Disney holds up the Dow, Shopify holds up TSX, Cisco fails to impress, the buzz on Gaetz
Why is this out so early, you ask? Thank my 4:30am wakeup call from Child 1 (it’s always Child 1). And while I struggled to fall back asleep, you can rest assured that she caught a second wave of sleep and is enjoying the fourth sleep-in of her life. Each of which have been when I am fully awake.
Breather: Futures are higher this morning ahead of producer price inflation in the US and a speech by Fed Chair Jerome Powell at 3pmET. The TSX notched another record high even as most stocks fell on the day. Once again, the gains were largely due to Shopify with an assist from Suncor on momentum after earnings results. The resilience of the TSX is even more impressive when you consider how much gold is melting down. Gold has slumped to a two-month low as the US dollar is trading at a one-year high (threatening a two-year high if it moves a little higher). The dollar is clearly signaling that inflation and thus interest rates are likely to remain elevated. Yet the markets are at or near records. When you are at these lofty levels naturally one worries about whether fundamentals are supporting the market. While the TSX is at a record high, it is worth nothing that earnings are falling this quarter. Down about 1% vs last quarter’s 11% jump. As for the S&P 500, there is no denying how much tech has powered earnings growth. However, when you neutralize the impact of tech, you can see that earnings estimates are falling while the equal-weight S&P 500 is near record high.
via Michael Kramer, The Market Chronicles
House of Mouse: Disney will be a power point on the Dow this morning if the pre-market gains hold. Disney is up 9% right now after earnings and its forecast came in higher than expected. Disney saw success at the box office with the release of Deadpool & Wolverine and Inside Out 2. Streaming was also a bright spot. The unit swung to a profit for the second month in a row. Disney says it can grow profit by high single digits in 2025 and double digits in 2026. This is better than the 4% growth the street was modeling. However, profitability at the parks was a sore spot, falling 6% from last year. Parks and cruises are still the most crucial part Disney’s profit picture. Recent weakness has hobbled the stock which has underperformed the market in 2024 and is down nearly 50% from the pandemic peak.
The Server Song: Sales at Cisco dropped for a fourth quarter in a row but it is signaling better days ahead. Shares of the networking company are down only 2% in the pre-market. While profit and sales both fell, they came in better than feared. The company boosted its forecast for the year. Amidst the softness in their business, Splunk (which they bought for $28 billion in 2023) continued to deliver outsized growth. Sales of AI infrastructure was also a bright spot. Cisco says they have $300 million in AI orders and on track to hit $1 billion for the year (out of $55-56 billion in annual sales). Most analysts chalk the weakness in the shares this morning to profit-taking. The stock ran up to a 2-year high ahead of earnings. Price targets are mostly moving higher. Hard to find AI plays trading at 16x forward earnings.
Open the flood-Gaetz: Donald Trump shocked Washington with his pick of Matt Gaetz for Attorney General. Gaetz has been under pressure with allegations of sexual misconduct and drug abuse. I’ll leave the political analysis to someone else, let’s talk about what it could mean for the markets. There is a buzz about what this might mean for marijuana stocks. The announcement came out around 3:30pmET yesterday and immediately the pot sector rallied. The AdvisorShares Pure US Cannabis (MSOS) ETF popped 10% on the news. Gaetz was one of three republicans who voted in favour of a bill that would have legalized marijuana at the federal level. The sector could use a win. The MSOS ETF is down 92% from its peak in 2021.
Notable Calls: Suncor got upgraded at Desjardins after strong earnings. “(Suncor) has clearly delivered upon most key operational performance metrics” wrote Chris MacCulloch in his upgrade, “… which should drive continued support for the stock moving into 2025.” Interestingly, Raymond James is out with a note this morning saying all that good stuff is already baked into the stock and they remain neutral. AutoCanada has a new bull after earnings impressed yesterday. Maxim Sytchev at National is upgrading the car dealership to buy in a restrained note titled, “Perhaps there is hope.” Not exactly a ringing endorsement but he makes an interesting argument that good enough could be great for shareholders. “…US auto dealers (ex Carvana) are up +14% YTD vs. ACQ at -34% (TSX at +19% and S&P 500 at +26%),” he wrote in the upgrade. “Yes, U.S. peers have shown better fundamental performance, but we also saw what can happen when ‘good enough’ trades take hold à la Aecon / Quanta in 2024, and we don’t want to stand in front of that dynamic.” Aecon shares, for reference, are up 114% so far this year after revenue went from falling double digits to increasing modestly.
