BMO analyst outlines why bank stocks will outperform for rest of 2024

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

BMO bank analyst Sohrab Movahedi sees a good chance Canadian banks will outperform the benchmark in the second half of the year,

“In the first half of calendar 2024, the Canadian bank index has delivered a positive total return of ~0.5%, underperforming the S&P/TSX composite by ~5.5%. In our view, this slow start to the year is driven by continued investor caution around the macroeconomic environment and its implications for earnings recovery prospects for the Canadian banks given still elevated credit costs and sluggish loan growth. Still, there is room for optimism; based on historical observations, the probability for the bank index to outperform the composite in full year calendar 2024 given the slow start to the year is ~50%. Following Q2/24 results, we reiterate our view that the Canadian banks are at an earnings inflection point, which should support higher valuation multiples and ultimately share price performance over our forecast period. We continue to rate CM, RY, NA and EQB Outperform”

***

Scotiabank mining analyst Orest Wowkodaw surveys the recently volatile copper space, provides top picks

“Given the heightened volatility in both Cu prices and the mining equities over the past month, we have revisited our implied Cu price analysis. We estimate that the large/mid-caps are currently implying an average Cu price of $5.38/lb, representing a relatively large 26% premium to spot (vs. premiums of 24% in May and 34% in April; average premiums of 18% since 2023 and 6% since 2018). We believe this strong premium is being driven by increased investor appetite for Cu exposure (attractive fundamentals) and some M&A speculation. HBM ($4.58/lb), FM (at $4.65/lb due to Panama uncertainty), MTAL ($4.72/lb), and ERO ($4.74/lb), are the least expensive; conversely, SCCO ($7.57/lb), IVN ($6.54/lb), FCX ($5.88/lb), and ANTO ($5.60/lb) are the most expensive. GMEXICO ($4.83/lb), LUN ($5.11/lb), TECK.B ($5.13/lb), and CS ($5.21/lb) are priced in the middle. See Exhibits 1-2. Overall, CS, HBM, ERO, and TECK remain our top picks for Cu exposure. We also highly recommend FCX, IVN, and MTAL”

***

CIBC economist Avery Shenfeld is wavering on his call for interest rate cuts this year,

“We’re reluctant to throw in the towel on our forecast for a July Bank of Canada rate cut, and two further moves over the rest of 2024, after one monthly wobble in the CPI … The central bank wisely keeps tabs on the three-month and twelve-month trends, because the monthly data shift like the wind. The three month annualized pace for CPI trim and median, at 2.7% and 2.3% respectively, are still below their 12-month paces, suggesting that the broad direction of the economy is towards a disinflationary cooling … Thinking like a weather forecaster, not a weather vane, gives some reason to expect tame inflation readings ahead. Global trends show a continuing deceleration in goods prices, and a softer trend in global demand as registered by PMI figures. While we have an important set of jobs data next week that could still impact the July rate decision, wages in Canada do seem to be settling back to a less harried trend. Yesterday’s payrolls report showed a dip in inflation for fixed-weight hourly earnings, and a further drop in job vacancies. So for now, rather than blowing with the wind, we’re keeping our call for three more rates cuts this year intact”

“Weather forecasts and weather vanes” – CIBC Economics

***

Diversion: “Man Gets Easiest Kidney Transplant Ever, Goes Home a Day Later” – Gizmodo