Barlow’s Research Roundup: U.S. strategist advises how portfolios should navigate AI disruption

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

Disruption underway

Evercore ISI strategist Julian Emanuel offered guidance for investors in his latest research report “Navigating AI Disruption”,

“AI is changing the World. In 2023, EVR ISI Strategy estimated that every sector and occupation will be leveraged by Generative AI. Corporates are investing. For the past three years, surging AI investment has primarily benefitted the ‘picks and shovels’ AI Enablers. Adoption though is showing signs of spreading across sectors to the rest of Corporate America … Companies that adopt early, integrate AI into workflows, and build moats around orchestration, secure enterprise guardrails, and agentic execution across siloed data are set to outperform . Our Base Case scenario has been that pressure from investors for companies to ‘act now’ will intensify as AI adoption reaches its critical acceleration phase in 2025-2026 … Sectors with higher AI exposure have seen the sharpest year-to-date selloffs as investors fear AI is set to radically challenge existing business models … EVR Analysts Top Stock Picks: Dislocations are creating opportunities to gain exposure to the AI theme set for structural outperformance as companies continue to invest in efficiency to counter structurally tightening labor markets and rising protectionism. EVR ISI Fundamental analysts highlight their top stocks that are benefitting/will benefit from rising AI adoption and which hold defensible moats from potential disruptors. MSFT, SNOW, PANW, AMZN, BKNG, CHRW, WAY, APO among them”

Fund performance and favourite stocks

New Goldman Sachs chief U.S. equity strategist Ben Snider (I think he’s fully taken over from David Kostin now) detailed the positioning of U.S. hedge funds and conventional mutual funds,

“57 per cent of large-cap mutual funds have outperformed their benchmarks YTD, benefiting from the broadening within the US equity market. Despite significant volatility in both long and short positions, hedge funds have returned 1.5 per cent year-to-date, according to data from Goldman Sachs Prime Services … Short interest in the median S&P 500 stock amounts to 2.7 per cent of market cap, near the highest level in recent years … Mutual funds and hedge funds agree on most sectors, with Health Care and Industrials ranking among the most overweight sectors for both groups. The exceptions to this consensus are Financials, where mutual funds are overweight but hedge funds are underweight, and Consumer Discretionary, where hedge funds are overweight but mutual funds are underweight. In terms of recent rotations, both hedge funds and mutual funds have recently added to tilts in Energy and Consumer Discretionary while cutting positions in Communication Services … There are five ‘shared favorite’ stocks that register as popular holdings in both hedge fund and mutual fund portfolios this quarter: BA, C, MA, V, VRT. Shared favorites have outperformed the S&P 500 by 2 pp YTD and by 6 pp in the last month. HOOD and PANW rank among both the largest mutual fun”

Tariff confusion reamins

CIBC chief economist Avery Shenfeld published important context about the U.S. economy tariff confusion,

“While Donald Trump just lost a big chunk of his tariffs, he’s likely to look for other tariffs to replace them and argue for the merits of that stance. This week saw Japanese companies announce a $36-billion investment in what the US viewed as part of an agreement that the two countries reached to moderate threatened American tariffs last year. The President chalked that up as a win for his trade policy, and threatened tariffs on Japan … The reality is that foreign capital inflows into the U.S. are an inevitable corollary to America’s perpetual trade and current account deficits, the very deficits that Trump hopes to tackle by imposing tariff. Because the balance of payments has to in fact balance for the foreign exchange market to clear, a country with a current account deficit will have an equal and offsetting capital and financial account surplus … True, much of that in the past has been financing US government deficits through the purchase of Treasuries, or in purchases of American equities. But such capital inflows still free up investment dollars in the domestic market to go to new additions to American’s capital stock, or help companies and governments raise money for such purposes”

“Canada’s “big win” for Trump” – CIBC Economics

Bluesky post of the day

Diversion

“Stanford Scientists Cure Type 1 Diabetes in Mice Without Insulin or Immune Suppression” - SciTechDaily