Fed day, futures higher, Canadian Western Bank miss, General Mills warns
The strollers were the least of our concern. The flight was delayed by four hours and a six hour travel day turned into 12. The kicker was when Air Canada offered us a free food voucher to use in the airport, but everyone was already on the plane. On the bright side, we all made it in one piece and the kids generally dealt with it very well! Except the 46-year-old, he was pretty pouty about the whole thing.
Fed Day: The Federal Reserve is expected to cut rates this afternoon and futures are higher this morning ahead of the decision. Even the Dow Jones Industrial Average is higher after a nine-day losing streak, it’s worst losing streak in 46 years. It has been a victim of rotation out of value into tech stocks as market breadth has weakened. Yet again, the number of stocks rising on the S&P 500 was smaller than the number falling – the 12th day in a row if you are keeping count. Another sign of bad breadth is the equal weight S&P 500 which has now slumped to a 6-week low. And even though the Fed is expected to cut rates today, the bond market has been selling off. Why are interest rates rising when the Fed is cutting rates? Higher inflation, robust economic data, incoming policies from Donald Trump, and higher treasury issuance are all reasonable explanations. As usual, investors will look for insights in the future path of rates. “In the presser, we look for Chair Powell to signal that there are more cuts in store for 2025, but not at the same cadence as this year,” wrote Michael Gregory of BMO. Strategists at Bespoke Investment Group warn that the markets have done the worst on Fed days during Jerome Powell’s tenure as chair:
General weakness: Shares of General Mills are down 4% in the pre-market after cuttings its profit forecast. The owner of Cheerios and Lucky Charms beat earnings and sales expectations for the quarter, but now says sales are projected to fall between 1-3%. General Mills is warning of a more promotional environment as inflation weary customers are pushing back on higher prices. The stock has been dead money for the last year, but trades cheaper than the market and offers a dividend yield north of 3.5%.
Electric circuit: Shares of circuit maker Jabil are soaring 10% in the pre-market. Earnings, sales, and its forecast all came in better than expected. The component maker for Apple, Cisco and General Electric has had a tumultuous year. The company replaced its CEO in the spring after an investigation into his conduct. It pulled its forecast for 2025 at the same time. Last quarter the company announced a restructuring, including a 10% reduction in workforce. However, stock is up about 30% since then and the higher than expected 2025 outlook is clearly winning over investors this morning.
Closed-toed shoes: Shares of Birkenstock are pumping 8% in the pre-market after the German sandal-maker posted 22% sales growth thanks to demand for its iconic sandals and clogs. While the sandals may be the first thing you think of when you think of Birkenstock, their boots, clogs and sneakers have actually been propping up better than expected sales growth. The stock is rallying despite Birkenstock cutting its sales growth forecast. It now expects growth of between 15-17%. However, the shares have been under pressure recently because of concerns over their margins. Evercore notes that while margins did fall, they didn’t fall as much as feared. “Our checks suggest (Birkenstock) is having a very strong holiday,” wrote Evercore’s Michael Binetti, “with several retailers completely stocked out well before Christmas.” He’s got a buy and a $70 price target.
Nothing to see here: Profit at Canadian Western Bank posted a sharp drop in the fourth quarter and came in 22% below expectations. The lender took a hit on rising provisions for bad loans. National Bank reached a deal to buy CWB this summer. “It may seem strange to label a 22% EPS miss to the Street as a positive quarter,” wrote Scotia’s Meny Grauman, “but given the pending deal with National Bank (still set to close in early 2025) the glide path of this stock is not really going to be determined by the quarterly numbers.” The earnings come after a delay due to a legal claim. CWB said the claim will have no material impact on the bank’s financial statements and doesn’t reveal any deficiencies in its internal controls. While credit quality was weaker, Grauman does not think it will derail the deal.
