Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
Scotiabank analyst Orest Wowkodaw found that copper miners are trading expensively relative to lower spot prices but remains optimistic about the outlook,
“OUR TAKE: Mixed. Given the heightened volatility in both copper (Cu) prices and the mining equities, we have revisited our implied Cu price analysis. We estimate that the large/mid-caps are currently implying an average Cu price of $5.28/lb, representing a relatively large 29% premium to spot of only $4.10/lb (vs. premiums of 26% in June and a peak 34% in April; average premium of 19% since 2023 and 7% since 2018). We believe this strong premium is being driven by robust investor appetite for Cu exposure, M&A speculation, and lower by-product prices (ex. Au/Ag). HBM ($4.42/lb), ERO ($4.48/lb), FM (at $4.50/lb due to Panama uncertainty), and MTAL ($4.74/lb), are the least expensive; conversely, SCCO ($7.35/lb), IVN ($6.70/lb), FCX ($5.69/lb), and ANTO ($5.48/lb), are the most expensive. LUN ($4.78/lb), CS ($4.80/lb), TECK.B ($5.07/lb), and GMEXICO ($5.35/lb), are priced in the middle. Overall, CS, HBM, ERO, and TECK remain our top picks for Cu exposure. We also highly recommend FCX, IVN, and MTAL. We rate ANTO, FM, and LUN as Sector Perform. Due to unattractive risk-reward profiles, we rate GMEXICO and SCCO Sector Underperform.
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Wells Fargo analyst Christopher Harvey discussed U.S. market volatility,
“The S&P 500 is -1.9% week to date from a combination of earnings/forecasts that disappointed (e.g., GOOG/L) and economic/consumer demand concerns (e.g., big miss on June durable goods orders; LW’s [Lamb Weston Holdings Inc.] comments on poor restaurant demand). Investors continued to rotate into small caps (RTY: +1.8%). We prefer mid cap growth to small caps. Per Bloomberg, the first Fed cut remains almost certainly in Sep with a second cut still over 60% likely in Nov. Rotation Pain. Our review of large mutual funds suggests the MTD rotation has harmed fundamental PMs’ performance relative to their benchmarks. Unlike Dec 2023, this suggests we could see repositioning. Growth and SPX-indexed “Core” PMs are down ~30bps MTD, mostly from selection (not sector allocation). Value PMs trail the RLV [Russell 1000 Value index] by ~80bps MTD, also from allocation such as over-weighted positions in MSFT and QCOM. Recall that May and June also were relatively difficult months for active managers.”
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BofA Securities investment strategist Michael Hartnett’s weekly Flow Show report was punchy as usual,
“The Biggest Picture: past 2 weeks gold (asset inflation play) -8% in Japanese yen (asset deflation play) as rates (Powell cuts) & politics (Trump wins) drive liquidation of world’s most crowded trades (short yen, long copper, long AI); key levels to hold to confirm correction is “healthy”…yen (JPY) 152, copper (HG1 [one month copper future]) 9000, tech (NDX) 18700. Tale of the Tape: bulls say correction healthy as big levels holding, investors had fully priced-in bullish combo of Fed cut (100%), Trump victory (75%), and soft landing (68%), and critically credit spreads (the “glue” for Wall St) thus far well-behaved…this changes if IG [investment grade] spreads (51bps) break above 60bps. The Price is Right: bears say steeper yield curve recessionary, bond vigilantes won’t allow Fed cuts to work (US debt up $2tn past 317 days to $35tn), consumers no longer willing to tolerate inflation (lower nominal GDP = lower not higher EPS – Chart 6), commodity prices confirm global economy ill (China bond yields at all-time lows), and we are one bad payroll away from cracking monopolistic/oligopolistic dominance [of AI-related tech stocks]”
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Diversion: “Fill The Bathtub” – Collaborative Fund