Producer price inflation heats up, Adobe plunges, TD upgraded to buy
Happy 5th birthday to our middle child. Sandwiched between two high maintenance siblings, she’s practically had to raise herself. She’s like a self-cleaning oven. She sleeps in the latest, she potty trained herself and likes to spend quiet time practicing her reading and writing. And she gives the best hugs. Happy birthday sweet girl.
Autopilot: Futures are falling after a hot session yesterday. The S&P 500 and the TSX finished higher yesterday while the NASDAQ closed above 20,000 for the first time ever as the Magnificent 7 hit a fresh record high. This morning futures are taking a hit after producer price inflation came in higher than expected and Adobe is getting whacked in the pre-market (more below). Markets were able to overcome consumer inflation data yesterday that suggested sticky inflation, but was in line with expectations. This morning’s producer price data, however, is obviously stoking fears that inflation is not under control and may cast doubt on the markets conviction of a rate cut next week (which is currently priced in at 99% likelihood). The ECB just made their rate decision cutting rates by 25 basis points. This comes after the Bank of Canada cut rates by 50 basis points yesterday but signaled a more moderate pace of rate cuts after this. The Bank of Canada now has the title of the most aggressive rate cutter in the G10. Interestingly the Canadian dollar didn’t sell off on the back of the rate cut as Governor Tiff Macklem seemed to pump the brakes on the idea that these mega-cuts would continue. Something to put on your watch list: the NASDAQ will be rebalancing the NASDAQ 100 and the markets are trying to front run possible changes. Watch for Palantir and MicroStrategy to be added and SuperMicro and to be shuffled out according to David Lutz at Jones Trading.
Can we photoshop this?: Shares of Adobe are plunging 11% after its sales forecast fell short of expectations. This is overshadowing better than expected sales and profit in the quarter. “However, with Adobe underperforming the S&P for over 5 years now, getting back into a more consistent cadence of beat/raise is basically a necessity to rekindle long-term investor interest,” wrote Kirk Materne of Evercore. The debate around Adobe is whether they are a disruptor or poised to be disrupted by generative AI. They’ve got their own generative AI tool called Firefly that allows users to do things like type what they want and have the software create the image. So when the company issues a softer than expected forecast it stokes fears that the investments in generative AI are not yet yielding meaningful sales growth.
Buy the dips: TD is getting its most confident upgrade yet. John Aiken at Jefferies is upgrading TD to buy this morning. “We believe all the negatives are priced in and that its multiple should recover in the latter half of the year as the new CEO presents his new strategic vision for the bank,” Aiken wrote in a note to clients. In a note titled “2025 cannot be nearly as bad as 2024” Aiken makes the case that the worst is already priced in and there could be a catalyst ahead of a revised strategy that will be laid out by the new CEO. Recall, TD yanked its forecast in its latest set of quarterly results as it deals with the fallout from its anti-money laundering issues. Aiken acknowledges there is still a lot of hair on the story but with the stock trading at less than 10x earnings, it is at a 2.5x discount to the group and 1.5x lower than the second cheapest stock (Scotia). The price target is $90/share implying 20% upside from here.
Add to cart: I’ll watch shares of grocery chain Empire at the open. The owner of Sobey’s and Farm Boy missed sales expectations but had higher profit than expected and higher food-related same-store sales. The stock has underperformed other grocery peers like Metro and Loblaw as consumer shift toward more discount brands and away from premium offerings.
Big screen: Cineplex says November box office sales were higher thanks to some major blockbuster releases. Wicked’s opening was a record for a Broadway musical movie while Moana 2 had a record debut as well. While box office sales were above what they were for last year, they are still a bit shy of pre-pandemic levels (total November sales were 94% of what they were before the pandemic). Nevertheless, Cineplex shares have got their mojo back. The stock is up 57% so far this year and have hit a 2-year high. Worth noting, however, shares are half of what they were before the pandemic hit.
