Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
National Bank economist Stéfane Marion warns housing affordability woes are set to worsen amid another surge in immigration levels,
“The demographic shock is getting worse in Canada. The working-age population (aged 15 and over) rose by over 100,000 in April, bringing the total to over 410,000 after 4 months in 2024. As today’s Hot Chart shows, this represents a sharp acceleration (+47%) on the 278,000 increase recorded in the first four months of 2023. In Greater Toronto, where population growth reached a record 107,000 at the start of the year, the acceleration is 66% compared to the growth seen in 2023. Greater Montreal and Greater Vancouver have not been left behind since the start of 2024, with growth more than double that seen in 2023.
Conclusion: with Ottawa having announced its intention to limit immigration from 2025, it would seem that many people have decided to come to Canada earlier. Housing affordability problems could worsen over the next few quarters, as we head for another record year of population growth.”
“Canada: Population growth accelerates in 2024″/ X (twitter.com)
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BMO’s top investment strategist, Brian Belski, on Wednesday raised his S&P 500 price target to 5,600 - the highest on the Street. Today, he’s jacking up his target for the TSX,
“We are increasing our S&P/TSX price target to 24,500 from 23,500. While this is a minor 4% increase to our price target, it reflects multiple signs that both sentiment and revision trends have bottomed and are beginning to improve, which we believe will be a key tailwind for valuation expansion into year-end. We are not increasing our 2024 EPS target at this point, given the bottoming of revision trends are likely more supportive of 2025 EPS. As such, our 2024 implied P/E ratio increases to 16.3x from 15.7x, this is still well below the long-term average multiple of 17x. Overall, unlike in 2023 when the big three sectors underperformed (it is difficult for the TSX to do well with that backdrop), two of the three largest sectors in the TSX are sharply outperforming this year. Furthermore, performance is clearly broadening with an increasing focus on fundamentals. In our opinion, this is another strong sign that Financials and the other non-big three sectors are primed for a sharp rebound and catch-up trade in the back half of the year.”
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RBC Capital Markets analyst Darko Mihelic does not think domestic bank stocks are out of the woods yet as uncertainty on the outlook lasts into 2025,
“We made minor adjustments to our EPS estimates ahead of Q2/24 reporting. We believe credit quality is still top of mind for investors and although this quarter our PCL [provisions for credit losses] estimates have not changed much (and some declined), we continue to see signs of credit deterioration, and we are still keenly aware that mortgage renewal shock continues. We expect some idiosyncratic differences in results (BMO bouncing back from a very weak Q1/24, TD reflecting a provision for AML, and CM experiencing a drop in PCLs as CRE losses decline). We do not expect material changes in the trends for NIMs [net interest margin] or loan growth, and we suspect Capital Markets-related revenues are not significantly different from Q1/24. While valuation remains “attractive”, our confidence in our NIM, loan growth, and PCL forecasts for 2025 is low, and we doubt Q2/24 results will help build confidence for these drivers. Capital strength is positive but probably not enough for a significant valuation bump”
Mr. Mihelic has outperform ratings on Bank of Montreal, Canadian Western Bank, and TD Bank.
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Barclays U.S. equity strategist Venu Krishna answered the top five questions he’s getting from institutional investors,
“Are you still constructive on Big Tech post-1Q earnings? … Big Tech revisions have strengthened further post-Q1 earnings, bifurcating even more from the rest of the S&P 500. Big Tech’s defensible margins have scarcity value in an environment characterized by slowing growth and sticky inflation … What is the nearest and most likely catalyst for the rally to establish a broader base, and which segments of US equities are most likely to benefit? … broadening has been modest and we think there’s room for a lot more. Earnings growth is the most likely catalyst, in our view … Rates are now assumed higher through year-end with the risk of no cuts in 2024; can equities continue to work? … Over the last 45 years, the correlation between change in nominal yields and equity returns skewed negative when the benchmark 10Y rose above ~5%, and the current yield-equity correlation has already become quite negative … we think equities can still work in this environment even if we get no cuts through YE24, as long as inflation continues to moderate … Was recent volatility purely systematic/technical and, if so, where does that leave positioning? ? We think there was a major technical and systematic element to the April selloff. The S&P 500 established local lows around key technical support levels … Which macro/tail risks are equity markets ignoring right now? Negative rates-equity correlation and outperformance of our Early Recession basket suggest that investors are keenly attuned to both “too hot” and recessionary economic outcomes. Signs of consumer stress appeared in 1Q24 reporting season, but share price weakness suggests this is well understood. Instead, we think stagflation (while unlikely) has the potential to catch equity markets unaware because some traditionally defensive plays would be exactly what you don’t want to own in such a scenario”
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Morgan Stanley’s research summary featured details and stock picks in the topical cybersecurity subsector,
“Last week, MS Research Analyst Hamza Fodderwala attended the flagship security conference of the year, RSA, which brought together >45K attendees (up from >40K last year). Hamza spoke with several customers, channel partners and managements of 20+ private and public companies, including Microsoft, Check Point, CyberArk, and Tenable. Hamza highlights that securing GenAI is a top priority, with MSFT, VRNS, and PANW positioning themselves as key AI enablers. Hamza notes that overall demand remains healthy. He points out that Identity Management, Endpoint, and Data Security are areas of strength, while firewall spend is undergoing digestion period. Hamza highlights that CRWD (OW, $372 PT), PANW, VRNS, and CYBR sounded best overall, based on feedback from the conference. Based on Hamza’s partner/customer conversations, the most commonly cited beneficiaries of consolidation were PANW, MSFT, and CRWD”
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Diversion: “The man who turned his dead father into a chatbot” – BBC