Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
Scotiabank bank analyst Meny Grauman asks, Is the Canadian Economic Miracle Over? ,
“We frequently get asked what we think is the biggest risk facing the Canadian banking sector right now. Our answer is not rates, nor housing, and not even regulation, all of which are important issues, but rather something bigger than all of that — namely the outlook for the Canadian economy. The reality is that for the last few decades Canada’s economy has been defying the skeptics and riding high. Through crisis after crisis including the tech wreck, the GFC, and the pandemic it has defied the bears and thrived; but, between plunging productivity, unsustainable fiscal policy including exploding public sector job growth, and one of the world’s most expensive housing markets, we believe that it is now fair to ask “is the Canadian economic miracle over?” The answer to this question will not determine the path forward for bank shares over the next few weeks or quarters, but certainly help determine where they go over the coming years … We see some divergence across the banks we cover, but broadly speaking we don’t see anything particularly exciting or likely to materially boost forward estimates … Heading into Q2 reporting season we like the set for BMO and RY, although the HSBC deal will add some additional noise to RY’s results. We are more cautious on NA, CIBC, and the smaller banks that we cover. TD heads into reporting season in a unique position as AML issues at the bank overshadow quarterly results”
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BMO chief investment strategist Brian Belski raised his 2024 S&P/TSX Composite target after lifting his S&P 500 target Thursday,
“We are increasing our S&P/TSX price target to 24,500 from 23,500. While this is a minor 4% increase to our price target, it reflects multiple signs that both sentiment and revision trends have bottomed and are beginning to improve, which we believe will be a key tailwind for valuation expansion into year-end. We are not increasing our 2024 EPS target at this point, given the bottoming of revision trends are likely more supportive of 2025 EPS. As such, our 2024 implied P/E ratio increases to 16.3x from 15.7x, this is still well below the long-term average multiple of 17x. Overall, unlike in 2023 when the big three sectors underperformed (it is difficult for the TSX to do well with that backdrop), two of the three largest sectors in the TSX are sharply outperforming this year”
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Goldman Sachs’ Briefings newsletter implies that electrical power might be another picks and shovels way to play the proliferation of AI,
“AI is poised to drive 160% increase in data center power demand For years, data centers displayed a remarkably stable appetite for power, even as their workloads mounted. Now, as the pace of efficiencies in electricity use slows and the AI revolution gathers momentum, Goldman Sachs Research estimates that data center power demand will grow 160% by 2030. In three reports, Goldman Sachs Research lays out the global, US, and European implications of this spike in electricity demand. At present, data centers worldwide consume 1-2% of overall power, but this ratio will likely rise to 3-4% by the end of the decade. Along the way, the carbon dioxide emissions of data centers may more than double from 2022 to 2030 … In the US, between 2022 and 2030, the demand for power will rise roughly 2.4%, Goldman Sachs Research estimates — and around 0.9 percent points of that figure will be tied to data centers. That kind of spike in power demand hasn’t been seen in the US since the early years of this century. It will be stoked partly by electrification and industrial reshoring, but also by AI. Data centers will use 8% of US power by 2030, compared with 3% in 2022. US utilities will need to invest around $50 billion in new generation capacity just to support data centers alone”
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Diversion: “Autopsy Confirms 14-Year-Old Died From Spicy Chip Challenge” – Gizmodo
Scott Barlow