Posthaste: Why David Rosenberg says it’s time to take profits on, wait for it … Canadian banks

Skip to Content News Archives Economy Energy Oil & Gas Renewables Electric Vehicles Mining Commodities Agriculture Real Estate Mortgages Mortgage Rates Finance Banking Insurance Fintech Cryptocurrency Work Wealth Smart Money Wealth Management Investor Personal Finance Family Finance Retirement Taxes High Net Worth FP Comment Executive Women Puzzmo Newsletters Financial Times Business Essentials More Innovation Information Technology FP500 Podcasts Small Business Lives Told Tails Told Shopping Financial Post Store Obituaries Place a Notice Advertising Advertising With Us Advertising Solutions Postmedia Ad Manager Sponsorship Requests Classifieds Place a Classifieds ad Working Profile Settings My Subscriptions Saved Articles My Offers Newsletters Customer Service FAQ News Economy Energy Mining Real Estate Finance Work Wealth Investor FP Comment Executive Women Puzzmo Newsletters Financial Times Business Essentials This advertisement has not loaded yet, but your article continues below.HomeNewsPosthaste: Why David Rosenberg says it's time to take profits on, wait for it … Canadian banksBeware the bubble brewing in Big Six, says strategist You can save this article by registering for free here. Or sign-in if you have an account.Canadian bank stocks have surged to dizzying heights recently. Photo by Peter Power/Postmedia NewsTHIS CONTENT IS RESERVED FOR SUBSCRIBERS ONLYSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman, and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.SUBSCRIBE TO UNLOCK MORE ARTICLESSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.REGISTER / SIGN IN TO UNLOCK MORE ARTICLESCreate an account or sign in to continue with your reading experience.Access articles from across Canada with one account.Share your thoughts and join the conversation in the comments.Enjoy additional articles per month.Get email updates from your favourite authors.THIS ARTICLE IS FREE TO READ REGISTER TO UNLOCK.Create an account or sign in to continue with your reading experience.Access articles from across Canada with one accountShare your thoughts and join the conversation in the commentsEnjoy additional articles per monthGet email updates from your favourite authorsSign In or Create an AccountIf you, like many other Canadians, have been “long and lucky” investing in our domestic banks, now might be the time to book some profits, according to strategist David Rosenberg.Rosenberg, founder and president of Rosenberg Research & Associates Inc., recently added Canadian banks to his bubble list, calling them the “TSX’s version of the U.S. AI trade” in a note to clients.A long-time stalwart of domestic markets, the Big Six Canadian banks have recently surged to dizzying heights. They are up 33 per cent so far this year and almost 70 per cent year over year, with their share of the TSX rising above 25 per cent, an unprecedented level.Breaking business news, incisive views, must-reads and market signals. Weekdays by 9 a.m.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Posthaste will soon be in your inbox.We encountered an issue signing you up. Please try againCanadian banks, like technology stocks in the U.S., are the single sector carrying the index, said Rosenberg, putting the S&P/TSX on track to beat the S&P 500 for the second year in a row, its first back-to-back win in 15 years.“Just so that you know where I am going with this. Like the AI trade in the S&P 500, the Canadian Banks in the TSX have entered bubble territory,” he said. “If you have been long and lucky, now is the time to book some profits.”While the jury may still be out on artificial intelligence, the fundamentals of Canadians banks are “genuinely good;” they just don’t justify the heights the sector has hit, he said.In their recent bull run, the “single biggest driver” has been a shift in the outlook for credit losses. At the start of 2025, the mortgage renewal cliff loomed as two million borrowers faced sharply higher rates. However, the predicted surge in defaults never happened and banks were able to slash their credit loss provisions, boosting their bottom line.Strong capital markets revenue and growth outside of Canada have also provided tailwinds for the banks.But Rosenberg says one only has to look at the valuations to be skeptical about this “burst of bullishness.”Historically, Canada’s big six banks have traded around 11x earnings, while now they have shot up to a level rarely seen in the past — about 15x on expected 2027 earnings.“The operating backdrop, as solid as it is, doesn’t support a re-rating of this size,” he said.Falling provision for credit losses or PCLs, while a powerful boost, are a one-off.“Once provisions normalize, you need actual loan and revenue growth to carry earnings, and that’s precisely what has been soft,” said Rosenberg.Capital-markets revenue is also unreliable “yet investors are treating soaring capital-markets profits as the new normal.”And there are risks on the horizon — the “elephant in the room” being the recent surge in government bond yields that is pushing up fixed mortgage rates.“The banks avoided the mortgage cliff in 2025, but that might not hold into late 2026 and 2027,” he said.This advertisement has not loaded yet.This advertisement has not loaded yet, but your article continues below.The biggest worry for investors who focus on fundamentals is that this rally is increasingly momentum driven, said Rosenberg. He suggests if investors are late to the trade, it doesn’t make sense to jump into it now.“This all looks more like a late-stage momentum move on a good-but-not-great fundamental base,” he said.“We shall wait for valuations to mean-revert and the momentum component behind the rally to subside before making a decision to move into this space.”Sign up here to get Posthaste delivered straight to your inbox.The AI buildout is shaping up to be one of the largest investment cycles in recent U.S. history, far exceeding the spending seen in the Dot-com era.Investment in the sector has already become one of the most important drivers of the U.S. economy, with hyperscalers, the companies leading the buildout, committing over US$750 billion this year and US$900 billion next to expand computing capacity, said Mauri Hall, economist with TD Economics.Roadblocks are mounting, however, including power access, equipment availability, labour supply and commodities disruptions linked to the Strait of Hormuz that could result in a slower, more expensive AI buildout than plans imply, TD cautions.Andy Burnham becomes Britain’s seventh prime minister in a decade todayAerospace and defence companies from around the world gather at the Farnborough International Airshow which opens today in the U.K.Today’s Data: Canada inflation reading for JuneEarnings: Domino’s Pizza Inc., Steel Dynamics Inc.Now that both of their children have started their careers, are married and purchased their first homes, Timothy and Margaret, both in their 50s, are ready to retire. Ideally, they both want to leave the workforce in two years when Timothy can retire with his full defined-benefit pension after 30 years of work. They plan to travel, spending winters in warm climates, and summers exploring Canada with a travel budget of $20,000 a year. Can they manage it. Family Finance takes a lookInterested in energy? The subscriber-only FP West: Energy Insider newsletter brings you exclusive reporting and in-depth analysis on one of the country’s most important sectors.Are you worried about having enough for retirement? Do you need to adjust your portfolio? Are you starting out or making a change and wondering how to build wealth? Are you trying to make ends meet? Drop us a line at wealth@postmedia.com with your contact info and the gist of your problem and we’ll find some experts to help you out while writing a Family Finance story about it (we’ll keep your name out of it, of course).McLister on mortgagesWant to learn more about mortgages? Mortgage strategist Robert McLister’s Financial Post column can help navigate the complex sector, from the latest trends to financing opportunities you won’t want to miss. Plus check his mortgage rate page for Canada’s lowest national mortgage rates, updated daily.Financial Post on YouTubeVisit the Financial Post’s YouTube channel for interviews with Canada’s leading experts in business, economics, housing, the energy sector and more.Today’s Posthaste was written by Pamela Heaven with additional reporting from Financial Post staff and Bloomberg.Have a story idea, pitch, embargoed report, or a suggestion for this newsletter? Email us at posthaste@postmedia.com.Bookmark our website and support our journalism: Don’t miss the business news you need to know — add financialpost.com to your bookmarks and sign up for our newsletters hereNotice for the Postmedia NetworkThis website uses cookies to personalize your content (including ads), and allows us to analyze our traffic. 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