and Skilled Providers and Supplies have additionally seen a constructive change in revisions. The weakest revisions have come from shopper and tech trade teams. Meals & Staples Retailing revisions have collapsed over the previous 4 weeks as issues over price pressures hit the house. Shopper Discretionary has additionally seen continued weak point in revisions over the previous 4 weeks. This weak point has been pushed by Shopper Durables & Attire and Retailing. Tech {Hardware} has additionally seen weak point in revisions breadth … “

Mr. Wilson is looking for a market backside throughout second quarter earnings seasons right here.

“MS’s Wilson: “shares can grasp round present ranges till 2Q earnings season when the subsequent leg decrease is more likely to start and finish.” – (analysis excerpt) Twitter

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BofA U.S. quantitative strategist Savita Subramanian warned shoppers to not try to backside fish in expertise shares,

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“Tech was the very best sector by a large margin over the past decade (+145ppt vs. SP500) however peak liquidity, trough charges, inflation, passive fund volatility/crowding, anti-monopolistic rumblings and near-shoring stress characterize dangers. Tech has additionally traditionally been the worst performer throughout stagflation (Exhibit 11). Furthermore, cyclical tailwinds are reversing – COVID pulled ahead demand and created tough comps … When is it time to purchase Tech? Once you cease asking. Within the aftermath of the Tech Bubble, it took a number of years for Tech to backside, however solely after many corporations went away, those who had been left consolidated capability, shored up capital, and most significantly, after buyers had given up on the sector. At present, that isn’t the case: display requests are dominated by “washed out Progress and Tech”, Tech and TMT are nonetheless essentially the most chubby sectors, Progress nonetheless trades one std. dev. costly vs. Worth. Regardless of what seems like a violent rotation, Progress nonetheless leads by 335ppt since 2008, however over the lengthy haul (again to 1926) Worth has outperformed Progress by 3.6ppt every year”

It’s attention-grabbing that the requests for inventory screens from BofA shoppers are for ‘low cost’ tech shares and I believe Ms. Subramanian is making key factors right here, notably that energetic funds are nonetheless chubby the sector. Typically phrases, it’s probably time to maneuver on from tech shares for some time.

“BofA: “When is it time to purchase Tech? Once you cease asking”” – (analysis excerpt) Twitter

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Like Mr. Wilson, Citi strategist Edward Morse seems to be calling a market inflection level within the near-to-mid-term, this time a possible market prime for oil,

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“We revise up oil costs on a delayed Iran deal and marking 2Q to market, however proceed to see a downward pattern to costs after a spiky near-term interval. Russian oil manufacturing and exports proceed to be eroded, however reconfigured flows to Asia might imply they don’t fall fairly as a lot. Different provide continues to be rising, however Iran stays a wildcard. In the meantime, demand continues to see important draw back dangers … We proceed to see US crude output progress at +0.7-m b/d in 2022 … +1.3-m b/d crude output in 2023 … Elsewhere, Argentina, Brazil, Canada, Colombia, Guyana, Norway are rising … demand is being eroded on China lockdowns, financial slowdown, and excessive costs. Gasoline-to-oil switching might ease going ahead, as European and Asian pure gasoline costs at the moment are again under diesel-equivalent costs”

The quantity of Russian oil going to CHina is an under-covered story in my view – I don’t have knowledge but.

“Citi’s Morse sees a near-term peak for oil costs” – (analysis excerpt) Twitter

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Diversion: ” Does Espresso Assist You Dwell Longer? It’s Difficult” – Gizmodo

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