Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
BofA Securities analyst Ebrahim Poonawala previewed Q4 earnings prospects for the domestic banks,
“We expect 4Q24 results to offer few surprises (although it would not be a surprise if it were expected) with banks likely to report incremental worsening in credit costs (PCLs), net interest margin (NIM) stability in the face of BoC rate-cuts and tempered loan growth. EPS growth momentum improving heading into 2025 with our revised 4Q24 EPS estimates implying +7% YoY growth vs +6% reported for 3Q24; PCLs +3bp QoQ; NIM +1bp; loan growth +1.0% … Potential for a cyclical rebound on the back of BoC rate cuts, US soft-landing remains a bit of an unknown. BofA Economics team forecast for Canada GDP growth to nearly double to 2.4% YoY in 2025 vs 1.3% in 2024; 75bp of BoC rate-cuts by Apr 2025 (implying 3% overnight rate). The macro uncertainties tied to the job market, private sector investments and housing activity were underscored during a series of meetings we hosted during BofA’s annual Canada Banks Day … We believe it is important for investors to not ignore upside potential to bank stocks from upcoming federal elections … Our investor conversations indicate search for owning one of the discounted names given the strong YTD move in Royal-RY/Commerce-CM/National-NA shares. While we see continued runway for RY and CM on the back of an improving ROE outlook and strong execution, we do see value of adding exposure to a potential catch-up trade. We see RY as uniquely positioned to widen the ROE gap relative to its peers given continued synergies from HSBC Canada … We have upgraded Scotiabank-BNS to Buy based on our view that the Street is under appreciating the progress on mgmt’s turnaround efforts under CEO Scott Thomson. Sharpened focus on profitability, above average upside from rate-cuts, set the stage for ~300bp of ROE improvement (by 2027) and stock outperformance”
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Citi economist Veronica Clark believes the bank of Canada will cut rates by 50 basis points in December despite stronger than expected consumer prices,
“Headline CPI in October that was slightly stronger than consensus expectations and back at 2%YoY should not be a concerning pick-up for BoC officials, but stronger core measures could give officials more pause when considering a larger rate cut. Part of the strength in inflation in October was a onetime larger increase in property taxes. We continue to think softer employment and activity data will have officials lowering rates by 50bp again next month as policy rates at least need to be in the range of neutral”
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Goldman Sachs analyst Ben Snider summarized the important points about U.S. hedge fund performance and positioning,
“Hedge fund long positions have boosted US equity long/short hedge fund returns to +14% YTD. Our Hedge Fund VIP list of the most popular long positions has returned +30% YTD, almost twice the return of the equal-weight S&P 500 (16%) … Hedge funds rotated within stocks exposed to this year’s dominant themes of mega-cap exceptionalism and AI exuberance. Among the Magnificent 7, hedge funds on net increased positions in NVDA and TSLA and trimmed positions in AAPL and AMZN … Within the AI trade, funds added to stocks exposed to nuclear power, and VST joined the VIP list. However, funds incrementally reduced exposure to the broader AI infrastructure theme. Along with AAPL and AMZN, DELL, LRCX, QCOM, SMCI, and WDC ranked on this quarter’s list of Falling Stars with the biggest declines in hedge fund popularity … The mega-caps AMZN, META, MSFT, GOOGL, NVDA, and AAPL remained at the top of the list of the most popular hedge fund positions … 17 new constituents include ANSS, APP, BKNG, CPNG, CVNA, DFS, EQT, EXPE, FLUT, JNPR, K, PYPL, SMAR, VRT, VST. 5. SECTORS: Health Care remains the largest hedge fund overweight and Info Tech the largest underweight relative to the Russell 3000. However, funds incrementally rotated away from Health Care and towards TMT last quarter”
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Diversion: “Which vehicles are most at risk for theft?” – CBC