Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
Scotiabank analyst Meny Grauman’s most recent research report has the blunt, self-explanatory title of The Fast and The Furious: Why The Rally in Canadian Bank Stocks Can’t Last,
“CIBC kicks off another Canadian bank earnings season on Friday, February 24th and bank reporting wraps up the following week with TD and CWB on Thursday, March 2nd. We forecast the sector generating core cash EPS of $2.35 in Q1/23 which is up 5 per cent versus the prior quarter, but down 4 per cent versus the prior year. Note that the year-over-year result is being weighed down by a normalization in loan loss provisions and for a number of banks very tough Q1/F22 comparables … We do not expect any dividend hikes this quarter (except for EQB) after most banks announced hikes in Q4 … We remain cautious on the Canadian banks as we head into Q1 reporting season. Yes, bank shares started off the year on the right foot, but we don’t believe that this Fast and Furious rally can last. To quote the great Vin Diesel in Fast and Furious 4: Tokyo Drift, ‘You know this ain’t no 10-second race.’ … More challenging capital and regulatory environment for banks (all the banks will reflect a higher tax rate and the impact of the Canada Recovery Dividend in their results this quarter) is something that we are very concerned about, and another key area where lifecos stand out versus banks right now.”
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BofA Securities strategist Michael Hartnett’s weekly Flow Show report remains extremely quotable,
“450 basis points in 11 months … Most aggressive Fed tightening in decades and … U.S.. retail sales at all-time highs, U.S. unemployment at 43-year lows, payrolls up more than 500k in Jan & CPI/PPI inflation reaccelerating … Fed mission very much unaccomplished … We say H1′23 ‘no landing’ = H2′23 ‘hard landing’ for market & macro; no landing = higher rates, and once higher rates (10-year UST more than 4 per cent) = crack in homebuilders, semis, US/EU/JP bank stocks … Fed tightening always ‘breaks’ something …
“BofA’s Hartnett ... still bearish” – (research excerpt) Twitter
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Citi’s research department touted Microsoft as the best way to play the spread of generative artificial intelligence,
“Tyler Radke and the Global software team tackle one of the hottest topics right now, generative AI. The team provides a brief “overview of the factors driving significant innovation, new market opportunities, and challenging long-held market dominances.” To determine the innovation and opportunities, the team takes a fresh look at cross-sector analysis examining impacts across software application and cloud computing, search/advertising, GPU/chipset opportunity and other key takeaways by region. Tyler and his team believe MSFT is “among the best positioned to win generative AI” quantifying their opportunity … 1) Search market share gain potential, where share shift implications are known (1% share=$2Bn in revenue). 2) Azure/OpenAI, where pricing analysis points to opportunities of up to $2.4B for ChatGPT and $730M for Codex over time.”
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BMO chief economist Doug Porter notes that Canadian bond yields are at levels last seen 15 years ago,
“Perhaps a wee bit overshadowed by the back-up in Treasury yields in recent weeks is the fact that some GoC yields have now bounced to 2023 highs. To wit, the 3.45-per-cent yield on five -year GoCs is the highest since early November, and up a rather meaty 45 bps from just four weeks ago. The rise in yields reflects a run of solid economic data in both economies, and the dawning realization that central banks may need to do even more than expected just a few short weeks ago. While yields are still about 40 bps below the extreme highs hit last fall, they are now sitting at levels last seen in 2008. The rise in fives has big implications for an already struggling housing market. The inverted chart of home prices is meant as an indication of the lags involved —not to suggest prices are going to revert that much. But note that even with the correction of the past year, home prices are still up 30 per cent from the pre-pandemic level. "
“Canadian bond yields ‘sitting at levels last seen in 2008′ (BMO)” – (research excerpt) Twitter
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Diversion: “The Truth About Aliens Is Still Out There” – The Atlantic
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