Futures pop, Canadians head to the polls, Lightspeed cuts, stagflation playbook
I’ll be brief because I mistakenly thought today was a PA day for my eldest. Normally, my husband is on drop-off duty but like a fool I told him he could go on a last-minute golf trip. Forgetting my daughter has school today likely takes me out of the running of “Mother of the Year”, but at least I have that “Wife of the Year” trophy on lock.
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Targeted relief: Futures are surging this morning on reports that the White House will narrow its approach to tariffs come April 2nd. Tech stocks are leading the rally in the pre-market while crypto is also benefitting. While tariffs are still contemplated, any relief is clearly welcome. The US markets rallied for the first time in five weeks last week. Industry specific tariffs will be avoided, according to the Wall Street Journal. April 2nd is when US President Donald Trump promised a so-called “Liberation Day” of reciprocal tariffs. It is headlines like these that are leading to a massive jump in uncertainty. The mention of the word “uncertainty” in the Federal Reserve Beige Book jumped to a record high (going back to 1970). Not only is there more uncertainty now than the financial crisis and the dot com bubble, but it is also higher than Black Monday when the Dow Jones Industrial Average fell by more than 20%. Proving boomers were the ultimate unbothered generation.
(via Bespoke Investment Group)
Headed to the polls: Unlike the US which has four-year election cycles, Canada’s will be mercifully brief. Prime Minister Mark Carney dissolved parliament and called for a federal election to be held on April 28th. Carney is no doubt capitalizing on a significant narrowing in the polls. Just four months ago, Conservatives enjoyed a 20 point lead against the Liberals. That all changed after the resignation of Justin Trudeau. With Carney as party leader, the results will be a nail biter according to polls. Especially considering the major thorns in the side of business have been abandoned or promised to be solved: capital gains increase will not go through, carbon tax on consumers scrapped (though still in place for industries), inter-provincial trade has ben promised by July 1st. While it rarely matters for Canadian equities who is in power over the short-term, over the long-term it weighs on sector growth. Just ask the energy sector.
Slow speed: Lightspeed is warning that consumers are slowing and that is going to weigh on the company’s growth. The point-of-sale company cut its sales growth outlook to 18% from 20% while maintaining its profit outlook. The latter is likely supporting the stock, which is up 2% in the pre-market. Keep in mind, Lightspeed shares have been a trainwreck so even a little bit of good news can go a long way. Still, there is a message in their updated forecasts about the state of the consumer. Lightspeed says that since their results in February deteriorating macroeconomic conditions have weighed on consumer behaviour. Recall, back in February the company abandoned plans to sell itself.
Stagflation playblook: Strategists are developing a playbook for stocks that do well when growth slows but inflation remains elevated (stagflation). Over 70% of investors expect stagflation in the next 12 months according to a survey by Bank of America. That is the highest since November 2023. During these periods “quality” stocks and “cash return” stocks tend to do well. These include stocks in the telecom, utility, and energy sectors.
Notable calls: Ovintiv is getting upgraded at BMO and shares are rallying 1% in the pre-market. “Ovintiv’s portfolio is more focused now than any time in its history,” says Phillip Jungwrith of BMO. Peyto Exploration is also getting upgraded at BMO with analyst Randy Ollenberger saying it has a “peer-leading” cost structure. He calls the 7.5% dividend “healthy” even with weakness in natural gas prices. Evercore is downgrading US homebuilder Lennar on concerns that slowing housing demand will mean it has to resort to greater incentives. The analyst warns of “dramatically depressed levels” when it comes to profitability as a result of these incentives. The downgrade is specific to Lennar because the analyst notes other homebuilders have responded to the slowdown by building fewer homes while Lennar has continued expanding. Lastly, Super Micro is under pressure in the pre-market after Goldman Sachs cut to sell. The analyst is warning of more competition in the artificial intelligence server space and says Super Micro shares could fall as much as 20%. Up until mid-February, Super Micro was the best performing stock on the S&P 500 but has pulled back amidst the tech wreck.
