Developed Countries
The parabolic move in US and global semiconductor stocks has culminated in a nearly 130% rally in the Philadelphia Stock Exchange Semiconductor Index since late March. What could stop this incredible move? Semiconductor stocks have moved well beyond…
Overweight The S&P movies & entertainment industry has sprung to life on the back of encouraging DIS news. In more detail, Disney’s price hike for the Disney+ service along with exponential subscription growth projections propelled this S&P consumer discretionary sub-group to fresh multi-year highs (top panel). Disney’s timing could not have been better, as both the ISM non-manufacturing PMI and NFIB surveys forecast improving consumer data (second & third panels). Tack on the secular rise in demand for at home entertainment that benefits both NFLX and DIS and the allure of the S&P movies & entertainment index increases further. Importantly, while on a relative forward price-to-earnings basis this index is expensive, correcting for growth reveals that it is actually very compellingly valued: using I/B/E/S data, the bottom panel of the chart shows that the relative P/E/G ratio has fallen both below the historical mean and below par. Bottom Line: We remain overweight the S&P movies & entertainment index. The ticker symbols for the stocks in this index are: BLBG: S5MOVI – DIS, NFLX, LYV.
BCA Research’s US Bond Strategy service concludes that investment-grade corporates will outperform Treasuries in 2021, but the potential for further spread compression is limited. Junk spreads have more room to tighten, and the Ba credit tier looks…
Empirically, the current yield to maturity gives a robust sense of the returns of 30-year German government bonds over the coming five years. At the present juncture, the yield of -0.2% suggests that over the next five years, the German long bond could…
US industrial production surprised to the upside in November, rising 0.39% m/m from a revised 0.95% m/m. The positive IP number reflects continued growth in manufacturing output, which rose 0.75% m/m and beat expectations of a more muted 0.4% m/m rise. …
Overweight Vaccine efficacy announcements have paved the way for a sustainable great rotation trade into small caps and out of large caps. One of the key small size bias drivers is the delta in sector composition between the small and large cap indexes. The relative gap in deep cyclicals alone is 13% as we highlighted in recent research. Relative share prices remain far apart from the budding recovery in the commodity complex including Dr. Copper’s flirtations with seven-year highs. Thus, the small caps catch up phase has a long ways to go (top & fourth panels). The financials sector gulf is also significant, with small caps’ exposure relative to their large cap brethren clocking in at over 700bps. Already, the yield curve is steepening and there are high odds of a selloff in the bond market as the economy continues to reopen (third panel). In addition, easy fiscal policy is a tonic to the small/large share price ratio. As a flood of money enters the economy with a slight lag, small caps will continue to make up ground lost during the early stages of the pandemic (fiscal balance shown inverted, second panel). Bottom Line: A small size bias is a high-conviction call for 2021.
According to BCA Research’s US Investment Strategy service, policymakers are not letting the virus kill the economy and we expect them to continue to do so. Ample support will prime consumption while staving off the negative consequences that would follow a…
The Bank of Japan’s Tankan Survey indicates that Japanese business sentiment continues to rebound in Q4, surpassing expectations. Current business conditions, as expressed by large manufacturers, rose to -10 from -27, beating expectations of -15. Large…
The Eurozone’ M1 money supply is expanding at a 14% annual pace, its fastest rate since 1999. On the European continent, banks represent a much larger share of credit origination than they do in the US. Due to this lack of credit disintermediation, M1 still…
From 1990 to today, US Treasuries and global equities have delivered equivalent returns of roughly 7.5% on an annualized basis. This means that bonds have been the superior investment because of their significantly lower volatility. These equivalent…