Friday, November 13, 2015

Barclays: A Brighter Day Lies Ahead (for energy stocks)

Re: the energy companies, we'll get at least three distinct moves.

First a short-covering pop of ~12% over one to three days as the shorts sniff the coming buying inflow. Then either a pause or small decline before the crowd stops waiting for the "when it drops back to X then I'll get in" moment and finally some sort of discounted cash flow valuation that incorporates the Paris politics and what we think will be some interesting weather surprises over the next decade or so.

From Bloomberg:

Barclays: We're About to Enter a New Stock Market Regime
One that favors ... energy companies?
We might be just one month away from the first interest rate increase by the Federal Reserve in nearly a decade, the prospect of which should be sending investors scuttling to figure out how best to prepare their portfolios.  
According to Barclays, the turn of the U.S. interest rate cycle will likely produce a new regime for the stock market. A team of analysts led by Ian Scott in London found that past tightening cycles have tended to produce outperformance in value stocks, or those that are underpriced relative to their peers and fundamentals. 
Here's what they say. 
U.S. interest rates have been a key driver of style and sector performance within global equities. If, as expected, the Fed starts raising rates in December this could have profound implications for style and sector leadership. We think the most robust conclusion is a market driven more by value than either quality or growth. Sectorally we think this favors financials, late-cycle cyclicals and energy. On the other hand, staples and healthcare, as well as utilities and telecoms could struggle globally....MORE