RE: Current valuation of bank stocksInterest rates are heading higher - likely between 0.5% to 1.0% in long bond yields in the near-term.
Also, bank earnings likely peaked. The stock market likely to sputter here. M&A down. And underwriting down as income trusts represented almost 50% of underwriting revenue in the previous two years. Also, loan losses going up. Actual losses may not rise that much short-term, but banks used past reserves to make losses lower than actual in past 2-3 years.
All that signals that bank earnings could be only flat in F2007-2008 from F2006-2007 with some banks (like RY and CM) that may have down earnings. So earnings momentum is neutral to negative now from super positive in the 12 month period that ended just a couple of weeks ago.
I think the sector should correct another 5%, with RY and CM doing worse than that and TD, BNS faring better because they rely more on retail banking (more stable, but less exciting) than capital markets (highly profitable, but volatile). I think CM going to $90 (maybe a touch under), but would be solid value at that price.