The viewpoints expressed by the Portfolio Manager represents their assessment of the markets at the time of publication. Those views are subject to change without notice at any time without any kind of notice. The information provided herein does not constitute a solicitation of an offer to buy, or an offer to sell securities nor should the information be relied upon as investment advice. Past performance is no guarantee of future results. This communication is intended for informational purposes only.
BMO Global Asset Management is a brand name under which BMO Asset Management Inc. and BMO Investments Inc. operate.
Any statement that necessarily depends on future events may be a forward-looking statement. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions. Although such statements are based on assumptions that are believed to be reasonable, there can be no assurance that actual results will not differ materially from expectations. Investors are cautioned not to rely unduly on any forward-looking statements. In connection with any forward-looking statements, investors should carefully consider the areas of risk described in the most recent simplified prospectus.
This article is for information purposes. The information contained herein is not, and should not be construed as, investment, tax or legal advice to any party. Investments should be evaluated relative to the individual’s investment objectives and professional advice should be obtained with respect to any circumstance.
Commissions, management fees and expenses (if applicable) all may be associated with investments in mutual funds. Trailing commissions may be associated with investments in certain series of securities of mutual funds. Please read the fund facts, ETF facts or prospectus of the relevant mutual fund before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Distributions are not guaranteed and are subject to change and/or elimination.
For a summary of the risks of an investment in the BMO Mutual Funds, please see the specific risks set out in the prospectus. ETF Series of the BMO Mutual Funds trade like stocks, fluctuate in market value and may trade at a discount to their net asset value, which may increase the risk of loss. Distributions are not guaranteed and are subject to change and/or elimination.
BMO Mutual Funds are managed by BMO Investments Inc., which is an investment fund manager and a separate legal entity from Bank of Montreal.
®/™Registered trademarks/trademark of Bank of Montreal, used under licence.
What to Expect from Q4 Bank Earnings
November 28 to December 2, 2022
What to Expect from Q4 Bank Earnings
November 28 to December 2, 2022
Sadiq S. Adatia, FSA, FCIA, CFA
Chief Investment Officer (CIO)
Market Recap
Bank Earnings
With another round of bank earnings just around the corner, what can investors expect to see? Over the past few weeks, inflation has come down and the U.S. Federal Reserve is expected by some to pivot to a less aggressive stance, prompting markets to perform relatively well—even with an inverted yield curve. There is optimism that this will not be a long-lasting recession, and that pressure on the consumer from inflation and interest rates will ease. Even if this outlook proves to be overly optimistic, we still expect good results from the banks, with decent earnings and attractive dividend yields. It’s uncertain whether we will see dividend increases, however, as banks wait to see how steep the economic slowdown will be. Trading revenues could be down due to declining markets in September and October, but we are seeing a bit of a pickup on that front as we head into the holiday season.
Bottom Line: Bank earnings will likely be decent, though it remains unclear when we’ll see a more significant economic slowdown.
Economic Shocks
A railroad strike now appears possible in the U.S., joining COVID-related supply chain issues as potential areas of concern. Our evaluation, though, is that it won’t have much of an impact. Supply chains have been improving for some time. With Black Friday having just passed, we’ve been following the retail space very closely, and the overall sentiment seems to be that the supply chain problems that plagued last year are now well behind us. Even a recent uptick in COVID numbers in China isn’t a major concern, because supply chains have been improving elsewhere, and the country’s zero-COVID policy appears to be somewhat less strict than previously. On the consumer side, the big difference between last year and this year is that in 2021, consumers were willing to spend because they were worried about product scarcity. This year, that’s not the case—there’s not the same pressure to shop in October because what you want may be gone by December. As a result, it’s likely we’ll see sales spread out a bit more across the latter part of the year.
Bottom Line: Expect major retailers like Walmart and Target to remain dominant this holiday season.
Fed Minutes
Bottom Line: Fed messaging indicates that we’re likely past peak inflation, but it’s unclear how sticky inflation will remain on the way down.
Positioning
Lately, we’ve been having some great conversation about where markets will be at the end of the year. We believe that a rally is likely, which is why we’ve been reducing our underweight position on equities and increasing our U.S. allocation. Thus far, these calls have proven correct. Energy in particular is a sector that has held up fairly well despite declines from its peak, and its strength can be expected to continue into 2023. However, we recognize that this rally is not necessarily driven by fundamentals, and our overall outlook is that the economy will likely weaken as we enter the new year. With that in mind, we’ve sold call options, and used those premiums to buy an out-of-the-money put—essentially trading off some of our upside to buy ourselves some protection on the downside. Sometimes, economic uncertainty requires creative solutions, as this case shows.
Disclosures:
The viewpoints expressed by the Portfolio Manager represents their assessment of the markets at the time of publication. Those views are subject to change without notice at any time without any kind of notice. The information provided herein does not constitute a solicitation of an offer to buy, or an offer to sell securities nor should the information be relied upon as investment advice. Past performance is no guarantee of future results. This communication is intended for informational purposes only.
BMO Global Asset Management is a brand name under which BMO Asset Management Inc. and BMO Investments Inc. operate.
Any statement that necessarily depends on future events may be a forward-looking statement. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions. Although such statements are based on assumptions that are believed to be reasonable, there can be no assurance that actual results will not differ materially from expectations. Investors are cautioned not to rely unduly on any forward-looking statements. In connection with any forward-looking statements, investors should carefully consider the areas of risk described in the most recent simplified prospectus.
This article is for information purposes. The information contained herein is not, and should not be construed as, investment, tax or legal advice to any party. Investments should be evaluated relative to the individual’s investment objectives and professional advice should be obtained with respect to any circumstance.
Commissions, management fees and expenses (if applicable) all may be associated with investments in mutual funds. Trailing commissions may be associated with investments in certain series of securities of mutual funds. Please read the fund facts, ETF facts or prospectus of the relevant mutual fund before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Distributions are not guaranteed and are subject to change and/or elimination.
For a summary of the risks of an investment in the BMO Mutual Funds, please see the specific risks set out in the prospectus. ETF Series of the BMO Mutual Funds trade like stocks, fluctuate in market value and may trade at a discount to their net asset value, which may increase the risk of loss. Distributions are not guaranteed and are subject to change and/or elimination.
BMO Mutual Funds are managed by BMO Investments Inc., which is an investment fund manager and a separate legal entity from Bank of Montreal.
®/™Registered trademarks/trademark of Bank of Montreal, used under licence.
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