Bottoming, Pfizer fires back, Ford plunges, Rosie says buy TSX
I’ll get right down to business today. Child 1 stormed into my room before I could open my eyes to tell me the eye of her stuffed dog fell off and that I need to find it and fix it. Just another day waking up to an immediate crisis. So after I write this note, host two hours of live TV, I’ll be doing some intense YouTubing on how to sew an eyeball onto a stuffy. A lifetime of avoiding any homemaking skills coming to roost.
Bottoms up: Futures are indicating a soft open this morning after markets rallied yesterday. Today continues to be all about earnings with 45% of S&P 500 market cap reporting this week. Investors will watch for Alphabet and AMD today after the bell. I can’t go through all of the earnings this morning, but companies are increasingly signaling the worst may be over. In fact, the mention of “bottom” in conference calls has soared 56% from last year according to Savita Subramanian at Bank of America. “Historically, a jump in ‘bottom’ mentions has often marked an inflection in EPS,” she wrote. See for yourself in the chart below. Could be good news for investors worried the market looks expensive. The E in PE will catch up.
Shot to the arm: Pfizer blew through profit and sales expectations in the quarter at a time when activists are pushing for the company to unlock value. Pfizer reported Q3 EPS of $1.06 vs $0.64 expected. It also boosted its sales forecast. The company was able to beat expectations on the back of its COVID treatment, sales of Paxlovid were nearly $3 billion vs the ~$600 million expected. And there in lies the rub, the stock is barely up in the pre-market because investors want it to move on from COVID-era drugs. Especially activist investor Jeff Smith at Starboard. You can read more about his view here but the upshot is that he wants the company to close the gap between peers after years of underperformance (see the chart below).
If you build it: Shares of homebuilder DR Horton are down 10% right now after weaker than expected home sales. Profit also was short of expectations and its sales forecast was weaker. First time home buyers aren’t racing to the markets as interest rates in the United States remain elevated. Buyers also expect rates to fall in 2025 so many are waiting for lower rates before getting into the market. It’s going to be a messy day for the builders with shares of KB Home and Lennar also down about 4% in the pre-market.
Ford, tough: Shares of Ford are down more than 6% right now after warning that earnings would be at the lower end of its forecast. The car company says it is because of rising warranty costs due to recent hurricanes but it stands in stark contrast to Tesla’s results last week and GM’s outlook which they raised for a third time this year. It’s EV business continue to lose money, although not as much as feared this quarter.
Come home: David Rosenberg says now is the time to switch out of the S&P 500 and invest in the TSX. He says that long term momentum indicators favour the TSX while the same momentum indicators suggest the S&P 500 rally may be nearing an end. “With the TSX commanding 3% dividend yield more than double that of the S&P 500 and 30% PE multiple discount,” Rosenberg wrote to clients, “US based investors should strongly consider moving from New York to Toronto.
