Welcome to RBC’s Markets in Motion podcast, recorded October 8th, 2024. 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 in the podcast – the results of our latest, quarterly global RBC analyst outlook survey, and their impact on our US sector recommendations. Two big things you need to know: First, globally our analysts are generally constructive on performance, valuations and interest rates, with Materials most in favor and Consumer Staples most out of favor across all of the questions we asked. Second, within the US we are reiterating our overweights on Financials and Materials, upgrading Health Care to overweight, and downgrading Utilities to market weight. Energy remains a tactical overweight but goes on downgrade watch.
If you’d like to hear more, here’s another 5 minutes. Now, let’s jump into the details.
First, the global survey results.
- Globally, our analysts have a slightly bullish tilt I n their performance outlooks for their industries over the next 6-12 months. Meanwhile, they have a modestly constructive view on valuations, mixed views on demand, and a more clearly bullish view on the impact of lower interest rates.
- At the global sector level, performance outlooks are most bullish for Materials and Financials.
- Valuation assessments tilt most constructive for Materials and Financials as well, along with several other sectors including Tech and Energy.
- Sector views on demand are mixed, with the most positive tilt for Health Care and negative tilts for consumer-oriented sectors (Discretionary, Staples) and Energy.
- Our analysts are broadly enthused about the positive impact of lower interest rates for most sectors, but this is true for Financials to a lesser degree than others.
- Across all four of our core outlook questions, enthusiasm for Materials is highest and lowest for Consumer Staples.
- Regionally, performance outlooks and valuation views are more constructive in Europe and Canada than they are in the US.
Second, our US sector calls.
- Within the US we are reiterating our overweights on Financials and Materials, upgrading Health Care to overweight, and downgrading Utilities to market weight. Energy remains a tactical overweight but goes on downgrade watch.
- Here are the key things driving our views and changes here.
- For Financials and Materials: Both are value/cyclical oriented sectors that benefit from a rotation out of mega cap growth, and both captured some of the most optimistic performance outlooks in the survey among our US analysts. We also like Financials’ reasonable valuations and positive EPS and sales revisions trends. For Materials, we like the sector’s improving funds flows and our analysts’ high conviction that the sector will benefit from lower interest rates relative to other sectors.
- Swapping Utilities for Health Care was a tough call: Our US analysts are optimistic on performance for both sectors, but more so in Health Care. Health Care also captures the strongest demand assessment from our US analysts. On our own quant work, valuations look better to us in Health Care than Utilities, which have turned slightly expensive. The strong funds flows that have been seen in Utilities also appear to be stumbling, while Health Care funds flows continue to see steady improvement.
- Deciding what to do with our Energy overweight was another tough call: Energy performance outlooks among our US analysts have deteriorated since our last survey, they are more neutral today than bullish. And while they are constructive on valuations and the impact of lower interest rates, their view of demand is weaker than what we are seeing in other sectors. But on our own work, valuations remain compelling and funds flows are starting to improve at the margin. We’ve primarily viewed this sector as a hedge on the return of inflation pressures and the escalation of geopolitical risks. We’re comfortable letting this sector stay on our list of overweights as long as geopolitical tensions remain high, but plan to reevaluate if and when they ease.
That’s all for now. Thanks for listening. And be sure to reach out to your RBC representative with any questions.