These Canadian banks are now among Citi’s top global stock picks
Morgan Stanley U.S. equity strategist Michael Wilson is looking for lower earnings forecasts to signal a durable market bottom,
“Over the past few weeks, interest rates have fallen sharply as the economic data continue to disappoint. Meanwhile, the S&P equity risk premium has also risen to 340 basis points, closer to our fair value level of 370bps. This is a necessary condition for a more durable low in equity prices, but until earnings estimates are cut to more reasonable levels or valuations reflect that risk, the bear market is not complete, in our view… several leading signals point to forward earnings expectations decelerating in the coming months from these elevated levels. Importantly, earnings revisions breadth, which often leads forward dollar EPS, is in negative territory and has decelerated further in the last few days/weeks … Generally, we find that defensive industries (Telecom, Utilities, Insurance, Real Estate, parts of Staples and Healthcare) screen relatively well when assessed on this basis. Meanwhile, we find that cyclical tech groups (Tech Hardware and Semis) screen as having higher risk on this basis. We also find that several consumer oriented groups (Food & Staples Retailing, Consumer Services, and Consumer Durables and Apparel) as well as Transports screen as being more at risk based on this framework.”
“MS: Sectors most at risk of downward earnings revisions” – (research excerpt) Twitter
Citi strategist Chris Montagu manages a World Radar stock screen methodology combining valuation and momentum in terms of stock price, earnings and cash flow growth.
Canadian bank stocks dominate the list of stocks that have moved into the top decile of MSCI World index members that have jumped into the first decile of attractiveness by Citi’s criteria.
Royal Bank of Canada and Toronto-Dominion Bank benefited from attractive relative valuation, while Bank of Nova Scotia and National Bank of Canada climbed into the top decile thanks primarily to relative stock price momentum.
“MSCI World stocks climbing to top decile in Citi’s World Radar screen” – (table) Twitter
BofA Securities U.S. equity strategist Savita Subramanian detailed the market carnage from the first half of the year and made strategic recommendations,
“The S&P 500 officially ended the post-COVID bull market in 1H, down more than 20% from its peak (see Hello, bear market report). The 20% decline in 1H (total returns) was the worst since 1962 (-22%) and the second worst start to the year in our data history since 1935. Historically, a negative 1H has led to a negative 2H 44% of the time, vs. just 19% when 1H was positive … Of the 45 factors we track, dividend yield was the only factor that gained in 1H, +0.7%. As we shift from a price return to a total return world – dividends have driven 36% of total returns since 1936 vs. just 15% since 2010 – and cash grows more valuable amid Fed hiking, we expect dividend yield and bird-in-the-hand strategies to continue to outperform in 2H. The Russell 1000 Value outperformed the Growth index by 15ppt in 1H, on track to be the biggest lead since the Tech Bubble. But despite the de-rating in Growth stocks, they still trade one standard deviation above the historical average vs. Value, with positioning also still tilted towards Growth (see report). High Quality stocks (‘B+ or better’ in S&P quality ratings) led Low Quality stocks (‘B or worse’) by 12ppt YTD in 1H, marking the biggest lead since 2002. We expect volatility to remain elevated in 2H, which should continue to drive High Quality’s lead.”
“BofA: “we expect dividend yield and bird-in-the-hand strategies to continue to outperform in 2H.”” – (research excerpt) Twitter