Futures lower ahead of jobs data, bank ratings shuffle, Lulu soars
Coming out early this morning because I am solo parenting and have to get the kids off to school. Too bad because today is jobs day on both sides of the border. But I don’t think I can say the reason that my kids are late today is because their mother was waiting for jobs data to come out.
About that jobs data: Jobs data comes out at 8:30amET in Canada and the US. In Canada, economists are expecting 25,000 new jobs to be added and the unemployment rate to go up to 6.6% from 6.5%. The unemployment rate is near the highest level since 2017 when you exclude the pandemic. However, wage growth has continued to be elevated with growth running above 4.5% since June 2023. Right now the market is betting on a 50 basis point rate cut by the Bank of Canada at its meeting next week. In the US, the job market is expected to rebound after a paltry 12,000 jobs were added in October. There was a lot of distortion due to the hurricane and strikes. The street is expecting 220,000 new jobs in November and pricing in a 68% chance of a rate cut at the December 18th meeting. I am not sure if any number could dent the stunning rally we’ve seen in the markets. It has been so ferocious that it is making even the staunchest bears rethink their positions. Noted economist David Rosenberg, penned this missive yesterday musing about what he got wrong in the last few years. It takes guts for honest reflection, but I can’t help but wonder if we are closer to the top every time the market wrings out another bear.
Urdhva Mukha Svanasana: Shares of Lululemon are surging 9% in the pre-market after results showed their ability to contort across the globe. Make no mistake, US sales struggled falling 2%. But the yoga apparel retailer was able to offset that with growth in international markets, particularly in China where sales grew almost 40%. Lululemon’s CEO said the US will get better and the international markets will continue to be strong. Lulu boosted its sales forecast for the year. With total comps growing 4% this also breaks a string of three quarters in a row of decelerating growth. The stock is down about 30% so far this year and the results appear good enough for investors.
Shooting blanks: Shares of Smith & Wesson are plunging nearly 18% in the pre-market. Sales and profit missed expectations. The CEO Mark Smith said the results came in below their expectations. The gun-maker hasn’t seen much of Trump bump in its shares. If you’d like to think that demand for guns is waning, the CEO says that is not what is happening here. “We believe that the primary driver of demand pressure continued to be inflation,” Smith said. Too bad.
Notable Calls: BMO rallied to a two-year high yesterday even as bottom-line results missed expectations by a wide margin. CIBC and Scotia are both upgrading BMO to buy. Scotia’s Meny Grauman says the worst is behind the company. Clearly the market agrees, but Grauman sees more upside. His price target implies 15% upside and is a street-high at $160/share. Credit has been the main concern at BMO and the reason for the big miss this quarter was that they took up provisions for credit losses much more than expected. “The bottom line is that management now has confidence that BMO’s impaired (provisions for credit loss) ratio peaked this quarter and will moderate through 2025,” he wrote in his upgrade. He also thinks BMO is poised to benefit from enthusiasm over Trump given its US exposure. On the flip side, TD caught two downgrades this morning from Desjardins and Scotia. With the stock selling off 7% yesterday and trading near a 1-year low you could argue that it’s a little late. But worth noting Grauman is not saying the worst is over for TD. “For a while now we have gotten behind this name with the view that the market was being too harsh on valuation even considering the difficult situation the bank was in,” confessed Grauman, “The discount is still there, but we now doubt that it can materially narrow before we get updated guidance.” Doug Young at Desjardins expects the stock to be “range-bound” in the coming year with “lots of volatility.”
Yesterday’s news: TransAlta and Capital Power soared yesterday after Alberta unveiled plans to attract AI data centres. The plans centre around the idea that Alberta has 1 gigawatt in excess power capacity (enough to power nearly 900,000 homes for a year). Investors are hip to what this means for the power generation companies. TransAlta is up 63% this year and Capital Power is up a whopping 73%, its best yearly gain on record. But TD Cowen’s John Mould sees more upside. “We acknowledge that CPX has been a strong performer in 2024,” he wrote in a December 4th note, “We view its low-cost Genesee units as well-positioned to benefit from the potential for growth in large loads (data centres) in Alberta.”
