John Zechner has seen this movie before — and when everyone’s on the same side of the trade, he starts looking the other way. The Chairman & Founder of J. Zechner Associates joins Amber Kanwar to break down how he’s positioning his portfolio in a market driven by noise, geopolitics, and crowded trades. From calling the recent energy shock a potential “9/11-type” shift in investor psychology to arguing that markets are still mispricing long-term risks, Zechner lays out why being contrarian today could pay off tomorrow.
In case you missed it, someone got a tattoo of our logo on his forearm! Needless to say, it has raised the bar for what it means to be superfan! Jillian and I re-capped it on the show and you can see the new artwork here.
Here are five things to know today:
Over it: The markets shook off Iran uncertainty and rallied hard with the US market notching a 1% gain while the TSX was up 0.5% held back by weakness in energy and materials. Tech stocks were the strongest performers and have led the rally since the March 30th low. We talk about this on the podcast and Zechner is loading up on beaten up software stocks. Tune in to find out which ones. This morning futures are higher amidst a deluge of bank earnings which include JP Morgan, Citi and Wells Fargo (more on that below). We also got a read of producer price inflation which showed inflation didnt pick up as much as feared even with the energy price shock.
Banker’s banker: JP Morgan shares are under pressure despite better than expected sales and profit. The trading division was exceptional bringing in a record haul for the first quarter. The rub in the quarter is a lowered outlook for net interest income, money it makes on lending. On the conference call, CEO Jamie Dimon spoke about private credit which has been a key anxiety point for investors. He pointed out while underwriting standards has weakened he doesnt view the problem as systemic given its small size. Wells Fargo (-4%) quantified the size of its private credit exposure in its latest set of results. The lender says loans to private credit funds account for $36.2 billion worth of exposure out of a total of $210 billion in loans to non-bank financials. Bloomberg reports that Wells Fargo was send to be a lender to goeasy which was forced to take hundreds of millions in writedowns. Shares of the lender are falling in the pre-market after net interest income in the quarter missed estimates and provisions for loan losses were higher than expected. Citigroup is bucking the trend with the shares higher in the pre-market. Sales and profit beat expectations and capital markets outperformed notching the highest revenue in a decade. Its a feather in the cap of CEO Jane Fraser who has been leading a multi-year effort to turn the bank around.
Love is in the air: Shares of American Airlines (+8%) and United Airlines (+2%) are rallying in the pre-market on reports that United’s CEO has pitched a merger of the two airlines. Bloomberg is reporting that United’s CEO has been talking with senior government officials to test the appetite of a merger. The combination would create the biggest airline operator in the world and could face scrutiny even under a deal-friendly US President Donald Trump. Together, the merged companies would control about a third of the market. Nvidia is denying that it is interested in buying PC makers like Dell and HP. Rumours swirled yesterday that the chipmaker was interested and shares of Dell and HP Inc surged 5-6%. Nvidia came out and unequivocally called the report from a website called “semiAccurate” false.
Tough quarter: Watch shares of AGF Management at the open after the asset manager missed profit expectations by nearly 40%. The company took a fair value writedown of AGF Capital Partners – the alternative investment arm of the business. The writedowns were tied to legacy investments made in the infrastructure space “that have not been immune to the current economic and trade environment,” according a statement made by CEO Judy Goldring. Still the company boosted its dividend 8%.
Taking out the trash: GFL Environmental shares fell 10% yesterday after announcing a deal to buy Secure Waste in its largest transaction ever. JP Morgan isn’t recommending you buy the dip, downgrading the stock this morning. The analyst thinks the deal will hurt its valuation and lead to a “de-rating” of the stock. A lower margin profile and elevated leverage versus peers warrant a discount according to the analyst. Shares are slightly lower in the pre-market.
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