Up before the sun today. Hubby is away this morning so mom is on drop off duty.
WATCH: Markets are at record highs, but can the rally last? In this episode of In the Money with Amber Kanwar, renowned technical analyst Katie Stockton of Fairlead Strategies dives deep into the power of technical analysis explaining how she uses price trends to spot market tops, breakouts, and buy signals.
Soft landing: North American markets surged to record highs yesterday buoyed by rate cuts this week and a rally in tech stocks. This morning futures are taking a bit of a breather using the Bank of Japan’s rate decision as an excuse (more on that below). The TSX is less than 500 points away from crossing 30,000 for the first time ever. Not bad for a month that is typically characterized by weak equity performance. The Federal Reserve’s rate cut this week can not be overlooked as a catalyst for further gains despite elevated valuation. “Indeed, the Fed has now delivered 125bps of rate cuts since September 2024…,” wrote Jim Reid of Deutsche Bank, “…You have to go back to the 1980s for the last time they cut that rapidly in a non-recessionary environment.” In fact, the Fed is cutting rates even as they increased their forecast for economic growth. Later this morning we will get a read of Canadian retail sales for July which is expected to fall 0.8%. Unlike US retail sales, Canadians have struggled to show continued strength in the face of a weaker economic climate. Recall, in July Canada shed 81,000 jobs.
Hawkeye: The Bank of Japan kept rates unchanged but two members dissented opting for a rate hike and the Governor of the BOJ hinted that a rate hike might be coming. The central bank also announced they would sell some of their ETF and REIT positions that they started to acquire in 2010. This sent Japanese stocks down as much as 2% before they closed at just -0.57%. While investors may have flinched at the prospect of tighter monetary policy, TD is putting the size of the asset disposition into context. “The entire disposal is likely to take 112 years for ETFs and 131 years for J-REITs and investors aren’t likely to panic over this glacial pace of selling,” wrote TD’s Alex Loo.
Good enough: FedEx is rallying 5% in the pre-market after results came in better than feared on both the top and the bottom line even as it warned of a $1 billion hit because of tariffs. Shares have underperformed down 24% over past year lowering the bar for results, but the quarterly results had several positives. First, profit was higher than expected and higher than last year signaling that cost cutting has been effective. Second, sales were surprisingly strong despite tariff headwinds. The Express shipping business posted it’s best growth in 9 quarters. Third, FedEx reinstated it’s financial forecast calling for 4-6% sales growth. However, they warned that they’ll take a $1 billion hit because of tariffs and their profit forecast was lower that consensus estimates. Most of the tariff headwind is because of lower shipments from China to the US after the US removed the de minimis tax exemption on goods under $800. Some see the results as a buying opportunity. “We remain Buy-rated on upside potential on macro recovery/cost-outs and FedEx’s depressed valuation reflecting cautious sentiment,” wrote Citi’s Ariel Rosa in a note to clients this morning. Shares of UPS are higher in the pre-market in sympathy.
Home inspection: Shares of US homebuilder Lennar are falling 2.5% in the pre-market after profit missed expectations and it warned they’ll be selling fewer homes at lower prices. While the stock has had a nice bounce up 30% since June on rate cut expectations, it is still down 25% over the past year. Lennar warned that demand is still tentative as home-buying remains out of reach while job growth is stalling. Profit was worse than expected this quarter in part because of incentives used to help offset weak demand. The recent rally in the stock has also made it expensive, argues Raymond James’ Buck Horne. “We think expectations are likely too far out in front of reality,” he said in a note to clients.
Take the money and run: Intel soared 22% yesterday making it the best day since October 1987 after Nvidia injected $5 billion and took a stake in the chipmaker. This morning, Citi is cutting the stock to sell. The deal yesterday means Intel will build chips that Nvidia would integrate into its AI platforms and chips that integrate Nvidia’s graphics for the PC market. “We expect minimal improvement for Intel as better graphics won’t make Intel’s’ CPU better than AMD’s given the processor is the main performance driver,” wrote Citi’s Chris Danely of the downgrade. “(Intel’s) stock is up roughly 50% since early August on the Nvidia deal and speculation that a foundry deal is next. We disagree given our belief that Intel’s foundry is years behind TSMC,” said Danely. Shout out to Mark Sebastian of OptionPit.com who was one of the early guests on the podcast who called for a big Intel rally this year (albeit with low conviction).
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