A roundup of what The Globe and Mail’s market strategist Scott Barlow is reading today on the Web
Maria Semikhatova is Citi’s analyst for Canadian banks. In a research report published Tuesday, Ms. Semikhatova noted Royal Bank as her top pick in the sector, but it’s her assessment of the operating environment for all banks is the more important takeaway,
“Canadian bank shares have declined 3% over the last three months as earnings expectations headed lower on the back of concerns over margin and asset quality outlook … We recently revised our EPS and TP due to a Lower Sustainable Growth Assumption — We decreased our adjusted EPS estimates by 1-2% on average in 2020-2021. We also lowered the sustainable growth rate assumption for Canadian banks reflecting the risk from global growth and trade uncertainty which lead us to cut our target prices by 7% on average. “
The bank stocks are fine, they will likely always be fine over any reasonably long investment time frame. The potential returns from the sector are, however, likely to be lower than previously.
“@SBarlow_ROB C: lower returns ahead for Canadian bank stocks” – (research excerpt) Twitter
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Bespoke Investment Group’s macro strategist George Pearkes highlighted that, even if just for one day, value stocks ruled U.S. markets on Monday,
“[Monday was] one of the worst days for growth stocks' relative performance in years. One way to look at it is the relative performance of the quantitative growth factor relative to the quantitative value factor using MSCI's Momentum factor ETF (MTUM) versus their Value factor ETF (VLUE)… the 1 day percent change of the ratio of these two ETFs since inception… this was the single biggest decline (where momentum underperforms value) in the history of the two ETFs dating back to early 2013… The best-performing stocks [Monday were] low valuation, low revenue growth, small-cap names that are underperformers over the past year. In contrast, high valuation stocks with high revenue growth that are up big over the past year are getting absolutely smashed. “
“@SBarlow_ROB Bespoke: For one day at least, value stocks dominated” – (research excerpt) Twitter
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Equity market bullishness is to a large degree dependent on central bank monetary policy driving a global economic recovery. Writing for the Financial Times, Nomura economist Richard Koo is skeptical,
“The fear of “Japanisation” has, once again, prompted monetary authorities on both sides of the Atlantic to consider additional monetary easing — but for all the wrong reasons. The extended periods of slow growth and low inflation seen in Japan since 1990 and in the west since 2008 are caused by the disappearance of borrowers, not by the lack of lenders. Monetary policy, which controls the availability of financing, does not work well when there is no appetite for debt… With pre-1990 liabilities still on the books but no assets to show for them, millions of borrowers started to pay down debt to remove their debt overhang, even with zero or negative interest rates. It was a journey that took nearly two decades to complete.”
“Why aggressive monetary easing is pushing on a string” – Koo, Financial Times (paywall)
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Tweet of the Day:
Diversion: “Meet the ‘Cold Dragon of the North Winds,' a Gigantic Canadian Pterosaur” – Gizmodo
Scott Barlow