Futures dip, inflation up in Canada, Walmart all-time high, more Scotia upgrades
I’m late. Let’s get to it.
1,000 days of war: Today marks 1,000 days since Russia invaded Ukraine. This morning, futures are under pressure as tensions are escalating. Russian President Vladimir Putin signed a decree that would allow Russia to fire nuclear weapons in response to attacks on its soil, especially if attacks were backed by a nuclear power. This comes as Ukraine carried out its first strikes using US missiles in Russia. We are seeing a clear risk-off move in the markets. Futures are lower, gold is higher and bonds are rallying. European stocks are particularly rattled, down more than 1% across the board.
Genie is out: Inflation in Canada picked up for the first time in five months. The Consumer Price Index for October increased 2%, higher than the 1.6% gain in the previous month. To make matters worse, core inflation also picked up. Recall, October was when the Bank of Canada made its jumbo 50 basis point rate cut after cutting rates three times prior. This likely reduces the odds of another jumbo cut. But also has potential political implications. As pundits try to unpack what happened in the US election a few weeks ago, the data is making it clear that inflation was top of mind for voters (see chart below). And perhaps a harbinger of things to come in Canada if leaders don’t take steps to bring down prices.
The American Shopper: Walmart has been a key beneficiary of inflation as consumers hunt for bargains. Shares of Walmart are poised to open at a record high this morning after sales grew more than 5%, which was higher than expected. The company said sales momentum is going to continue and boosted the sales forecast for the year as well. Walmart is benefiting from higher-end customers trading down. Households that make over $100,000 a year are increasingly turning to Walmart for value. The stock is up 60% so far this year. Meanwhile, sales slipped at Lowe’s, but not as much as feared. Sales declined just 1% vs the nearly 3% decline that was expected. The stock is lower in the pre-market, but it ran-up ahead of the results. Lowe’s now says sales won’t fall as much as feared for the year in part because of higher contractor and online revenue.
Something in the water: Scotiabank is getting two upgrades this morning. This now makes four upgrades in the last two weeks. Matthew Lee at Canaccord is upgrading Scotia because he sees earnings growth accelerating next year (after barely any growth this year) bolstered by higher loan activity on the back of lower interest rates. While Lee says there are still questions about long-term strategy and the bank will likely pause buybacks for the next couple of quarters, “its current valuation and ‘low-hanging’ earnings growth make it attractive.” His price target is $84/share. Bank of America’s Ebrahim Poonawala is also upgrading to buy saying leadership changes under new-ish CEO Scott Thomson and better profit prospects are underappreciated by the market. He’s even more optimistic, with a $90 price target that coupled with the dividend yield implies 22% upside. It is not without risks, however. “Trade tariffs have the potential to weigh on Scotia’s growth outlook given its LatAm exposure (Mexico, Chile, Peru, Colombia comprise ~25% of earnings),” he wrote to clients, “While early days, investor sentiment that favors US > rest of the world could cause investors to gravitate towards the more domestic or US exposed Canadian banks.”
So you’re saying there’s a chance: Shares of Super Micro are up more than 25% right now. The embattled AI server company announced it has a plan to remain listed on the NASDAQ and found a new auditor. This comes against a stunning 84% drop in the shares since the peak this year. Super Micro was added to the S&P 500 in March and since then it has been a one-way ticket lower amidst short selling, allegations of fraud, an auditor resignation, delayed financial filings, and the spectre of being booted from the NASDAQ for non-compliance. That’s a lot of hair on one story. But with nearly 20% of the shares short, doesn’t take much good news to squeeze higher.
CORRECTION: Any earlier version stated Scotia has been upgraded three times in the last two weeks. It has been upgraded four times in the last two weeks. I regret the error.
