Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
TD bank analyst Mario Mendonca is constructive on the sector and sees a potential buying opportunity ahead in BMO,
“The Big-Six banks will report Q1/24 results from February 27 to 29. We expect Q1/24E EPS to be down 9.4 per cent year-over-year … Our Q1/24 estimates are at or slightly above consensus for all banks, except BMO. After a year when banks routinely missed estimates (2023), we expect the group to meet and marginally beat estimates in 2024. We see two reasons for the change: a) 2024E consensus EPS was down 13 per cent in 2023 (estimates now appear to appropriately capture the earnings growth challenges) and b) several banks took material restructuring charges in 2023. While we do not have the group reporting positive operating leverage in Q1/24, we expect expense growth to moderate materially in Q1/24, reflecting the benefit of expense initiatives and acquisition synergies. By Q2/24, we expect the group to collectively report positive operating leverage, the first quarter since Q1/22. We have BMO missing estimates this quarter. While we continue to believe BMO is one of the two banks to BUY in 2024 (RY is our other BUY-rated bank), we believe BMO’s Q1/24 consensus estimate is too high. We have BMO reporting strong positive operating leverage, but not until Q2/24″
Reading between the lines, Mr. Mendonca’s view of weak first-quarter earnings for Bank of Montreal followed by a profit recovery in the second quarter implies a potentially lucrative buying opportunity.
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Wells Fargo senior global market strategist Sameer Samana warned clients not to chase the rally I tech stocks,
“A strong start to the year has left the markets stretched to the upside and overbought on a variety of measures, with the NASDAQ 100 Index serving as the best example of the froth in markets. We have seen investors of all stripes have felt compelled to chase recent performance in a small group of names and sectors, mainly due to fear of missing out or underperforming their benchmarks. While we acknowledge that there are favorable fundamental factors that are underpinning some of these Information-Technology-related names and sectors (that may have the potential to benefit from secular growth trends, strong balance sheets, and healthy profitability), we believe much of the good news is now discounted. The factors capping further appreciation should include long-term interest rates, which remain close to multi decade highs, worsening geopolitics, and a sluggish economic outlook. In addition, we believe the Federal Reserve’s goal of taming inflation will keep monetary policy tighter for much longer than markets expect. We believe where the NASDAQ 100 Index may trade to the downside will be a function of the length and severity of an economic slowdown. which now seems to be unfolding and should adversely impact corporate profits. We believe it would be fair to describe the risk-reward at current levels as unfavorable, and disciplined investors may potentially take profits in Information-Technology-related companies”
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Citi global economist Nathan Sheets is more bearish on growth than most forecasters,
“We see global growth slowing this year to 2 per cent, down notably from last year’s near-trend 2.7-per-cent pace. Several factors are likely to contribute to the slowdown. First, in our view, significant lags from monetary policy tightening remain in the pipeline. Second, the global consumer’s pent-up demand for services appears to have largely played through, and consumption growth is poised to moderate. Third, these developments should bring a loosening in the labor market, with slower wage growth and rising unemployment. Finally, fiscal policy is slated to be less supportive. The resulting growth performance is unlikely to qualify as a “global recession,” but growth will be distinctly slower than it was last year. The good news is that this slower pace of growth should support a further decline in inflation and open the door for sustained central bank rate cuts”
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Diversion: “Meet the divers trying to figure out how deep humans can go” – MIT Technology Review
Scott Barlow