Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
BMO chief economist Doug Porter sees some signs that the Bank of Canada won’t be as aggressive with cuts as expected,
“The BoC has been the most aggressive rate cutter in the world (along with Sweden’s Riksbank), and is primed to do more. Markets are egging them on, leaning to a follow-up 50 bp chop in December. But in the head-long rush to bring rates down fast, note three things: 1) Wages are proving to be mighty sticky. Yes, the Bank has chosen to look past the near-5% year-over-year increases in the LFS’s average hourly wage measure, since their micro-data shows underlying trends are closer to 4%. But, the competing payroll survey is now sporting even meatier wage increases. The fixed-weight average hourly earning measure popped 5.7% y/y for August, the highest reading in 30+ years of data. Meantime, labour unrest is, if anything, ramping up—see port and pending postal strikes. 2) Housing has woken up from its slumber, and it looks hungry. Sales jumped more than 30% y/y in October, tightening the market. 3) Financial conditions overall are already very favourable. The loonie is probing 20-year lows, the TSX is at a record high, and 5- year bond yields are down almost 100 bps in a year”
***
Scotiabank strategist Hugo Ste-Marie detailed a strong earnings season so far for the TSX,
“The Q3/24 reporting season is well underway in Canada, with 75% of TSX members having already reported. So far, TSX Q3 earnings are coming in at C$357 per share, which is 1.2% above expectations set at the start of the reporting season. The earnings beat ratio stands at a healthy 61% versus a 10-year avg. of 58%. In fact, outside of Energy and Discretionary, all sectors delivered a positive earnings surprise. TSX Q3 EPS growth stands at -1.4% YoY, which is better than-expected initially, but much cooler than the 11% pace registered in Q2. See our Chart of the Day. Top earnings growers are HC (+128% YoY), Materials (+28%; gold +69%), and Technology (+15%). While banks have yet to report, Insurance companies have had a solid reporting season, with Q3 EPS exceeding bottom-up forecasts by 12% (despite reporting earnings 1.6% lower than last year). Diversified financials are doping the sector earnings growth rate. Despite weak expectations entering the reporting season, Energy Q3 EPS is down more than-expected, with profitability contracting 30% from last year’s level”
***
BofA Securities Research Investment Committee (RIC) monthly report offered non-obvious reasons to own U.S. equities,
“There are additional cyclical and structural reasons to raise equity allocations: 1. Longevity: investors will need 6% more in stocks than target date models imply. 2. Scarcity: the supply of US equity shares is falling vs. surging demand; 3. Momentum: buying stocks at the highs outperforms “any time” returns by 5ppt; 4. Profits: broader EPS growth of 13% expected in ‘25 (see our interview); 5. Backup plan: $8tn corporate cash can easily become dividends/buybacks as needed; US mega caps offer poor value. We highlight the virtues of equal-weight indexes (RSP), banks (KBE), and profitable midcap industrials for the onshoring renaissance (AIRR)”
***
Diversion: “Review into amputation underway after patient says wrong leg removed at Grace Hospital” – CBC