‘Super-Cyclicals: Stocks for an Accelerating Economy’

‘Super-Cyclicals: Stocks for an Accelerating Economy’

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

Credit Suisse quantitative strategist Patrick Palfrey develops an interesting new index and U.S. stock list,

“GDP is limited as an economic indicator given its quarterly reporting cycle. By contrast, many market-based measures provide a more timely indication of economic prospects. Our work finds that, taken together, Treasury yields, HY spreads, and commodity prices (oil and copper) are extremely useful as a proxy for changes in GDP. We call this combined measure the Economic Acceleration Index (EAI)… While investors have bid up stocks most directly tied to the reopening, we believe focusing on the most economically-sensitive names should prove even more advantageous. The list of names [below] identifies the companies with the highest correlation to EAI”

The stocks with the highest sensitivity to the EAI are listed by sector. For energy, Apache Corp. and Continental Resources Inc. top the list as ‘super-cyclicals’ – more than twice as sensitive to the EAI than market average. Freeport-McMoran Inc., Chemours Co. and Huntsman Corp. are favoured in materials. United Rentals Inc., Colfax Corp. and Air Lease Corp. are the industrial super-cyclicals, while Wynn Resorts Ltd., PVH Corp. and MGM Resorts International are the picks for consumer discretionary industries.

“@SBarlow_ROB CS: “Super-Cyclicals: Stocks for an Accelerating Economy” – (research excerpt) Twitter

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Yesterday’s U.S. market action was the clearest indication of a market rotation away from pandemic-proof technology and utilities stocks and into the economically-sensitive sectors that are expected to benefit from an economic recovery.

Energy stocks led the market, higher by 3.5 per cent for the day. Financials, which benefit from economic activity and the steeper yield curve that accompanies recoveries, were next with a 1.0 per cent gain. Technology stocks were the worst performers, down 2.3 per cent. Utilities, where investors hide during recessions, don’t perform well in periods of rising bond yields and they were down 2.0 per cent on the day.

“@SBarlow_ROB S&P 500 market action yesterday was very rotation-y” – (chart) Twitter

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Jamie Powell from the Financial Times details what he calls “The Electric Vehicle Crash”,

“As it turns out … speculative energy is not as renewable as the one these stocks are hoping to profit from. Across the board, nearly every one of the charging, EV and battery companies that is long on hope and short on profits is down more than 20 per cent from their all time highs. Bear market territory. In fact the moves have been so violent over the past month that most of the names are now lagging the traditional automakers. Ford, that near-century-old dinosaur, has even outperformed Tesla over the past three months, perhaps propelled by the near-universal love for its new electric car, the Mach-E.”

“This is nuts, this is the electric vehicle crash” – FT Alphaville (paywall)

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Citi analyst Aakash Doshi published some interesting views on commodity sectors in a Monday research report,

“The most palpable reason gold investment activity may have flipped to net outflows in recent months seems to be an expanding investor base if not an outright preference by some institutional players for digital alternative assets. “Flows” data are more opaque for cryptocurrencies and quite transparent for gold exchange traded products. However, we can proxy flow trends by estimating growth in the largest Bitcoin Trust in the world (Grayscale Bitcoin Trust) and worldwide gold ETF holdings. Gold ETF holdings have declined by ~170t since mid-October representing outflows >$11Bn and a total AUM drop >$23Bn. At the same time, outstanding shares for the Grayscale Bitcoin Trust have grown by more than 210 million and its AUM has jumped ~$30Bn. .. money managers continue to increase their exposure to the oil market, with net long positioning across combined ICE Brent and WTI Nymex up 10k contracts to 737k lots last week.”

“SBarlow_ROB Gold investors switch to digital currencies (Citi)” – (research excerpt) Twitter

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Credit Suisse U.S. equity strategist Jonathan Golub is now even more bullish on the S&P 500 as earnings season comes to a close,

“We are raising our 2021 S&P 500 price target to 4300 from 4200, representing 10.9% upside from current levels, and 14.5% for the year. This follows an increase from 4050 on January 7 (see S&P 500 to 4200). With 90% of 4Q earnings reported, and results topping estimates by 17%, we are adjusting our full year 2020 EPS estimate to $142.50 (previously $140). We are also raising our 2021-22 numbers to $185 and $210 (from $175 and $200). We expect P/E multiples to contract modestly in 2021, as stock prices trail explosive earnings growth’

“@SBarlow_ROB CS’ Golub raises SPX forecast” – (research excerpt) Twitter

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Newsletter: “Twelve investor reminders for crazy markets” – Globe Investor

Diversion: “Unreal Video of Perseverance Landing on Mars Will Take Your Breath Away” – Gizmodo

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Published at Tue, 23 Feb 2021 12:51:37 +0000