There is a growing chorus of Wall Street strategists – Morgan Stanley’s Michael Wilson, BofA Securities’ Savita Subramanian and Citi’s Tobias Levkovich to name just three – who are urging their investing clients to exercise more caution in markets as potential tax and interest rate hikes combined with inflation pressure cause stock market volatility.
Credit Suisse U.S. equity strategist Jonathan Golub, however, is singing a much different and far more bullish tune. In a Monday research report, Mr. Golub predicted the S&P would climb to 5000 in 2022, 563 points and 13 per cent higher than current levels.
The strategist is fully cognizant of changing market conditions. His assumption of S&P 500 earnings per share of US$230 next year includes a $10 hit from expected higher corporate taxes. He also expects rising interest rates to cause enough market jitters to drop the forward price-to-earnings ratio from the current 21.4 times to 20 times.
Mr. Golub writes, “Over the past 5 quarters, analysts have significantly underestimated EPS [earnings per share], a trend we expect to continue. While economic data disappointed, input costs surged, and inventories destocked, EPS topped estimates by 16% in 2Q.”
In essence, Credit Suisse expects stock prices to power through immediate hurdles and continue to make new highs. For those who don’t believe that equities can continue to climb while multiples contract, he writes, “While an outlook based on stronger earnings and lower [price to earnings ratios] might appear contradictory, each of these trends has been in place for the past year.”
It is a function of human psychology that negative and bearish market views get more attention – investors are more likely to click on a story that scares them. But bullish views, if less eye-grabbing, can be equally well-grounded and compelling as Mr. Golub has illustrated here.
-- Scott Barlow, Globe and Mail market strategist
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Stocks to ponder
Doman Building Materials Group Ltd. (DBM-T) The stock is currently in oversold territory; however, the average one-year target price suggests there is 80-per-cent upside potential. The stock offers investors a high dividend yield, currently at 6.8 per cent. The stock has a unanimous buy recommendation from seven analysts. Jennifer Dowty takes a look.
The case for buying Canadian pipeline stocks
Buy land. They’re not making any more of it. The same might be said for oil pipelines, especially big projects. Every major oil pipeline proposal in recent years has been blocked, except for Trans Mountain – and that’s only going ahead in the face of fierce opposition because the Government of Canada owns it, writes Gordon Pape, who selects three stocks to watch.
The Rundown
China’s tech crackdown, slowing growth add up to a troubling outlook
The rapid-fire moves by Chinese regulators and courts to brutally rein in the power of many of the country’s most innovative firms, ranging from online retailer Alibaba Group Holding Ltd. to ride-hailing giant Didi Global Inc., has rattled shareholders and spurred concern about Beijing’s shifting agenda, writes Ian McGugan.
China goes from driver to brake for crude oil, iron ore and copper
China has switched from driving global demand for major commodities to being a drag on growth, with July’s customs data confirming the weakening trend for imports of crude oil, iron ore and copper, says Clyde Russell of Reuters.
New ‘meme stock’ Robinhood faces unfinished business
Robinhood is now a party to the phenomenon it helped create, according to Ephrat Livini of the New York Times. This past week, the newly public company became a so-called meme stock, riding retail trader glee to riches after a disappointing market debut. The investing app was worth $46 billion at the close of trading Friday, up around 60% from its valuation a week before.
Others (for subscribers)
The most oversold and overbought stocks on the TSX
Monday’s analyst upgrades and downgrades
Monday’s Insider Report: Director invests over $340,000 in shares of this bank stock
Bullish on Restaurant Brands International
Think twice before jumping into high-octane funds
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Compiled by Globe Investor Staff