‘Bull markets end when meager liquidity meets high leverage’, says BofA research committee

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

Rally defence

BofA Securities’ Research Investment Committee has an interesting defence of the AI-related stock rally,

“Bull markets end when meager liquidity meets high leverage. But 2025-26 looks friendly as BofA Global Research sees three Fed cuts, a weaker dollar, and high demand for AI assets. The tech ecosystem is set to expand until enterprise buyers, household creditors, or FOMC voters say “enough”; until then, stay long chipmakers & AI enablers … Invest new capital to diversify without dampening returns. Ideas: 1. World ex-U.S. small value: returns similar to US growth with lower volatility, correlation, & valuation; 2. EM dividends: more than 4-per-cent yield and better returns than benchmarks; 3. EM debt to gain from 3rd-fastest rate-cutting cycle in history. Note global value never stopped working … The global rally may have longer legs. In 2025, world policymakers continue pushing for self-reliance and stability, correcting two decades of record imbalances (e.g. US NIIP [net international investment position] -$26-trillion, and creating opportunities for asset allocators. A weaker dollar (our FX team view) could benefit U.S. production, global consumption, EM debt, and commodities”

LNG

The imminent opening of B.C. LNG facilities makes the natural gas story more interesting than usual. RBC analyst Christopher Louney provided an update,

“Adding over a dollar and rising above $4.50/MMBtu since late October, natural gas prices have moved sharply higher in a relatively short span, but with heating degree days set to fall below normal in the near term (15-day forecast) and look below average in the medium term (45-day forecast) at negative 2.3 per cemt on average over the period, we still think there is the potential for near-term consolidation. Indeed, despite approximately 18 Bcf/d of LNG feedgas recently (up 5 per cent week-over-week) and healthy demand levels (more than 5 per cent higher year-over-year), we still think that ample storage volumes (likely at 3.95 Tcf after today’s weekly natural gas storage report where the consensus median injection is expected to be 34 Bcf) and high production volumes (back around higher levels once again) can weigh on the market if winter weather doesn’t live up to expectations or La Niña does not drive early season cold. In 2026, prices should improve, and our high scenario may prove most likely”

Cisco

Citi analyst Atif Malik’s summary of Cisco Systems (CSCO-Q) results underscores the power of data center investment to jack up profits for equipment providers,

“CSCO posted ‘beat and raise’ results and raised FY26 guide to up 7 per cent year-over-year from prior 5 per cent on networking products strength while security remains a work in progress with no meaningful acceleration implied in the guide. CSCO expects total AI sales of $3-billion in FY26 up from $1-billion in FY25 and orders to double to $4-billion. Cisco booked $1.3-billion AI hyperscaler orders split 50:50 between systems and optics and $200-million-plus from neocloud, sovereign, and enterprise. We note the order guide does not include G42 [a partnership with an Abu Dhabi cloud and computing specialist] as the company awaits U.S. license. Fundamentally, Cisco is benefiting from networking upgrade cycle ... driven by high agentic AI inference demand. Moreover, campus networking saw accelerated order growth in Q1 on new product launches. We lift our FY26/27 EPS 3 per cent/5 per cent and move our TP to $85 on an unchanged 19 times P/E. Maintain Buy”

Bluesky post of the day

Diversion

“The Best Tech Gifts of 2025” – Gizmodo