CIBC analyst’s top picks in the yield-heavy energy infrastructure and power sectors

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

CIBC’s Mark Jarvi assesses the dividend-rich energy infrastructure, power and utilities sectors,

“Macroeconomic, policy and geopolitical uncertainty continues to dominate discussions and relative positioning/performance. While Regulated Utilities performed well through Q1 and posted another set of solid quarterly results, we’ve seen profit-taking in these names as the market gets more comfortable with macro/market risks. Despite mixed results, many Power names have started to perform better in the last month as the market sees value and can stomach these more risk-on names. We continue to see more upside in the Power space but see holding some Regulated Utilities (offer stability + growth) as prudent. For Midstreamers, tailwinds in natural gas demand are accelerating diverse growth opportunities, with data centre opportunities notably advancing during the quarter. Marketing guidance was in line with our expectations and likely a relief for the market … Our Outperformer names are ACO.X, ALA, BIP, EMA and SPB. As the market tone becomes more positive, defensive names like H and FTS could be sources of funds”

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BofA Securities investment strategist Michael Hartnett’s weekly Flow Show report highlights his view that a contrarian buying opportunity in U.S. Treasuries is ahead,

“The Price is Right: Treasury yields now higher than Microsoft bond yields out 3 years; 30-year UST/MSFT yield spread now 20bps, tightest ever. Tale of the Tape: if you spent $100 every second, it would take you 2248 years to equal the $7.1tn the US government spent in the past year; tactically still think “up-in yields, down-in-US$” (i.e. 30-year UST >5% + US$ DXY index <100) [is] negative risk assets. The Biggest Picture: 10-year rolling return from Treasuries negative, same humiliating place stock returns were in Feb’09, commodities in Jun’18; nothing more contrarian in ’25 than being long the long-end, and while 2020s spending of Biden’s Build Back Better + taxation of Trump’s Big Beautiful Bill do not a AAA-rating make, we say return of bond vigilantes to = >5% GT30 yields cyclical buy opportunity”

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Citi strategist Beata Manthey considered the risk from rising U.S. bond yields,

“The constantly evolving rates narrative remains one of the key risks for equities. The latest UST pressures include heightened fiscal concerns around the ongoing budget bill negotiation. This could reignite concern around foreign demand for US assets, which played some part in the early April sell-off. Rates volatility could also potentially spill over into equity volatility via valuation pressures. We see valuations as a key transmission mechanism from yields into equities. Rising yields suppress valuations, but with a diminishing impact. Current equity valuations, in light of current yields, appear extended but not yet exuberant. Furthermore, equity risk premia, which have risen YTD, now have some room to contract. This could offset the impacts of higher yields on cost of equity and equity valuations”

In simple terms, equity risk premium involves the extent of equity earnings yield over bond yields.

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Bluesky post of the day:

Diversion: “These Infrared Night-Vision Contacts Let You See Through Your Eyelids” – Gizmodo