A roundup of what The Globe and Mail’s market strategist Scott Barlow is reading today on the Web
Credit Suisse’s highly ranked strategist Andrew Garthwaite published his annual “10 surprises for 2020” report, highlighting the most likely ways that markets could defy his base case scenarios.
The 10 potential surprises are: a 25-per-cent rally for the S&P 500; Japan as the top performing global equity market; a sharp rally in the euro; oil as a top performing sector; a global surge in green-related infrastructure spending; China’s economic growth slows to less than 4 per cent; U.S. 10-year bond yields above 3.0 per cent; a bear market in credit; technology stock underperformance and a funding crisis in Italy.
A fall in technology stocks would have the biggest effect on investors because they currently dominate index returns and passive index investors would also get hit,
“Semis, software and hardware were the three best performing sectors in 2019 in the US. Since 2000, 61% of the time the top three performing sectors in a year have underperformed the following year. Regulation may pose a threat to technology. The DoJ’s Antitrust Division is reviewing how some of the world's largest technology companies have grown and whether their business practices reduced competition or hurt consumers … For parts of tech, valuations are starting to look extended. This is especially the case for software and semis, where the 12m forward P/E relative looks clearly elevated”
“@SBarlow_ROB Garthwaite: 10 potential market surprises for 2020” – (research excerpt) Twitter
The question as to where we are in the market cycle sounds like an academic exercise but it’s actually an attempt to predict the onset of the next bear market.
Citi strategists Robert Buckland and Matt King weighed in on the issue in a report issued Friday,
“[Buckland]: 'I think we are in the late cycle, typically characterized by narrowing market leadership and growth stock outperformance. Therefore, it is no surprise to me that two of the biggest trades of this cycle (US equities and Tech stocks) continue to lead the way …
[King]: ‘While in outright terms it is hard to argue against it being anything other than late cycle, what mostly strikes me is what an unusual cycle it’s been – and indeed how in many respects the usual concept of the cycle hasn’t been very helpful. So while we’ve never really had the market melt-up and associated exuberance which preceded the last two recessions, at the same time in late 2018 it really did feel like end-cycle – and you were temporarily supposed to trade it like end-cycle - with both credit and equities selling off and investors pulling money from both asset classes.’”
“@SBarlow_ROB C: Where are we in the market cycle?” – (research excerpt) – Twitter
B of A Securities quantitative strategist Savita Subramanian notes that U.S. equities are more expensive on PEG ratio (PE ratio divided by profit growth) than at any time since 1986 – that includes the tech bubble,
“The S&P 500 is running on fumes: the 4.5% gain since November was driven by a higher forward P/E (+3.5%), and the current P/E of 18.4x represents an 18 year high. The PE to Growth ratio sits at 1.8x, a record high in our time series back to 1986 … Our 2020 year-end target of 3300 on the S&P 500 … (less than 1% upside from the current levels) suggests that we have pulled forward some of the gains from later this year”
The strategist favours health care stocks,
“Health Care (HC) maintained its top spot in our tactical quant framework for the third consecutive month … HC also screens best heading into the 4Q earnings season based on metrics most predictive of a high beat ratio.”
“@SBarlow_ROB Subramanian: "The S&P 500 is running on fumes" - buy health care stocks” – (research excerpt) Twitter
Diversion: The essay “The Internet of Beefs” is being circulated everywhere today and with paragraphs like this, it’s not hard to see why,
“The semantic structure of the Internet of Beefs is shaped by high-profile beefs between charismatic celebrity knights loosely affiliated with various citadel-like strongholds peopled by opt-in armies of mooks. The vast majority of the energy of the conflict lies in interchangeable mooks facing off against each other, loosely along lines indicated by the knights they follow, in innumerable battles that play out every minute across the IoB.”
“The Internet of Beefs” – RibbonFarm
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