Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
BMO chief economist Doug Porter wonders whether now is the calm before the mortgage market storm,
“The latest monthly household credit figures in Canada show continued calm. Overall credit rose a mild 3.6% year-over-year, while mortgage growth is amazingly stable at just a tick lower at 3.5%. Rare has been the day that growth has been both this calm—it has been locked in a range just below 4% for two years now—and this mild—it hasn’t been this slow in more than two decades. And, after running far above inflation for twenty years, it’s basically been in line with price gains recently. However, this becalmed situation may change in 2025. The combination of falling interest rates and the new mortgage rules could firm the housing market, in turn juicing mortgage growth. At this point, we’re not expecting a big run-up in mortgage balances in 2025, but they do seem poised to turn higher. That’s a very different picture than the so-called mortgage cliff many were previously fretting over.”
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BofA Securities analyst Ebrahim Poonawala recommends a bit of caution where domestic banks are concerned,
“Canadian bank stocks have reacted positively to 3Q24 results, driving the bank index +14% QTD. Importantly, the lack of negative surprises on credit (ex BMO’s credit issues in the US) combined with the potential for relief from declining interest rates has fueled optimism among investors (and us) for an improving outlook into 2025. However, some degree of caution is warranted given the persistent weakness in the job market, which begs the question on whether the relief from lower rates maybe too little too late? Overall, group witnessed +1% revision to consensus FY25e EPS vs. pre-3Q … Coming into 3Q prints we had noted that the risk/reward for the Canadian banks had improved relative to US peers (CAD banks +14% QTD vs US GSIBs +1%). This view is driven by a greater relief to the CAD banks from the sharp decline in interest rates (= should help keep credit costs manageable while boosting P/Es … Canadians will be headed to polls within the next year (before October, 2025) with the potential for a change in administration”
Mr. Poonawala lists Canadian Imperial Bank of Canada and Royal Bank of Canada as his top picks.
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Wells Fargo strategist Christopher Harvey made an interesting and bullish point about real bond yields,
“Since late May, real 10yr UST rates have declined from 2.25% to 1.55%; over that period the SPX is +9%. We believe there is scope for reals to continue falling, which is key for equities. We analyzed 20 “mini” real-rate up-cycles and down-cycles since the end of 2020 and found a significant difference in total returns, especially for growth stock”
Since 2020, the S&P 500 is up 83 per cent during declining real rate cycles.
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Diversion: “How FIFA was outplayed by [video game developer] Electronic Arts” – The Economist