I should have noted that the third child (only 3-years old) lost a tooth a while ago, but his was due to a collision with a wall which felt less like a rite of passage. The tooth was lost in a hot tub and it took me a week to recover from the trauma. Well now that he is seeing all this cash being doled out he’s starting to ask questions about where his tooth fairy booty went. I’m hopeful he forgets all about it…until it comes up with his therapist 20 years down the road
Earl Davis is optimistic—and that’s rare for a bond investor. In this episode of In the Money with Amber Kanwar, the Head of Fixed Income at BMO Global Asset Management shares why he believes both the U.S. and Canadian economies are stronger than many think—and why fears of an imminent recession are overblown. However, he warns inflation isn’t heading back to 2% anytime soon, and instead may stabilize at a higher range of 4–5%. You can tune in on Apple, Spotify or here.
Drama: US markets are stabilizing after drama yesterday about the future of Federal Reserve. US President Donald Trump has made no secret of the fact he wants rates cut and he is disappointed with Fed Chair Jerome Powell. Yesterday, reports started circulating that Trump had drafted a letter firing Powell (illegal) and was asking Republicans for input. If this was a trial balloon to see how markets would react, the answer was: not well. The US dollar plunged, the 30-year bond sold off, and the S&P 500 dipped. Shortly after those headlines came out (and the market voted on the idea) Trump came out said it was highly unlikely he would fire Powell. This morning we just got a read of retail sales that was well above expectations and boosted futures. Retail sales for June surged 0.6% from the previous month, well above expectations, with growth in nearly every category. Relief that the US consumer remans alive and well. Earnings are pouring in (notable ones below) and we will get Netflix tonight.
Receipts: Alimentation Couche Tard is officially withdrawing it’s proposal to buy 7/eleven owner Seven & i. After a year long pursuit, Couche-Tard accused Japan’s Seven & i of engaging “in a calculated campaign of obfuscation and delay”. They aren’t just walking away, they provided receipts. The release goes through each attempt at good faith negotiations including locations and details that were previously unknown. For shareholders (like myself) this will likely be a good thing. Shares of Couche-Tard have been in the dog house on concerns the company would have to issue a substantial amount of stock to get the deal done. Now that is no longer the case, buybacks are likely. “We expect the removal of the equity overhang from a deal and resumption of share buybacks to be a catalyst,” wrote Chris Li of Desjardins, “We believe ATD has the capacity to deploy ~US$2.5b of capital for share buybacks. That’s about 5% of the float. There may be a limit to how much the stock can recover because their US business has been struggling (although it has been outperforming 7/eleven stores). If they can turn it around in the US as well, wrote Li, that would be another big catalyst for the stock.
Meet the misses: Abbott Labs is down 5% in the pre-market after it’s profit forecast missed expectations. Covid test kit sales continue to struggle, but it is a very small part of the business now ($55 million vs $11.4 billion net sales in the quarter). Still, organic sales growth came in below expectations despite strong device sales as nutrition and diagnostic sales were lower than consensus. US Bancorp reported results this morning and the stock is under pressure despite profit beating expectations. Their net interest income came below expectations (difference between what they pay for deposits and make on loans). It is the first earning report under a new CEO. Investors aren’t giving much credit to the EPS beat as it was aided by lower provisions for credit losses than anticipated. “In fact, with the beat coming from lower provision and it being a weak quarter for NII (with NIM and loan/deposit growth each coming up light), the bears will have quite a bit to chew on,” wrote Steven Alexopolous of TD Cowen. Though he acknowledges that expense control was positive.
Marching to the beat: Shares of Taiwan Semiconductor are up 3% and poised to open at a record high after results beat expectations and the company boosted it’s forecast for sales growth this year. Sales are now expected to grow 30% vs the previous outlook of 20% growth. Demand for AI is driving the higher forecast. However, analysts note that when you model it out, it looks like the company is calling for a decline in sales in the fourth quarter. “…While TSMC meaningfully lifted its full year revenue outlook, taking the midpoint of TSMC’s new Q3 outlook and the company’s updated full year guide implies a high single digit revenue decline in CQ4,” wrote the analyst at Wedbush, “While we wouldn’t be surprised if TSMC is accounting for softer than typical trends in consumer silicon, our bias is to believe TSMC is simply being very (and likely overly) conservative given uncertainty around US policy.” Shares of Pepsi have some pop this morning after putting in better than feared numbers. Profit beat, organic growth was higher, and North America was about as bad as feared (not worse). Volumes fell 1.5% but they were able to make it up with higher prices (+4%). With the stock bouncing off a four-year low investors view the results as good enough.
Just a warning: Shares of Sarepta are surging nearly 30% after announcing their gene therapy drug for fatal muscular dystrophy will stay on the market but come with a warning. The embattled biotech also announced restructuring that will result in cutting a third of their workforce. Sarepta makes a drug for children suffering with Duchenne muscular dystrophy. There have been two fatalities in children who were unable to walk. The label applies to children who take it who are still able to walk. Sarepta says they are working with the FDA on modification for children who are not able to walk. The stock has taken a major hit on the back of these complications, but the fact the drug is remaining on the market is clearly a relief to investors.
