Scotiabank analyst warns of downside risk for bank stocks

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

Scotiabank analyst Mike Rizvanovic warned clients of downside risk for domestic bank stocks,

“While we remain constructive on the medium-term outlook for the large Canadian banks, we see some downside risk to share prices through Q3 earnings season. That is partly due to the group’s strong rally post-Q2, and somewhat stretched valuation multiples with the group currently trading at a forward P/E multiple of 12.1 times (market cap-weighted on F2026 EPS consensus), which compares with a 10-year historical average of 11.0 times. And while we continue to make the case that historical PE multiples are less relevant today and that the large banks should trade at perpetually higher levels, we are mindful that anything above a 12x PE multiple is likely to give some investors pause. In terms of upside potential coming out of earnings season, we believe that would need to be driven by an improved outlook for EPS growth in F2026, which we suspect is not likely to materialize in light of moderation in Capital Markets earnings relative to H1-F25 levels, still subdued loan growth, a very gradual decline in PCLs, and the prospects for NIM [net interest margin] downside over the coming quarters if interest rates fall as expected … Heading into Q3 earnings season we are most optimistic in the setup for CM [Canadian Imperial Bank of Commerce], which we expect will report another clean quarter, building on its recent momentum. We also like NA, which we believe is likely to show stronger loan growth than peers, and we are cautious on BMO as commercial loan growth in the U.S. could see another quarter-over-quarter decline”

***

RBC Capital Markets analyst Pammi Bir published top picks in Canadian real estate,

“No big surprises in terms of Q2 leadership, with seniors housing still ahead of the pack on multiple fronts – organic growth, earnings growth, and positive revisions. We expect the operating momentum to carry into 2026, though the gap will likely narrow, partly from anticipated improvements in other subsectors (e.g., office). Still, Chartwell remains among the top in our pecking order, underpinned by its sector leading earnings growth profile. Other high conviction calls include First Capital (portfolio is firing on all cylinders, discounted valuation), Granite (encouraging leasing progress in a tough market, good value), Flagship (strong operations) and StorageVault (strong private market valuation and potentially inflecting fundamentals). We also see good probability of an H&R takeout. Additional Outperform rated names include: Boardwalk, BSR, CAPREIT, Colliers, Dream Industrial, Killam, Minto, Morguard Residential, Primaris, RioCan, and SmartCentres”

***

Goldman Sachs strategist Ben Snider recapped major hedge fund positioning,

“PERFORMANCE: The most popular hedge fund long positions have supported returns despite a volatile macro backdrop and sharp intra-market rotations … LEVERAGE AND SHORT INTEREST: Equity hedge fund gross leverage remains elevated vs. history despite the recent short squeeze … HEDGE FUND VIPS: The mega-cap tech companies remain the most popular hedge fund long positions. AMZN, MSFT, META, NVDA, and GOOGL remain the top five stocks in our Hedge Fund VIP list, followed by TSM and AVGO … Hedge fund sector tilts relative to the Russell 3000 increased most in Health Care and decreased most in Info Tech … RISING AND FALLING STARS: Cyclicals dominated this quarter’s list of Rising Stars, with Financials accounting for 6 of the 20 stocks with the largest increase in hedge fund popularity: COF, FI, BRO, NU, BRK.B, SSB. Five Industrials also joined the list of Rising Stars, including LOAR, ODFL, OTIS, RSG. This quarter’s Falling Stars hailed from a wide range of sectors, but included GOOGL as well as Software stocks OKTA, NET, and TEAM”

***

Bluesky post of the day:

Diversion: “Psychiatrists Warn That Talking to AI Is Leading to Severe Mental Health Issues” – Futurism