BofA analyst meets with Canadian bank management, presents top pick in sector

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

‘Cautiously optimistic’

BofA Securities analyst Ebrahim Poonawala reported on his recent meetings with Canadian bank management teams,

“‘Cautiously optimistic’ tone on the operating outlook underpinned by three factors: 1) potential for PM Mark Carney to implement pro-business policies with the Nov 4 budget closely watched; 2) hopes that the USMCA (aka CUSMA) trade agreement should hold, although incrementally negative for Canada (especially auto); 3) continued resiliency among bank customers that has kept credit costs in check, although tempered growth outlook … a backdrop where the narrowing valuations between Canadian banks and their US/EU peers are causing global investors to revisit the group, given the outlook for improving (and best-in-class) ROEs and potential for accelerating growth … Potential for continued flows into bank stocks globally, combined with macro-optimism and improving ROEs creates the recipe for valuation multiples to expand as markets discount an improving growth outlook and fading credit concerns. CIBC-CM offers the most compelling risk/reward to gain exposure to a better than expected rebound in Canadian GDP growth … Toronto condo and Ontario housing stressed but unlikely to pose systemic risk”

Victory kap

BMO chief strategist Brian Belski was among the first strategist to forecast TSX outperformance, and he took a victory lap in his latest report entitled Canadian Strategy Snapshot: The Bull Case Has Arrived,

“The stock market recovery that no one believed, was widely panned and even more loudly doubted when we first published our view that Canada was entering a prolonged period of outperformance relative to the U.S. way back in mid-2024, has reached heights that even we thought were lofty. Yes, the TSX has eclipsed our base case of 28,500 in part to surprising economic strength and sustained gold momentum. However, MACRO does not lead – FUNDAMENTALS do. That is why we have been prioritizing the improving and consistent fundamental conditions of Canadian stocks with respect to earnings growth and revisions, operating performance, cash, and yes, themes within our Canadian strategy publications and actual equity portfolios that we oversee. After all, the stock market is a market is stocks – and STOCKS are NOT the ECONOMY. This fact has never been more prevalent in our view than the past two years in Canada. To that end, we are raising our 2025 year-end price target for the TSX to 31,500 from 28,500, which implies another 6% return in the final three months of the year. Furthermore, we are raising our 2025 EPS target to 1,650 from 1,600 thanks to the broadening positive revision cycle that our models have shown over the last six months. This now positions the TSX to exhibit low double-digit earnings growth by the end of 2025, implying a higher earnings multiple that is likely to remain above the long-term historical average … With our revised forecasts, we now expect the TSX to outperform the S&P 500 in local currency by over 8% on an annual basis this year, marking one of the strongest outperformances since 1990.”

Trouble ahead?

Citi economist Nathan Sheets is waiting for “another shoe to drop” for the global economy,

“Global growth remains on a solid trajectory. The economy has cooled a notch, as tariff-related uncertainty has restrained spending, but activity has held up surprisingly well. All told, growth looks to have run at 2.6 per cent during H1, down only slightly from last year. This performance is broadly a reprise of the past two years—and the global economy continues to defy our expectations for sharper slowing. Nonetheless, we believe that there is still another shoe to drop. The tariffs are increasingly biting, which is likely to bring further softening in US consumption and import demand. In tandem, we see global growth slowing to below 2 per cent during H2, before bouncing back to 2.5 per cent next year. This tariff-related divot in global economic activity, while notable, is now smaller and shorter-lived than we feared earlier this year”

Bluesky post of the day

Diversion

“Scientists “Improve on Mother Nature” To Create Powerful Cancer-Killing Molecule” – SciTechDaily