Latest from BCA Research

Bank Credit Analyst

In Section I, we note that the recent surge in long-maturity government bond yields is symptomatic of a sharp reduction in market expectations for a soft-landing economic outcome. This underscores that the US and other developed market economies are on an ultimately recessionary path. We also discuss why the S&P 500 is likely to fall to between 3300 and 3700 in a recessionary scenario, and how OPEC 2.0’s production cuts will, at a minimum, reduce the odds of pre-emptive rate cuts. In Section II, we revisit the economic outlook for Canada, looking for signs that one of the most indebted economies in the world is buckling under the weight of tight monetary policy. We do find evidence suggesting that mounting debt service is already impacting Canadian consumers, and we expect to see a continuation of weak/weakening consumer spending in Canada so long as the current stance of monetary policy is maintained.

We downgrade Growth and upgrade Value based on our view that rates will remain elevated for a while longer.

The bear market in US bonds will likely end with a bang rather than a whimper. Even during the secular US bond bull market of 1982-2021, cyclical bond bear markets ended only after an eruption of financial turmoil. It would be strange if this current ascent in bond yields ended without significant casualties in the global financial system.

The global energy transition will become more disorderly, if oil-and-gas capex growth continues to outpace that of critical minerals. We remain long exposure to the equities of oil and gas producers via the XOP ETF; the COMT ETF to retain direct commodity exposure, and $100/bbl December 2024 Brent calls. Slower supply growth of metals facing off against steadily increasing demand also favors exposure to metals miners and refiners via the XME ETF.

In this Strategy Outlook, we present the major investment themes and views we see playing out for the rest of 2023 and beyond.

Despite higher oil prices, Colombian risk assets will underperform their EM peers in the months ahead. The domestic economy is evolving from stagflation into recession, and fiscal and political risks will raise the risk premium of Colombian assets. Take profits on the yield curve inversion trade and stay short COP vs. USD.

Magnificent Seven have outperformed the market by 42.3% YTD, but over the past few weeks, their rally has stalled. This short insight explores the reasons why and ultimately concludes that the pull back is justified and likely has more to go.

Special Report

China’s oil demand growth will moderate to a still robust 4%-6% in the next six-to-nine months. We recommend that investors in China’s onshore and offshore stock indexes overweight energy producers.

Bulls and bears have capitulated, and the majority of the clients surveyed expect a rangebound market in the near term. Our fair value PE NTM indicates that the S&P 500 is only modestly overvalued. The continued outperformance of the Magnificent Seven faces multiple hurdles. Meanwhile, fiscal spending is unlikely to create an impetus for another leg up in equity performance.

European stocks and the euro continue to weaken; soon, they will test the bottom of their recent trading range. Which sectors can protect investors against this downdraft?