Welcome to RBC’s Markets in Motion podcast, recorded January 4th, 2022. I’m Lori Calvasina, Head of US Equity Strategy at RBC Capital Markets. Please listen to the end of this podcast for important disclaimers. Today, we’re reviewing the results of our quarterly RBC analyst survey, which we conducted right before the holiday break. It provides a unique, bottom-up lens through which to assess the 2022 outlook for the broader US equity market, which complements our own top down approach.
Three big things you need to know:
- First, our analysts’ outlooks for performance over the next 6-12 months remain optimistic, boosted by constructive views on fundamentals, valuations, cash deployment, and margins.
- Second, across all questions, our analysts tilt positive on Energy, Financials, Materials, and Information Technology, along with Utilities and Health Care.
- Third, key issues in focus for our analysts are demand, COVID, inflation, regulation, labor, supply chains, and pricing power. What jumped out the most on hot topics is that our analysts generally see their companies as able to manage through all of the major challenges ahead, including Omicron.
If you’d like to hear more, here’s another 5 minutes. While you’re waiting a reminder that you can subscribe to this podcast on Apple, Spotify and other major podcast platforms.
Before we jump into the details – here’s what you need to know about how we conduct our analyst survey. Once a quarter, we ask all of our US equity analysts to rate the industry they cover on a scale of plus to minus 2 on six recurring outlook questions – performance, fundamentals, valuation, policy, cash deployment and margins. We average their industry scores to arrive at sector scores which allow us to compare the sectors to one another. We also get their thoughts on hot topics in the market.
Now, the details.
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Takeaway #1: Our analysts’ outlooks for performance over the next 6-12 months remain optimistic, boosted by constructive views on fundamentals, valuations, cash deployment, and margins.
- Their views on the policy backdrop are cooler and more properly characterized as neutral.
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- For the most part, aggregated views are slightly more constructive than what we observed in our September survey on almost all of our recurring questions, though it’s fair to say that margin outlooks didn’t change much.
- Valuation views improved the most, followed by performance outlooks.
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Moving on to takeaway #2: Across all questions, our analysts tilt positive on Energy, Financials, Materials, and Information Technology, along with Utilities and Health Care.
- These biases represent a mix of Value/Cyclicals, Secular Growth, and Classic Defense.
- Industrials was more mixed by question, and the aggregated performance score was close to neutral.
- Enthusiasm levels were generally lowest for Communication Services, Consumer Discretionary, Consumer Staples, and REITs.
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- When we look at each question individually, positive outliers (top sectors ranked by average industry scores) were Energy on performance (Flip to slide 6), Financials on fundamentals (Flip to slide 7), Health Care on valuation (Flip to slide 8), Health Care and Utilities on policy (Flip to slide 9), Consumer Staples on cash deployment (Flip to slide 10), and Financials and Industrials on margins (Flip to slide 11).
- Negative outliers (bottom sectors ranked by average industry scores) were Communication Services on performance (Flip to slide 12), Communication Services and Consumer Staples on fundamentals (Flip to slide 13), REITs on valuation (Flip to slide 14), Energy and Industrials on policy (Flip to slide 15), Industrials on cash deployment (Flip to slide 16), and Consumer Staples on margins.
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Wrapping up with takeaway #3: In terms of hot topics, when we asked them to name their top upside and downside risks, the issues that came up the most were demand, COVID, inflation, regulation, labor, supply chains, and pricing power. A number of these issues came up on the list of upside risks (flip to slide 18) as well as the list of downside risks.
- What jumped out to me the most in some of the more specific questions we asked about the hot topics was that our analysts generally seem confident regarding the strength of pricing power and their companies’ ability to manage through omicron.
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- More specifically, half said pricing power is strong or very strong – views on Health Care, Industrials and Staples were generally positive across most industries on this question while Materials and Consumer Discretionary were more mixed.
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- On Omicron, most don’t have a clear view on the outlook for the variant. When we asked our analysts how optimistic or worried they are about Omicron, more than half (54%) picked "neutral/don’t know/need more time.”
- Otherwise, the pessimists (27%) outweighed the optimists (19%). That’s a bit different from what we saw in the investor survey we took right around the same time, where the buy-side tilted much more optimistic on Omicron.
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- But the very good news is that more than two thirds of our analysts say their companies are prepared or well prepared, and will manage through.
Can try flipping to a graphic for Industries in Motion for this closing sentence.
That’s all for now. Thanks for listening. And be sure to check out our sister podcast, RBC’s Industries in Motion, for deep dives from RBC’s team of equity analysts.