Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
BMO bank analyst Sohrab Movahedi forecasted sector results for both 2024 and 2025,
“The ‘Big 6′ delivered cash operating earnings of $56-billion in 2023, down 6 per cent year-over-year hurt by normalizing credit loss provisions (from abnormally low levels), elevated non-interest expense levels (in part reflecting inflationary pressures and a drag on operating leverage), and a prolonged cyclical lull in market-related businesses; these pressures were partially offset by resilient (albeit slowing) lending volume growth and net interest margin expansion. Industry ROE deteriorated by 200 basis points reflecting the impact of both a 10bps decline in industry ROA (hurt by lower earnings) and a 100bps rise in the regulatory capital minimum requirement to 11.5 per cent … While our 2024 estimates contemplate flat to marginally lower earnings for the ‘Big 5′ (ex. BMO), we see a slower start to the year (reflecting a continuation of recent quarters’ revenue, expense, and PCL trends) … Our 2025 outlook expects a recovery in earnings per share growth closer to the upper end of the banks’ medium-term target ranges (targets tend to be 5-10 per cent), primarily driven by stronger revenue growth (helped by a recovery in fee-based business) in a more favourable macro environment (with less credit reserve pressures), driving positive operating leverage”
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2024 hasn’t even started yet and Goldman Sachs U.S. equity strategist David Kostin is already raising his S&P 500 target for the year,
“We raise our year-end 2024 S&P 500 index target to 5100 representing 8-per-cent upside from the current level. Decelerating inflation and Fed easing will keep real yields low and support a P/E multiple greater than 19 times. Since late October, S&P 500 has surged by 15 per cent and Russell 2000 has soared by 23 per cent as real rates plummeted from 2.5 per cent to 1.7 per cent. Our prior year-end 2024 forecast assumed yields of 2.3 per cent and a P/E of 18x. Upside risk exists to our above-consensus EPS estimate of 5-per-cent growth. The improved macro outlook implies a more conducive environment for bringing IPOs to market. Resilient growth and falling rates should benefit stocks with weaker balance sheets, particularly those that are sensitive to economic growth”
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Morgan Stanley published my holiday reading over the weekend with the 99-page Key Investor Debates Likely to Drive Stocks in the Coming Year which covers each North American subindustry. Page one is a summary of the key takeaways,
“Key Takeaways: The rise of AI and obesity drugs dominated market debate in 2023, and we expect both to have broad implications for many sectors in coming years. The Energy Transition is experiencing “growing pains,” but we see a number of events and catalysts in 2024 that can reaccelerate Decarbonization. For the first time in years, significant movements in interest rates are changing consumer and corporate behavior; the path forward for the Fed is critical. Next year’s election could have marked impacts on highly market-relevant policies, including AI regulation, energy permitting, geopolitics, trade, and taxes”
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Diversion: “The Best Gadgets of 2023″ – Gizmodo