Bank earnings preview and top picks from a BofA Securities analyst

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

There are times when a foreign perspective on domestic stocks is extremely worthwhile, but, unfortunately, that determination can only be made in hindsight.

With that in mind, here’s BofA Securities analyst Ebrahim Poonawala’s preview of domestic bank earnings,

“Our investor conversations suggest neutral-to-underweight positioning in the group. Valuation cited as the main reason for the caution with stocks pushing towards the upper end of historical range despite significant macro uncertainties and an economy that feels recession-like. We calculate potential for 5-10-per-cent upside to our FY26e EPS on lower credit costs and capital flex, implying average P/E closer to 10.5 times vs. 11.7 times on base case forecast. On P/Book, valuations well anchored at 1.5 times vs. 14-per-cent average ROE outlook (despite excess capital). On macro, we think visibility on U.S. tariffs and success of the Carney administration in reigniting private sector investment and job growth top catalysts for stocks, with banks likely to serve as a top choice for investors to express this view. EU > US > CAD banks. Our conversations with global financials investors indicate a continued preference for owning EU bank stocks (up 40 per cent year-to-date) over U.S. (up 20 per cent) given the ability to gain exposure to some of the same macro themes at a discount. Notably, premium multiples afforded to the U.S. GSIBs has led to conversations around diversifying into U.S. regionals (up 3 per cent) and/or Canadian banks (up 11 per cent). CAD banks trading at the narrowest P/E and P/B premiums relative to EU/US banks … We remain bullish on TD Bank-TD and National-NA given idiosyncratic catalysts. BMO lacking a catalyst at current multiples. CIBC well positioned but in need of some macro tailwinds to drive flows”

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Citi chief U.S. equity strategist Scott Chronert provided valuable insight into inflation pressures,

“CPI and PPI gave markets different reads. CPI suggested inflation was in check as data printed in line with consensus. A day later, PPI printed hotter than expected. The initial equity reaction was positive with Small Cap, which we believe is the ultimate soft landing gauge, outperforming. But PPI uprooted outperformance the next day when the S&P 500 finished flattish. There were positives and negative to the inflation data. While Fed Funds futures markets did start to price in more cuts post CPI, that quickly reverted back to levels at the end of last week post PPI. Therefore, cuts still seem near, but a greater magnitude might not be in the cards. However, hotter PPI could mean demand might not be as fragile and corporates may not be eating added costs in tighter margins. Overall, the back and forth on inflation this week really did not change the overall narrative”

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Financial times columnist and former portfolio manager Stuart Kirk stated definitively that we’re in a market bubble in How to invest in a stock market bubble (paywall),

“I have been there and it sucks. Grumbling about how mad everyone is while hating yourself for missing out. Forwarding charts that show how divorced prices are from fundamentals … Of course, none of their bullish colleagues — at lunch again or perusing boats online as they ponder their year-end bonuses — will admit we are in a bubble. But I am with the doom-mongers all the way … Looks like a bubble. Smells like a bubble. Is a bubble … periods of nutty exuberance last much longer than you expect … It is impossible to know ex-ante how far we are into this bubble. However, to me it doesn’t feel near the end … as soon as the bubble bursts — don’t worry, you’ll know — switch to passive funds again. Bonds are best. Equities are fine, too, but make sure they have the word VALUE in the name. Then you really can disappear for the summer. Perhaps many summers”

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Bluesky post of the day:

Diversion: “Here Are the Winners of the 2025 Wildlife Photos of the Year Contest” – Gizmodo