theglobeandmail.com
Mixed Outlook for Canadian and US Stocks Amidst Trade Uncertainty
RBC Capital Markets analyst Darko Mihelic forecasts elevated impaired provisions for credit losses (PCLs) for Canadian banks in 2026, expecting a return to normalized levels by 2027, while Bank of Montreal's Brian Belski anticipates a strong rally in Canadian trade-oriented stocks, and Morgan Stanley's Michael Wilson is bullish on U.S. stocks.
- What are the long-term systemic risks to the Canadian banking sector, and how might these risks be mitigated?
- Mihelic's prediction highlights the inherent risk in forecasting economic conditions. The potential for escalating trade wars or recession significantly impacts his outlook, underscoring the volatility of the banking sector's performance depending on external factors. His positive outlook hinges on a successful economic recovery by 2027.
- How do differing viewpoints on trade policy impact predictions for Canadian bank performance and stock valuations?
- Mihelic's analysis connects the current weakness in Canadian bank stocks to macroeconomic uncertainty and the potential for higher PCLs if trade tensions escalate or a recession occurs. His model assumes a North American economic rebound by 2027, projecting significant EPS/ROE upside with normalized PCLs.
- What is the primary driver of the current uncertainty affecting Canadian banks, and what are the immediate implications for investors?
- RBC Capital Markets analyst Darko Mihelic anticipates a transition year in 2026 for Canadian banks, with elevated impaired provisions for credit losses (PCLs) that are expected to decline to normalized levels by 2027. He maintains outperform ratings on CIBC and BMO, citing below-average risk premiums suggesting the market is looking past short-term uncertainty.
Cognitive Concepts
Framing Bias
The article presents a balanced selection of bullish and bearish viewpoints from different analysts. However, the sequencing and emphasis on certain analysts may subtly influence the reader's perception. The inclusion of a "Bluesky post of the day" at the end feels somewhat abrupt and may leave the reader with a sense of incompleteness or lack of conclusion. The headline (not provided) could also contribute to framing bias depending on its wording.
Language Bias
The language used is generally neutral and objective, focusing on reporting the analysts' viewpoints. However, phrases like "surprisingly bullish" and "strong rally" carry a degree of subjective interpretation. These could be replaced with more neutral terms such as "positive outlook" or "anticipated increase", respectively.
Bias by Omission
The provided text focuses primarily on the opinions of specific analysts and their predictions. There is a lack of broader context regarding the overall economic situation, alternative viewpoints, or dissenting opinions within the financial community. The absence of information on the methodologies used by the analysts to arrive at their conclusions also limits the reader's ability to form a fully informed opinion. While this omission might be partly due to space constraints, it nonetheless contributes to a potentially incomplete picture.
False Dichotomy
The article presents a somewhat simplistic view of the market, presenting bullish and bearish predictions without fully exploring the nuances and complexities of various economic factors. For example, the impact of trade uncertainty is discussed as a monolithic factor rather than examining its potential diverse effects on different sectors.
Sustainable Development Goals
The article discusses the Canadian and US economies, including analyses of bank profits, stock market performance, and the impact of trade policies. Positive impacts on decent work and economic growth are linked to the expectation of a strong rally in Canadian trade-oriented stocks following a potential Canada/US trade deal, leading to improved earnings expectations and job creation. The analysts' projections of stronger ROE (Return on Equity) in 2027 also suggest a positive outlook for economic growth and potentially increased employment opportunities. However, the potential for higher PCLs (provisions for credit losses) due to trade wars or recession presents a countervailing risk.