Earnings too strong for a big pullback, says Scotiabank strategist

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

Explaining the uncertain mood

Scotiabank strategist Hugo Ste-Marie is skeptical a big pullback will happen because the most recent earnings season was so good,

“Q3/25 EPS [for the S&P 500] Surging to New All-Time High, Strong Bottom-Line Beat Across Sectors, Top-line Beat Also Strong and Broadly Positive, Negative EPS Revisions Constrained to Defensive Sectors, Small Cap Beating Expectations for a Second Straight Quarter, No End in Sight to Rising Profit Margins, Fear Factor: Tech Capex Growing at Vertiginous Levels Amid Sky-High Valuation … TSX Reaches New High Despite Heightened Trade Tensions, EPS Inches to a New All-Time High, Waiting for Banks’ Final Say, Broad-Based Earnings Beats Across Sectors, Bay Street Lifting Outlook. Overall, we see two competing factors explaining markets’ uncertain tone. On one hand, sky-high valuation levels and a certain level of froth in AI themes is making investors question soaring capex needs. On the other hand, actual sales/profit levels point to strong support. Volatility will likely remain elevated, but pullbacks should be short and shallow, in our view”

Humdrum

RB Advisors published a report urging investors to be boring,

“We didn’t object to people wanting to speculate, after all speculation is a necessity within every functioning financial market, but speculation should not dominate most well-structured wealth-building portfolios. Today’s discussions about whether AI-related stocks are in a bubble seem to miss the bigger picture. Virtually every asset class is now ripe with speculation, and such broad asset speculation suggests to us that boring humdrum assets might be very attractive. Today’s financial markets seem ripe with speculation. Consider the following: Equities: The equity market seems myopically focused on AI, SPACs, and meme stocks. BofA Securities has pointed out that private client equity betas are between 1.25 and 1.50, whereas betas were about 0.75 at the beginning of the secular bull market … Credit spreads are historically narrow, mimicking those seen prior to the Asia/Russia Crisis, the Global Financial Crisis, and the Inflation/Fed rate hike scare of 2022 … option volumes have hit an all-time high , and retail option participation is at record levels. The boring compounding of dividend income can be a meaningful part of building wealth. The chart compares the compounded total returns of S&P Dividend Aristocrats Index to those of the NASDAQ Composite over the past 30 years. The recent Magnificent 7 period has propelled NASDAQ into the lead, but the indices were basically neck-and-neck (revisiting our earlier horse racing comparison) until this year. The low-beta nature of dividend yield-oriented stocks implies that they have outperformed NASDAQ over this period on a risk-adjusted basis”

Mining

Morgan Stanley held a critical minerals conference and mining analyst Carlos de Alba summarized the results,

“Governments have a laser focus on reshoring critical supply chains … We hosted a number of corporates in the critical mineral space over the three-day event, and a common theme throughout our virtual symposium was that many governments (most notably the U.S.) want to reshore these supply chains. Alongside the critical mineral corporates, we also hosted policy experts and former trade representatives, who noted that the U.S. and China remain in a state of tenuous equilibrium. While we have seen flare-ups in diplomatic relations this year with Liberation Day tariffs and China’s April + October Rare Earth restrictions (the latter having been postponed for one year), these are often short-lived as the two sides recognize they are still too interdependent to have an embargo or hard-break scenario. This is driving the Trump administration’s push to reduce dependence on China for critical minerals, perhaps most clearly outlined by the DoD’s historic deal with MP Materials”

Management teams presenting at the conference include IperionX Ltd. (IPX-Q), NioCorp Developments (NB-QQ) , NexGen Energy Ltd. (NXE-N), MP Materials Corp. (MP-N), Metallium Ltd (MTMCF-OTC) and Centrus Energy Corp (LEU-N)

Bluesky post of the day

Diversion

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