Record high for TSX, Canadians spend, The Gap soars, Alphabet so cheap
The kids were joyous when we returned last night. We were greeted with elated squeals and the best snuggles. It made me wonder why we ever leave them. This morning, however, we were greeted with Child 1’s demands that I secure her tube top (she is 7) and Child 3’s cries that he can’t find his Super Mario car. All before I had even opened my eyes. Back to business as usual.
Parry and thrust: The TSX and the S&P 500 advanced for a fourth day in a row with the TSX finishing at an all-time high yesterday. This morning, futures are lower and gold is on track for its best weekly performance in more than a year as Russia escalated its war in Ukraine. Bitcoin is a whisper away from hitting $100,000. Crypto investors cheered SEC Chair Gary Gensler announcing his resignation effective January 20th, 2025. Despite the rally in crypto, MicroStrategy fell 16% yesterday after Citron’s Andrew Left announced he was shorting the stock.
The holiday: Canada is putting a tax break in our stockings this holiday season. From December 15th to February 15th there will be no government sales tax on a range of things like books, children’s toys and clothing, restaurant bills and some grocery items. This combined with $250 checks that will be sent out to individuals who make less than $150,000 will cost the government a total of $6.3 billion. True to my pledge, I will leave my comments on politics out of this and stick with the facts. “The stimulus announced by Ottawa today is meaningful,” said Benjamin Reitzes of BMO. He is increasing is forecast for Q1 GDP growth from 1.7% to 2.5% on the back of these measures. He also says this takes the prospect of a 50 basis point rate cut by the Bank of Canada off the table. “The ~$6bn package is about 0.2% of GDP; and, with Ontario already sending about $3 bn in stimulus cheques early in the new year, that puts total early 2025 stimulus at ~0.3% of GDP,” he wrote. Canadians are already in a spending mood. We just got a read of retail sales in September that showed retail sales rose for the fourth straight month. Estimates for October’s sales suggest the strongest growth since July. The gains were broad based and reflect Canadians reacted to the rate cuts that began in the summer.
In the bag: Shares of The Gap are up more than 15% after profit blew past expectations (EPS $0.72 vs $0.57 expected) on higher margins. The retailer is still struggling with sales growth at Old Navy and Banana Republic but sales at The Gap and Athleta offset the weakness. It is also boosting its forecast for the year and says the holiday season is off to a strong start. It is another win for CEO Richard Dickson who has been in the job for a year. There are still plenty of doubters, however, with 13% of the shares outstanding short. Ross Stores is also pumping despite a more mixed quarter. Profit beat expectations, but sales growth was disappointing, and the company cut the low end of its profit forecast.
OpenAI it: Alphabet fell more than 4% yesterday after the Department of Justice said the company should be forced to sell its web browser Chrome to stop Google’s control of online search. An analyst at JP Morgan called the DOJ’s proposals “more punitive than expected.” However, most analysts see the probability of it happening as low. Today the stock is down about 1% again on reports that ChatGPT is looking to launch a web browser that would compete with Google head-on. Alphabet remains one the cheapest tech names out there and is less expensive than the overall S&P 500. But as they say, sometimes things are cheap for a reason. Is Alphabet offering value or is it a value trap? I guess that depends on whether you think the company can weather a regulatory and competitive assault in the coming years.
Keep it friendly: I’ll watch Couche-Tard this morning after the Nikkei reported that founder and Chairman Alain Bouchard would not go hostile in his bid for Seven & i Holdings. He remains committed to his more than $47 billion dollar offer, according to the report. This comes as there is a competing offer on the table for $58 billion. Investors have put Couche-Tard in the penalty box as it pursues this acquisition largely on uncertainty around how far the company is willing to go to buy the iconic 7-Eleven convenience store operator.
