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As for today, I’ll describe why I’m peeved with my bank’s unattractive mortgage offering while at the same time outlining why the sector is becoming even more attractive than usual as an investment. The diversion today points to eventual geological calamity in the Pacific Northwest and we’ll take a look ahead to important economic data, including U.S. non-farm payroll numbers this Friday.
Pedestrians pass by CIBC ATMs near Union Station in downtown Toronto on August 29, 2024.Sammy Kogan/The Globe and Mail
Financials
Strategists are warming back up to bank stocks
I’m annoyed with my bank as you’ll read about below but the sector is gaining momentum in the stock market. Scotiabank strategist Jean-Michel Gauthier has listed a bank among his top 30 Canadian stock picks for the first time since 2022.
Mr. Gauthier ranks all S&P/TSX Composite stocks by value, growth, momentum and balance sheet quality each month. Current scores favour precious metals and consumer staples while crude prices are dragging down the numbers for the energy sector.
Bank stocks have been rising in the rankings as upwards earnings revisions push growth scores higher. CIBC made the top 30 list for October after Scotiabank strategists presciently raised their rating on the bank sector as a whole from “underweight” to “neutral” last month.
CIBC’s overall ranking has improved to the 92nd percentile, up from the 89th last month and the 76th three months ago. CIBC benefitted tremendously from the positive earnings revision trend in the sector. The current growth score is in the 76th percentile, a dramatic improvement from the 65th percentile in August and the primary reason the stock is listed among Scotiabank’s top 30 domestic stock picks.
Mr. Gauthier believes the earnings outlooks for the banks have more room for improvement. He emphasized that U.S. bank stocks are close to their highest-ever rankings according to the same model, “hinting at the potential catch-up trade available for Canadian banks.”
I listed the entire top 30 list in my morning piece today. The highest ranking stocks outside of CIBC include Secure Energy Services (100th percentile), Dundee Precious Metals (100), North West Co (94), and Fairfax Financial Holdings (96).
Banking
My mortgage woes
I had to renew my mortgage recently, which was bad timing made worse by some very unhelpful mortgage rates offered by lenders.
Everybody reading this knows that the immediate path for interest rates is lower. There are some economists, like BMO’s Robert Kavcic, who believe the Bank of Canada might even accelerate monetary easing by cutting 50 basis points at the next meeting later this month.
Variable mortgages make sense in cases where rates are heading lower so that’s the first place I looked. The available mortgage rates highly incentivized me towards fixed rates. Of the eight options provided by the bank I was with, only one was variable. It was too long a term for me at five years and expensive at over six per cent.
I called to see if more variable rates other than the one posted were available. No success.
A three-year variable rate would have been great. A U.S.-style 30-year mortgage three years ago would have been even better but this is Canada and that kind of financial consumer friendliness, with the bank and not me taking on the rate risk, doesn’t happen.
It is in the bank’s best interest for me to lock in at a fixed, higher rate before rates decline further, and far be it from me to stop them from making money. I don’t, on the other hand, want to hear any more television commercials about how the bank is my partner dedicated to helping me reach my financial goals.
An official looks monitoring activities of earthquake at an observation post mount Merapi in Yogyakarta, Indonesia, Friday, June 30, 2023.Slamet Riyadi/The Associated Press
Diversions
Disaster looms
I hope readers have a free New Yorker click available to get around their soft paywall because Kathryn Schultz’s The Really Big One is one of the best features ever written.
The story begins with an eyewitness account of the Tohuku earthquake in Japan that resulted in almost 20,000 deaths and the Fukushima power plant meltdown. Ms. Schultz then describes the Cascadia geological fault line that runs offshore on the U.S. Pacific Northwest, terminating near Vancouver Island.
A tectonic plate including all of North America is resting on another massive plate along this fault line, both moving at a millimeters per year pace.
The author explains one devastating potential scenario: “When the next very big earthquake hits, the northwest edge of the continent, from California to Canada and the continental shelf to the Cascades, will drop by as much as six feet and rebound thirty to a hundred feet to the west - losing, within minutes, all the elevation and compression it has gained over centuries … Kenneth Murphy, who directs FEMA’s Region X, the division responsible for Oregon, Washington, Idaho, and Alaska, says, ‘Our operating assumption is that everything west of Interstate 5 will be toast.’” Interstate 5 is the main north-south highway on the West Coast of the U.S., with roughly one third of California to its west, including Los Angeles
The essentials
Looking for our updates on market movers, analyst actions, stock technicals, insider trades and other daily, weekly and monthly insight? Click here to visit our Inside the Market page.
Globe Investor highlights
Market strategist Marius Jongstra of Rosenberg Research argues a Democratic sweep in next month’s U.S. election won’t be good for stock markets.
Rick Rieder, chief investment officer of global fixed income for BlackRock, explains why he thinks the ‘golden age of fixed income’ is upon us. Meanwhile, Desjardins chief economist and strategist Jimmy Jean thinks there will be no year-end rally for both Canadian and U.S. stocks this year.
The rally in U.S. stocks has been broadening, but Jamie McGeever tells us why this may actually slow down the pace of market gains.
What’s up next
There’s no Canadian economic data of note until next Friday, when job numbers and the unemployment rate will be released.
The U.S. non-farm payroll number this Friday is by far the most important release on the calendar. It’s usually over-hyped and probably still is, but the Federal Reserve is very concerned about the labour market as a guide for interest rate policy, so it matters more than previously. A net gain of 150,000 jobs is expected.
U.S. durable goods sales for August will be reported the day before payrolls, with a flat month-over-month reading expected. CPI will be released next Thursday and U.S. producer prices is out Friday.
See our full economic and earnings calendar here (You can bookmark the page - it gets updated weekly)