A daily roundup of research and analysis from The Globe and Mail market strategist Scott Barlow
Wells Fargo analyst Christopher Harvey said there are signs that U.S. food inflation is easing and he hopes the trend will spread beyond the country's borders.
“General Mills' and McCormick's May 24 quarter disclosures this week suggest that retail food inflation is declining rapidly. GIS's NoAm Retail y/y price/mix impact declined to -1% from +3% in Feb. 24 and +11% a year ago. Similarly, MKC's price impact on y/y consumer revenue was -0.8% in the May 24 quarter, down from +2.9% in Feb. 24 and +8.5% a year ago. Still, May 24 y/y core volume was weak for both segments (GIS, -6%; MKC, +0.3%).”
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BofA investment strategist Michael Hartnett has a lot to cover in his weekly Flowshow report, using plenty of text snippets.
“Price is Right”: Investors are long “rich sectors” (Magnificent 7) and short “poor sectors” (REITs/small caps/ARKK etc). Cyclical “middle class sectors” (industrial, homebuilding, resources, Nikkei, DAX) are turning, MSCI ACWI [all country world index] The equal-weighted index is down -0.6% year to date…US manufacturing is struggling (Pennsylvania, Wisconsin, and Michigan manufacturing will determine the outcome of the election)…Biggest Outlook: Biden and Trump are responsible for the two largest budget deficits in the last 80 years (Figure 2), but inflation is the biggest issue for voters, US government spending is down -2% (on a trailing 12-month basis), and the budget surplus will be significantly reduced in Year 1 of the new presidential election cycle.”
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JP Morgan's global research team has released its outlook for the mid-year period.
“Global economic growth is slowing from a strong pace in 2023, but the expansion is moving to a more stable basis. As global capital investment and European consumers recover, the world is becoming less dependent on U.S. demand. These developments are supporting a modest recovery in global manufacturing…U.S. [economics]: We expect growth to continue to moderate in the second half of 2024, averaging a 1.0% growth pace for the remainder of the year…US: The “high linger” has favored size and quality spreads compared to the more cyclical and interest rate sensitive average companies. These beneficiaries are amplified by the enthusiasm in AI/LLM stocks, which have pushed momentum crowding and stock concentration to multi-decade extremes. For this trend to continue in the second half of the year, S&P 500 megacaps will need to continue to revise expectations upwards and maintain price momentum. In our view, this will be a tough challenge, with consensus growth hurdles high and valuations and investor positioning at or near this cycle’s highs…Top long recommendations by sector and priority are: 1. Recent offerings have propelled agricultural commodities such as sugar and wheat to the top of the preferred long list, with 30% and 25% returns expected by year-end, respectively. 2. After being removed from the top long trade recommended stocks,[1]Oil is back on the list after Brent crude prices hit the $90 target a month early at the end of April. Given the seasonal rise in crude demand, refinery runs, continued weather risks and OPEC and its allies ramping up production, the OPEC-backed oil price hike is likely to be a big boost.[1]”Supply cuts through 3Q24 should tighten crude balances and begin to draw down inventories over the summer. The expected drawdown should be enough to push Brent crude into the high $80s to $90s range by September.”
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Citi analyst Atif Malik laid out the most concise AI investment opportunity framework I've ever seen.
“AI infrastructure consists of three parts: compute (including HBM memory), networking, and external storage. As the AI trend continues, we believe chip companies (mainly AI accelerators and memory chips such as Nvidia) will continue to be the early major beneficiaries, followed this year by networking companies such as Arista, which offer products connecting AI accelerators (Ethernet). Finally, on the device side, we expect companies such as Apple, Dell, and HPQ to further grow their on-device AI sales next year.”
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Diversion: “Scientists create 'living' skin for a smiling robot, a terrifying vision of the future” – Gizmodo
