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Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow

BMO bank analyst Sohrab Movahedi previewed the upcoming earnings reporting season and provided top picks,

“Across the ‘Big 5′ (excl. BMO) in Q2/23, we are looking for a 9-per-cent year-over-year decline in earnings notwithstanding a 7-per-cent pre-tax pre-provision (PTPP) income increase (but with negative operating leverage), primarily reflecting higher year-over-year credit provisions (corporate/commercial, including CRE). The Canadian bank index is currently trading at 9.4 times 2024 estimated EPS, which is at the lower end of the typical 10-12 times forward P/E, but reflective of a less certain earnings outlook given an expected economic slowdown on the one hand, and likelihood of a more involved regulatory presence on the other. Both are headwinds to a re-rating near term, in our view. We are looking for 3-4-per-cent dividend increases at all the banks under coverage, except at TD (on an annual cycle). Our Outperform-rated names remain CM, NA, and CWB.”


BofA Securities investment strategist Michael Hartnett published his always-quotable Flow Show report Friday morning,

“Zeitgeist: ‘The best macro trade right now is no macro trade.’ … need to go back to early ‘50s to see low 3.4-per-cent unemployment rate coexist with low 37-per-cent Presidential approval rating; inflation sole macro reason for disapproval … Maybe not a good idea for Fed to pause when inflation 5 per cent … Cash: pace of inflows slowing, 4-week average smallest in 10 weeks; Treasuries: largest inflow in 6 weeks ($6.3bn); HY bonds: largest outflow in 6 weeks ($1.8-billion); Tech: largest inflow since Dec’21 ($3.0-billion); Financials: largest outflow since May’22 ($2.1-billion) … Banks & cyclicals are the big shorts … Stock allocation [for BofA clients] lowest since Sep’20; bond allocation highest since Oct’20; private clients buying discretionary, EM debt, low-vol, industrials ETFs, selling REIT, Japan, bank loans, tech ETF”


Jefferies strategist Christopher Wood’s GREED & fear report was typically informative,

“GREED & fear senses that active fund managers are having a tough time. GREED & fear sympathizes. With such a small number of stocks driving S&P500 performance, the situation is a bit of a nightmare for active fund managers. It is also the case that with many investors positioned for a slowing economy the pain trade has been a rising stock market … the recession hopes have been kept alive by the growing evidence of an intensifying credit crunch as reflected in the release this week of the latest Fed senior loan officer survey and NFIB small business survey. While the numbers are not dramatic, the pressures are clearly building both in terms of credit availability and, in the case of the all[1]important small business sector, the rising cost of credit. The April Fed loan officer survey released on Monday shows that a net 46.9 per cent and 36 per cent of US banks tightened lending standards for business loans and household loans respectively over the past three months, up from 44 per cent and 24.9 per cent in January and the highest levels since Jul 2020. As for loan demand, a net 45.3 per cent of US banks reported weaker demand for business loans, up from 37.8 per cent in January and the weakest level since October 2009. This is the most significant data point from GREED & fear’s point of view.”

“Jefferies: “recession hopes have been kept alive by the growing evidence of an intensifying credit crunch”” – (research excerpt) Twitter


Diversion: “Winners of the 2023 Close-Up Photographer of the Year Challenge: Minimal” – The Atlantic

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