Daily roundup of research and analysis from The Globe and Mail's market strategist Scott Barlow.
RBC Capital Markets analyst Darko Mihelic sees the Canadian banks returning to growth in 2024.
Core EPS declined 2 per cent quarter-over-quarter and 7 per cent year-on-year on average in Q3/23, 4 per cent lower than our estimates on average. Lower than expected results were primarily because credit losses were 16 percent higher than we forecasted on average, more than offsetting better than expected earnings. For the large Canadian banks under our coverage, we model core EPS to increase 8 per cent on average in 2024, driven by good revenue growth and better expense control. We expect Core EPS to grow 5 per cent in 2025, reflecting a relatively benign economic landscape. Mr. Mihelic has outperformed ratings on Bank of Montreal and Toronto-Dominion Bank.
Doug Porter, BMO chief economist, speaks about my biggest concern about global equity markets.
For over 20 years, bonds have provided serious competition for equities by this measure. Looking back into the mists of time, it wasn't at all rare for yields to be north of E/P ratios. For a spell in the '90s, the so-called Fed model was that the two should roughly line up. This suggests that yields should be inversely and closely related to stock prices. That rough rule was demolished by the tech wreck, the GFC, and years of very loose Fed policy. And it may come back into vogue, kinda like flare pants and flannel shirts. Former Merrill Lynch U.S. quantitative strategist Richard Bernstein wrote about investor greed replacing fear for the firm he founded, RB Advisors.
The extreme risk aversion has resulted in extreme risk taking. Today, we are viewed as not being bullish enough and the ad hominem attacks have returned... The S&P 50 index is up about 17 per cent year-on-year, but this has been driven largely by 7 megacap stocks. The Magnificent 7 are up 90 percent and have played a significant role in the S&P 500's annual return...extremes in sentiment typically present substantial investment opportunities. Fourteen years ago, investors' extreme fear suggested a bull market was forming. Today, investors' extreme greed and narrow focus suggests a broad portfolio of US and non-US stocks might substantially outperform... he was the last time households were so bullish on equities and the next decade's equity returns were poor and the period was called the 'lost decade in equities'.
Diversion: - The Atlantic