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

It would be a big surprise if Scotiabank’s Banking Turmoil in the US: Where Do Canadian Bank Investors Go from Here? wasn’t the most popular research report in the country today,

“We are just about two weeks into the most significant US banking crisis since the Global Financial Crisis (GFC) and all indications continue to support our view that the risk of broader contagion to the Canadian financial system remains very low. But the fact that there is no banking crisis in Canada does not mean that Canadian bank investors can rest totally easy. The crisis is not crossing the border, but the accompanying economic slowdown can. While Canadian bank shares have outperformed peers in the US and Europe over this crisis period – and rightly so – there is still downside to numbers considering that current Street estimates (and ours as well) continue to price in a soft economic landing that is become less likely. Factor in a more significant credit cycle and bank shares look a lot less attractive right now… The good news is that not only are unrealized losses on securities proportionally lower in the Canadian banking system when compared with the US, but Canadian banks also hedge their interest risk … We continue to favor lifecos over banks in this uncertain economic environment … Among the banks, our favourite names remain BMO and TD (both rated Sector Outperform), which just so happen to be the Big Six banks that have underperformed the most since the US banking crisis began”

“Scotiabank: “the fact that there is no banking crisis in Canada does not mean that Canadian bank investors can rest totally easy” – (research excerpt) Twitter


BofA Securities’ monthly global fund manager survey finds managers extremely pessimistic,

“Investor sentiment close to levels of pessimism seen at lows of past 20 years; positioning/policy panic says SPX [S&P 500] 3.8k floor holds, fade rally run to > 4.1-4.2k … Allocators are long cash, commodities, short stocks (no big changes), but most underweight REITS since Oct’20; investors slashed exposure to banks, most overweight Europe stocks vs. US since Oct’17 (note survey ran between SVB & CS events), added to staples & tech, and have significant preference for large>small cap & quality>junk assets. Contrarian trades: bullish end to regional bank run…long US>Europe, REITs>cash, small>large cap, banks>staples; deep bearish credit crunch, short commodities, EM, EU.”

“Summary from BofA’s monthly fund manager survey” – (research excerpt) Twitter


Morgan Stanley strategist Michelle Weaver compiled the firm’s top 30 high quality stock picks for the long term,

“Our view remains that the current bear market is not over. We expect earnings to drop well below consensus expectations, with our base case for 2023 at $195. We believe this will be followed by a stronger earnings picture in 2024 … The main criterion is sustainability — of competitive advantage, business model, pricing power, cost efficiency, and growth. From more than 50 companies singled out by our analysts, we narrowed our focus to those that stood out on these criteria. We paid particular attention to RNOA [Return on Net Operating Assets], management’s strategy, capital structure, and shareholder remuneration (dividends / buybacks). We also examined each stock’s scores in our Quant Strategy team’s stock selection models. Additionally, we integrated Environmental, Social, and Governance (ESG) factors into our decision process, and assessed key risks and opportunities for each company. We sought to identify the best franchises, not the most undervalued stocks. There was no prerequisite that they be rated Overweight, and we were largely agnostic about their valuations. Our guiding principle was to create a list of companies whose business models and market positions would be increasingly differentiated into 2025.”

The stocks are Alphabet, American Express, Blackstone, Cheniere Energy, Costco Wholesale, Eaton, EliLilly , EsteeLauder, Exxon Mobil, Hilton Worldwide, Intuitive Surgical, JPMorgan Chase, Liberty Formula One, Linde, Lululemon Athletica, MasterCard, Microsoft, Motorola Solutions, MSCI Inc., NextEra Energy, Nike, Northrop Grumman, Old Dominion FreightLine , Prologis, Raytheon Technologies, Thermo Fisher Scientific, T-Mobile US, UnitedHealth Group, Visa and Yum! Brands


Diversion: “The Beauty of Earth From Orbit” – The Atlantic

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