Canadian bank stocks are poised to benefit from growing signs of recovery in the United States, according to a financial services analyst at Desjardins Securities.
In a note to clients Friday, Michael Goldberg said recent economic reports on jobs and house prices in the United States are likely to drive U.S. bond yields higher. According to the Toronto-based analyst’s thesis, this will “lead to a rotation out of bonds and into stocks, particularly those with attractive yield and visible dividend growth, such as Canadian banks.”
Mr. Goldberg said jobs numbers released Friday by the U.S. Bureau of Labor Statistics beat estimates and revealed that the 16-day government shutdown had little, if any, impact on jobs growth.
“Our belief has been that the mutually reinforcing increases in U.S. employment and house prices would result in rising U.S. bond yields, the analyst wrote, noting that the 10-year U.S. Treasury yield rose 14 basis points to 2.74% in response to the jobs news.
“The read-through of the jobs and house price reports is positive for Canadian financials as these reports clearly indicate the U.S. economy is on the mend,” Mr. Goldberg wrote, adding that the “end result” of his thesis would be higher price-to-earnings multiples for Canadian financial stocks. “The jobs report and related upward pressure on bond yields also have a continuing positive impact on the lifecos,” he said.
Link to original –