Five reasons for a strong rally into year end

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

Big Beautiful Bill, emergency powers ruling among reasons for bullishness

Wells Fargo strategist Ohsung Kwon identified five drivers for a strong, broad rally into year end,

“#1 Laggards bounce in Nov-Jan. Seasonality turns favorable in Nov-Dec , especially for laggards after tax loss harvesting (Oct-end). Historically, stocks that lagged the most in Jan-Oct outperformed the S&P 500 by 3.9ppt in Nov-Jan on average (66% hit rate) 5. #2 AI capex: Get ready for another upside surprise. There’s a big divergence between Semi sales estimates vs. hyperscalers’ capex estimates in 2026. We’re in the fourth inning ... So far, hyperscalers funded only 8 per cent of their capex with debt, well below 15 per cent during the Shale Revolution and 32 per cent during the Telecom cycle. Don’t underestimate the AI capex cycle. #3 IEEPA ruling: Potential reflation event ahead. We expect a ruling in January (hearing on 11/5), with a potential reflation trade into it (Polymarket: 58-per-cent chance of IEEPA repealed) … If repealed, we estimate $160 billion of tariffs collected will be subject to refund ... #4 OBBB tax return. We estimate OBBB can result in incremental $800-$850 in tax return per filer on average, a 45 basis points tailwind to GDP... #5 Government reopen. If the shutdown extends to 11/7 it will mark the longest shutdown in history. Historically, SPX up 2.6 per cent in the month after gov reopen. Even with a reopening, the data calendar could continue to be light - no news has been good news for stocks

M&A activity surges

Morgan Stanley global strategists expect the huge jump in merger and acquisition activity to continue into next year,

“MS Global Head of Credit Research Andrew Sheets, MS US Thematic and Equity Strategist Michelle Weaver, and MS Research Analysts Ryan Kenny and Mike Cyprys highlight that M&A has returned with 3Q25 announced volumes up 43 per cent and large strategic transactions leading the way. The team continues to expect a major, multiyear rebound in activity, aided by strength in global equities, lower rates, open capital markets, greater corporate confidence, less policy uncertainty, positive regulatory change, and growing pressure on private asset managers to act. Looking ahead, they forecast global M&A announced volumes to increase by 32 per cent this year, 20 per cent next year, and reach $7.8 trillion in 2027, inclusive of strategic, sponsor, and buyback deals. The team highlights potential stock and sector beneficiaries, and why more activity is not yet a problem for credit overall. The team sees “more reasons to go,” highlighting easy fiscal policy, easing regulatory policy, easing monetary policy, wide-open capital markets, and a step-change in corporate investment. The team points out that the private markets industry has amassed $4.2 trillion of dry powder, or $8-trillion of buying power including potential leverage. The team adds that management commentary is becoming increasingly positive, suggesting that the private markets flywheel can accelerate amid an improving IPO environment and M&A activity”

Big deal in oil patch a win-win

Scotiabank analyst Kevin Fisk believes synergies can be realized in the Cenovus acquisition of MEG Energy,

“OUR TAKE: Positive. CVE has increased it offer for MEG with total consideration now representing $30/sh, which is $0.43/sh more than the prior offer. Further, SCR is now voting its shares in favour of CVE’s acquisition of MEG, which will allow the transaction to proceed. In our view, this is positive for CVE, MEG, and SCR shareholders. CVE will be able to complete the MEG acquisition, which adds another high quality thermal asset to the portfolio and CVE will be able to realize meaningful synergies. This is positive for MEG because the company no longer faces the risk of an unsuccessful shareholder vote. SCR also benefits from an improved offer for their MEG shares. Further, SCR has agreed to acquire the Vawn thermal project and undeveloped thermal land for total consideration of $150-million (50-per-cent cash and 50-per-cent contingent consideration). Vawn is located near SCR’s Lloyd thermal assets and the acquisition is consistent with the company’s strategy of growing its thermal production”

Bluesky post of the day

Diversion

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