Rate cut may spur bank stock rally, but Scotiabank analyst 'questions how sustainable it will be'

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

Scotiabank analyst Meny Grauman is not convinced that a Bank of Canada rate cut will have sustainable benefits for bank stocks,

“If we compare the best-performing Big Six bank stock this earnings season (RY) against the worst-performing stock this earnings season (BMO), we get a delta of roughly 970 bps. Results generally came in better than expected, although clear signs of credit stress emerged as a result of the “higher for longer” rate environment. The rate outlook continues to be the most important single variable for this sector, and we believe that a BoC rate cut in June is likely to spark a rally in the shares even as we question how sustainable it will be … In our view, RY put up the best results of the earnings season, followed by CM which continued to deliver on its guidance. We would rank NA a close third … As we leave bank earnings season, we continue to favour RY and CM as our top Sector Outperform names among the large banks, and EQB among the smaller banks”

***

Citi commodity and utilities analysts believe that U.S. power demand will drive a bull market in uranium,

“With the development of Small Modular Reactors (SMRs), datacenter incremental increase in power demand, plant lifetime extensions, coal-to-nuclear switching, and plant restarts, a substantial upward revision of uranium demand by utilities across the US could be tangible. Additionally, the ban on Russian nuclear fuel is a destabilizing factor for uranium markets … We remain tactically bullish on uranium markets. Our 3M target price is $97/lb versus $89/lb spot, while 12M prices could surpass the $100/lb level again and reach $107/lb in our base case. Mine production issues are likely to persist throughout 2024/2025. Any ramp-up by junior miners would likely be insufficient to meet global demand growth. In combination, this creates an ideal scenario for the current bull run to continue for U308 while a healthy consolidation in the current $90s range should be supportive for higher prices”

This is clearly good news for Cameco Corp., but oddly the company was not mentioned in Citi’s research report.

***

BofA Securities equity linked analyst Benjamin Bowler argued that wea re not yet in a technology asset bubble,

“Volatility rising along with asset prices is among the clearest signs of an asset bubble. This is due to several factors including asset prices de-coupling from fundamentals and fundamentals themselves becoming more uncertain. Looking at nine asset bubbles since the 1920s, volatility rose in every instance ahead of the market peak. U.S. equity momentum near 100yr highs earlier this year and the dominance of just a handful of US tech stocks (the “Magnificent 7″ are larger than the 2nd - 5th largest countries by market cap) have some fearing a bubble. However, the lack of a material rise in tech volatility suggests we are not there yet. Return dispersion (how much stocks diverge) also shows few bubble signs as do valuations compared to the late ‘90s … While no analog is perfect, the 2000s tech bubble looks most relevant to consider the potential risk of an AI bubble. That bubble took 5yrs to unfold, survived 100bps of Fed hikes, the Asia crisis and a bear-market driven by LTCM’s failure, to still generate Nasdaq returns over 80% in each of its final 2 years. Looking at today’s returns, volatility & valuations, we are closer to 1995 than 1999″

***

Diversion: “Tweaked Formula on Alien Intelligence Hints That We’re Truly Alone in the Galaxy” – Gizmodo