Futures soft, RFK impact, 13F roundup, RBC downgraded
Trying to be a good person and be happy for all the people who went to Taylor Swift last night. It’s a work in progress.
Gimme some sugar: Futures are lower this morning after US markets fell yesterday. Higher producer price inflation combined with a less dovish Fed Chair Jerome Powell exerted pressure on stocks. Late afternoon yesterday Jerome Powell said the economy isn’t sending any signals that we need to be a in a hurry to lower rates. Odds of a rate cut in December are back down to just 60% after briefly surging to 80% earlier this week. We just got US retail sales. Headline sales advanced more than expected because of auto sales but the control group (ex autos, gas, tobacco, office supplies) unexpectedly fell. We get existing home sales in Canada (9amET)
RFK Jr: Donald Trump announced yesterday he would nominate Robert F. Kennedy Jr. to be the Head of Health and Human Services. RFK Jr has been critical about everything from the number of vaccines children have to take to the chemicals in US food supply warning those at the Food & Drug Administration’s nutrition department that they need to be eliminated. If he is confirmed there would be wide-sweeping changes. If he is confirmed. So that is a bit of a wildcard and there are some limits to what he can do without congress support. But only some. Still, the market reacted to the potential risks and opportunities of an RFK appointment. Pharma stocks, particularly vaccine makers like Moderna, Novavax and Pfizer, all fell after the announcement. But on the flip side psychedelics like Compass Pathways, Cybin and ATAI Life science rallied on the news.
What the 13F: My favourite time of the quarter, 13F filings. Anyone who runs more than $100 million in the US is required to file their holdings for last quarter. If offers insight, albeit dated, into what some of the biggest fund managers are doing. And it can move stocks. Here are the highlights from this round.
· Warren Buffett’s Berkshire Hathaway: Bought Domino’s Pizza and Pool Corp in the quarter, both are higher in the pre-market. Exited Floor & Décor, it is down on the news. It reduced positions in Apple (but still top holding), Bank of America and Ulta Beauty (which it only just bought).
· Bill Ackman’s Pershing Square: Bought Seaport Entertainment, boosted its holdings in Nike and Brookfield Asset Management.
· Paul Singer’s Elliot Management: Sold Marathon Petroleum and the high yield bond ETF, HYG. Increased its stake in Southwest and Match Group.
· Jeff Smith’s Starboard: Known for his activist style. I thought it interesting he also bought Match Group (which recently plunged 18% on disappointing results).
A rare downgrade: Royal Bank is getting downgraded by Mario Mendonca at TD Bank. The call is largely on valuation noting that it now trades at a 15% premium to the group. Mendonca believes investors will rotate into underperforming banks. He sees greater scope for return on equity (ROE) improvements at other banks. He says the way to play the banks is on ROE improvements. He recently upgraded Bank of Nova Scotia because he thinks they have room to improve whereas he thinks RBC’s ROE will be stable over the next two years.
Tidbits: Watch shares of MDA Space this morning. The space company reported a nearly 40% jump in sales driven by its satellite business. Cash flow was higher than expected and the company boosted its forecast. In the US, Applied Materials is down about 6% after the chipmaking equipment manufacturers gave a disappointing sales forecast. Alibaba’s quarterly results are proving to be good enough even as sales growth disappointed. The stocks is trading up. As an aside, David Tepper said investors should buy everything in China back in September – but his filings showed he trimmed positions in Alibaba and a couple of Chinese ETFs. However, he did add exposure to some other Chinese stocks like JD.com.
