Welcome to RBC’s Markets in Motion podcast, recorded March 19th, 2021. I’m Lori Calvasina, Head of US Equity Strategy at RBC Capital Markets. Please listen to the end of this podcast for important disclaimers.
We’ve just conducted a survey of RBC’s equity analysts, asking them to quantify the outlooks for their industries on 6 issues – performance, cash deployment, margins, valuations, fundamentals, and policy. While most of our work is top down, this is our attempt to get a boots on the ground gut check on our outlook for the broader US equity market.
The big thing you need to know: our analysts remain optimistic on their industries in 2021, despite concerns about valuations, policy, and inflation.
If you’d like to hear more, here’s another 5 minutes.
While you’re waiting, a quick reminder that you can now subscribe to this podcast on Apple, Spotify, Google and Stitcher. If you like the podcast, please rate and review it to help other listeners find the show.
Now, the details.
- Takeaway #1: Overall, our analysts are optimistic on performance, cash deployment, fundamentals, and margins. They are less enthused about the state of valuations and the Washington policy backdrop, as views there are neutral/mixed.
- To give you a sense of the numbers:
- On performance, 67% have a bullish or very bullish outlook,
- On cash deployment, 80% are in the bullish or highly bullish camp, optimism is high on both dividends and buybacks,
- On margins, 71% expect expansion,
- Those constructive on margins believe the expansion will be driven by operating leverage from top line improvement, increased pricing, reduction in COVID-related costs, and efficiencies found during the pandemic. Meanwhile, those looking for flattening or contraction cite competition and cost inflation, partly offset by commodity hedging and FX tailwinds.
- On fundamentals, 87% are bullish or very bullish,
- On valuation, 47% said they are attractive or very attractive
- On policy, just 29% see the backdrop as bullish or very bullish, another 29% believe it’s bearish or very bearish
- Taxes and green energy were the top two concerns
- This echoes our own view on the broader market in 2021 – that we’ll get a good year in stocks but less of a move than 2020’s 16% gain – buybacks, the economy, and a partial margin recovery are tailwinds, but expensive valuations may cap upside and policy is a key risk to monitor
- Takeaway #2: 2021 feels like a long year already with a high level of angst out there, but there hasn’t been a major change in thinking among our analysts since our January survey.
- At the margin, performance outlooks and policy assessments saw a slight negative shift, while views on valuations and fundamentals improved slightly.
- Takeaway #3: Our analysts exhibited some concern about inflation, but it hasn’t derailed their constructive outlook.
- We added bonus questions in the March survey which asked about the impact of reflation – the broader topic if economic reopening - and inflation.
- 37% believe a pickup in inflation will have neutral impact on their industries, while 35% believe it will be positive or very positive and 28% expect it to be negative or very negative.
- To dig into this issue a little more, we also asked the analysts about how reflation or economic reopening generally would impact their industries.
- 87% said it was positive or very positive
- In other words, the rising inflation narrative is a wrinkle in that bullish thesis, but it hasn’t derailed what’s generally a very solid outlook for the year among our analysts yet.
- Takeaway #4: Our Financials analysts are more constructive than those in other sectors, supporting our own overweight on the sector.
- Financials was one of the top sectors on most of our regular questions, coming in #1 on performance, valuation, and fundamentals, tied for 2nd on cash deployment, and #4 on margins.
- Though it received a slightly negative policy assessment, Financials was not the worst sector on this front as it still came in ahead of Tech, Energy, and Industrials.
- We’ve been overweight Financials, and discussed what we see in our own top-down indicators in the March 4th edition of this podcast that supports our view. In a nutshell, valuations remain compelling, earnings revisions remain strong and superior to other sectors, and macro tailwinds are favorable as the sector tends to outperform when the yield curve is steepening, 10 year yield is rising, ISM new orders are rising, and inflation expectations are moving up.
- Wrapping up with takeaway #5: The most notable change in view came from our Consumer Staples team, which became more constructive, and we have upgraded the sector from underweight to market weight.
- As we looked through the results across all analysts, in all sectors, on all questions, it was clear to us that our Food, Beverage and Household & Personal Products team was the one that has really has had a major, positive change in view since the start of the year.
- On performance, the team shifted from bearish to bullish, and on valuation, they shifted from very expensive to attractive – these were some of the biggest shifts we saw throughout the survey.
- On my own top down indicators, the sector is mixed. On the positive side, we see attractive valuations and strong upward earnings revisions trends. On the negative side, we see ETF outflows and an unfavorable macro backdrop, as the sector tends to lag when 10 year yields are moving up.
- We aren’t pounding the table by any stretch, but feel that this sector no longer deserves underweight status.
That’s all for now. Thanks for listening. Please reach out to your RBC representative with any questions.
Welcome to RBC’s Markets in Motion podcast, recorded March 19th, 2021. I’m Lori Calvasina, Head of US Equity Strategy at RBC Capital Markets. Please listen to the end of this podcast for important disclaimers.
We’ve just conducted a survey of RBC’s equity analysts, asking them to quantify the outlooks for their industries on 6 issues – performance, cash deployment, margins, valuations, fundamentals, and policy. While most of our work is top down, this is our attempt to get a boots on the ground gut check on our outlook for the broader US equity market.
The big thing you need to know: our analysts remain optimistic on their industries in 2021, despite concerns about valuations, policy, and inflation.
If you’d like to hear more, here’s another 5 minutes.
While you’re waiting, a quick reminder that you can now subscribe to this podcast on Apple, Spotify, Google and Stitcher. If you like the podcast, please rate and review it to help other listeners find the show.
Now, the details.
- Takeaway #1: Overall, our analysts are optimistic on performance, cash deployment, fundamentals, and margins. They are less enthused about the state of valuations and the Washington policy backdrop, as views there are neutral/mixed.
- To give you a sense of the numbers:
- On performance, 67% have a bullish or very bullish outlook,
- On cash deployment, 80% are in the bullish or highly bullish camp, optimism is high on both dividends and buybacks,
- On margins, 71% expect expansion,
- Those constructive on margins believe the expansion will be driven by operating leverage from top line improvement, increased pricing, reduction in COVID-related costs, and efficiencies found during the pandemic. Meanwhile, those looking for flattening or contraction cite competition and cost inflation, partly offset by commodity hedging and FX tailwinds.
- On fundamentals, 87% are bullish or very bullish,
- On valuation, 47% said they are attractive or very attractive
- On policy, just 29% see the backdrop as bullish or very bullish, another 29% believe it’s bearish or very bearish
- Taxes and green energy were the top two concerns
- This echoes our own view on the broader market in 2021 – that we’ll get a good year in stocks but less of a move than 2020’s 16% gain – buybacks, the economy, and a partial margin recovery are tailwinds, but expensive valuations may cap upside and policy is a key risk to monitor
- Takeaway #2: 2021 feels like a long year already with a high level of angst out there, but there hasn’t been a major change in thinking among our analysts since our January survey.
- At the margin, performance outlooks and policy assessments saw a slight negative shift, while views on valuations and fundamentals improved slightly.
- Takeaway #3: Our analysts exhibited some concern about inflation, but it hasn’t derailed their constructive outlook.
- We added bonus questions in the March survey which asked about the impact of reflation – the broader topic if economic reopening - and inflation.
- 37% believe a pickup in inflation will have neutral impact on their industries, while 35% believe it will be positive or very positive and 28% expect it to be negative or very negative.
- To dig into this issue a little more, we also asked the analysts about how reflation or economic reopening generally would impact their industries.
- 87% said it was positive or very positive
- In other words, the rising inflation narrative is a wrinkle in that bullish thesis, but it hasn’t derailed what’s generally a very solid outlook for the year among our analysts yet.
- Takeaway #4: Our Financials analysts are more constructive than those in other sectors, supporting our own overweight on the sector.
- Financials was one of the top sectors on most of our regular questions, coming in #1 on performance, valuation, and fundamentals, tied for 2nd on cash deployment, and #4 on margins.
- Though it received a slightly negative policy assessment, Financials was not the worst sector on this front as it still came in ahead of Tech, Energy, and Industrials.
- We’ve been overweight Financials, and discussed what we see in our own top-down indicators in the March 4th edition of this podcast that supports our view. In a nutshell, valuations remain compelling, earnings revisions remain strong and superior to other sectors, and macro tailwinds are favorable as the sector tends to outperform when the yield curve is steepening, 10 year yield is rising, ISM new orders are rising, and inflation expectations are moving up.
- Wrapping up with takeaway #5: The most notable change in view came from our Consumer Staples team, which became more constructive, and we have upgraded the sector from underweight to market weight.
- As we looked through the results across all analysts, in all sectors, on all questions, it was clear to us that our Food, Beverage and Household & Personal Products team was the one that has really has had a major, positive change in view since the start of the year.
- On performance, the team shifted from bearish to bullish, and on valuation, they shifted from very expensive to attractive – these were some of the biggest shifts we saw throughout the survey.
- On my own top down indicators, the sector is mixed. On the positive side, we see attractive valuations and strong upward earnings revisions trends. On the negative side, we see ETF outflows and an unfavorable macro backdrop, as the sector tends to lag when 10 year yields are moving up.
- We aren’t pounding the table by any stretch, but feel that this sector no longer deserves underweight status.
That’s all for now. Thanks for listening. Please reach out to your RBC representative with any questions.