Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
Scotiabank analyst Meny Grauman is getting more bullish on the Canadian banks, but investors will have to be patient,,
“After many quarters of bearishness we are getting much more constructive on the outlook for Canadian banks; the only hitch is that from a numbers point of view we only see that happening in F2025. For F2024 we still see downward pressure on estimates from several factors including very sluggish revenue growth, particularly in the US, and the hit to revenue from the elimination of the tax deductibility on dividend income from Canadian businesses. Those factors, along with a further normalization in PCL ratios take our EPS estimate for F2024 down by 3 per cent on average for the group, a number which is also being weighed down by the later-than-expected closing of RY’s HSBC Canada deal. That said, with the North American economy showing signs of resilience, and capital rules not biting as hard as we feared, we see reason to be hopeful for F2025, and to believe that F2024 may mark a low point for bank earnings and stock performance. We are not yet willing to shift from our preference of lifecos over banks, especially given the move we saw in bank stocks this past December, but do believe investors should begin to take a less defensive view of the sector … We don’t expect any dividend increases this quarter except at EQB. Heading into Q1 reporting season we like the set for CIBC and NA, along with CWB”
“Tuesday’s analyst upgrades and downgrades” - Globe Investor
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Goldman Sachs chief U.S. equity strategist David Kostin raised his target on the S&P 500,
“We raise our year-end S&P 500 index target to 5200 (from 5100), representing 4-per-cent upside from the current level. Increased profit estimates are the driver of the revision. Our upgraded 2024 EPS forecast of $241 (8-per-cent growth) stands above the median top-down strategist forecast of $235 (6-per-cent growth) and reflects our expectation for stronger economic growth and higher profits for the Information Technology and Communication Services sectors, which contain 5 of the ‘Magnificent 7′ stocks. We expect P/E valuation multiples for the equal-weight S&P 500 (16 times) and aggregate cap-weight index (20 times) will remain close to current levels, making earnings growth the primary driver of remaining upside this year”
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Morgan Stanley equity strategist Michael Wilson predicts that U.S. markets will remain focused on the big winners,
“Four years ago, I wrote a Sunday Start, The Other 1 Percenters, in which I discussed the ever-growing divide between the haves and have-nots. This divide was not limited to consumers but included corporates as well. Fast forward to today, and it appears this gap has only gotten wider. Back then, the average company was experiencing earnings headwinds even though the economy was doing well, small caps and the average stock were underperforming the S&P 500 materially in both earnings and price terms, and the top 5 companies were dominating the market indices. Sound familiar? … The earnings headwinds [now] are just as strong despite higher nominal GDP, as many companies find it harder to pass along higher costs without damaging volumes. As a result, market performance is historically narrow, with the top 5 stocks accounting for a much higher percentage of the S&P 500 market cap than they did in early 2020. In short, the equity market understands this economy is not that great for the average company or consumer … Higher rates are having a dampening effect on interest rate-sensitive businesses (e.g., housing and autos) and low/middle income consumers. This is exacerbating the S&P 500′s 1 percenter phenomenon and helps to explain why the market’s performance remains so stratified. For many businesses and consumers, rates remain too high. However, this past week’s hot CPI and PPI reports may raise the question of whether the Fed can deliver the necessary rate cuts for the markets to broaden out until the government curtails its deficits and stops crowding out the private economy”
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Diversion: “A New Version of Dengue Is Plaguing Florida: ‘Unprecedented’ Outbreaks” – Gizmodo
Scott Barlow