Strong fourth-quarter earnings from major U.S. banks are highlighting how elevated expectations and valuations are shaping investor reactions, even as Canada’s main stock index trades at record levels. Investors are also weighing interest rate risks, inflation pressures and historical headwinds tied to the U.S. midterm election year.
BNN Bloomberg spoke with Martin Cobb, senior vice-president of equities at Lorne Steinberg Wealth Management, about bank valuations, the influence of gold stocks on the TSX, interest rate expectations in the U.S. and Canada, and where he sees long-term value in equities.
Key Takeaways
- Strong U.S. bank earnings have been met with muted share price reactions, reflecting how much optimism and future growth is already priced into valuations.
- Bank stocks are trading at price-to-book levels not seen since before the Global Financial Crisis, leaving limited upside despite improving business conditions.
- The TSX’s early-year strength has been heavily driven by gains in gold and other precious metals stocks, which now represent a significant share of the index.
- Persistent consumer spending and potential fiscal boosts could complicate the inflation outlook, reducing the likelihood of further interest rate cuts.
- Midterm election years have historically delivered weaker equity returns, reinforcing the case for focusing on high-quality businesses trading at reasonable valuations.
Read the full transcript below:
ANDREW: We’re getting more fourth-quarter earnings from the big banks. Morgan Stanley beat expectations, driven by strong revenue from wealth management, and Goldman Sachs posted record annual revenue. We did see pressure, though, on Goldman Sachs shares in premarket trading. Let’s get reaction to the results from the major U.S. lenders. We’re joined by Martin Cobb, senior vice-president of equities at Lorne Steinberg Wealth Management. Martin, always great to see you. Thanks very much for joining us.
MARTIN: Great to see you too, Andrew. Good morning.
ANDREW: It’s a little tricky gauging stock market reaction to the bank results, especially with President Donald Trump threatening to cap interest rates, even though he would likely face significant hurdles pushing something like that through.
MARTIN: Yes, what comes out of the administration on a daily basis can be hard to keep up with. Capping interest rates would be close to impossible in practice and, frankly, quite damaging, as it would restrict credit for a wide range of individuals. That said, today’s banks are somewhat insulated. Goldman Sachs has largely exited consumer banking, and Morgan Stanley is increasingly a wealth management business, so they’re less exposed to things like credit card rate caps.That said, we came into this earnings season expecting bumper results — and that’s exactly what we got. But we also came into the year with very elevated valuations. We own several U.S. investment banks, but we’ve been taking some money off the table simply because valuations are stretched.
ANDREW: So these big U.S. banks are expensive, generally speaking?
MARTIN: Yes. I’m a former bank analyst, so I tend to focus on price-to-book value, which I think is a better way to value banks than price-to-earnings, given how volatile earnings can be. Goldman Sachs, for example, earned roughly twice as much in 2025 as it did in 2023, and who knows what it will earn in 2026.On a price-to-book basis, valuations are around 2.5 to three times book value for returns on equity in the mid-teens. That’s higher than anything we’ve seen since the Global Financial Crisis. For JPMorgan, it’s actually higher than levels seen in the early 2000s. So a lot of good news was already priced in coming into this year, which explains why shares have been somewhat soggy despite strong results and solid outlooks.
ANDREW: The TSX is hitting record highs, fuelled in part by gold stocks. I know it’s hard to generalize, but what’s catching your eye in Canadian stocks right now?
MARTIN: It’s getting harder to find clearly attractive opportunities in Canada. Precious metals stocks have done very well, banks had a strong year, and some retailers — like Aritzia and Dollarama — have also performed strongly. But there’s always value beneath the surface.I’ve mentioned railways a few times. I think they’re attractive long-term purchases at current levels. There’s usually some short-term concern — tariffs, wildfires, poor harvests, government interference — but those concerns often create good entry points for long-term investors. That said, aggregate valuations in Canada, including banks, are not cheap.
ANDREW: Let’s look at CP and Canadian National Railway over the past five years. Those stocks were under pressure last spring due to tariff concerns, then rebounded and pulled back again before recovering somewhat. Do you think investors are missing value in railways?
MARTIN: I don’t think these businesses have fundamentally changed. They’ve been around for 100 years and will likely be around for another 100. There’s always a reason to be negative — today it’s tariffs, previously it was wildfires or trade disruptions — but these are classic businesses with extremely high barriers to entry.They’ll continue to move slightly more volume every year, through good times and bad, and they retain some pricing power. The difference versus five years ago is valuation: they’re trading at roughly two-thirds of prior multiples. Concerns around tariffs and trade will eventually pass.
ANDREW: CP Kansas City has also ratified some labour agreements in the U.S., which takes at least one issue off the table. You also brought stock ideas today, starting with Automatic Data Processing. What do they do, and why do you like it?
MARTIN: ADP is the world’s leading payroll processor. About one in six American workers has their payroll processed by ADP — including me. It’s an exceptional business. They move roughly US$2 trillion to US$3 trillion of client money each year and hold about US$40 billion at any given time.The competitive barriers are enormous. They’ve grown organic revenue every year this century, including during the Global Financial Crisis. Long-term secular growth, expanding margins and dependable earnings growth of roughly 10 to 12 per cent make it very attractive. At around 20 times forward earnings, it’s a high-quality industrial that feels a bit overlooked.
ANDREW: Switching providers for payroll is not something companies want to do lightly.
MARTIN: Exactly. The software may not be flashy, but it works. The cost to outsource payroll is low relative to the risk of mistakes, and once ADP is embedded, it’s very hard to displace.
ANDREW: Finally, Linde — a global leader in industrial gases.
MARTIN: Linde is another high-quality industrial. If you’re building a semiconductor plant, petrochemical facility or hospital, you need ultra-high-purity gases — often 99.999 per cent pure. Linde typically builds facilities right next to customer sites under long-term contracts, often 30 years.There are only a handful of global players with the scale and expertise to do this. Barriers to entry are enormous, the products are mission-critical but low cost for customers, and once Linde is in place, it’s very hard to replace them.
ANDREW: Martin, always great hearing from you. Thanks very much.
MARTIN: Thank you, Andrew.
ANDREW: Martin Cobb, senior vice-president of equities at Lorne Steinberg Wealth Management.
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This BNN Bloomberg summary and transcript of the Jan. 15, 2026 interview with Martin Cobb are published with the assistance of AI. Original research, interview questions and added context was created by BNN Bloomberg journalists. An editor also reviewed this material before it was published to ensure its accuracy and adherence with BNN Bloomberg editorial policies and standards.
