Today on the show, we welcome Fidelity Research Analysts Brendan Cochrane and Nic Bellemare. They dive into the banking sector, the current state of consumers and this year’s investment opportunities they are finding in these sectors. The current environment in the banking sector has displayed high rates and low loan growth, as credit delinquency rates slowly rise. Brendan and Nic discuss how the direction of credit is a crucial factor for influencing bank stocks throughout the rest of the year. Bank stocks started by reacting positively to the Bank of Canada rate cuts, alleviating credit concerns and reducing negative tail risks. However, rate cuts can also hinder the progression of revenue for banks, commonly through Net Interest Margin compression. Brendan and Nic take a look at various consumer statistics including spending behaviour, confidence and portfolio positioning. Consumers of all levels of income face specific economic challenges, and there have been observations of resistance to further price increases. The current consumer confidence appears to be strong meaning immediate government support may not be needed, but it is possible for things to get tougher before getting easier. Advisors are being urged to reassess the portfolio positioning, which will require acknowledging the potential economic scenarios.

Recorded on January 19, 2024.

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