Tariffs are dominating the headlines, but they’re not the biggest risk Jean-François Tardif sees for investors. The President of Timelo Investment Management is cautious on the economy, skeptical that the massive AI spending boom can last and actively positioning for downside. He explains why he’s short Canadian banks and semiconductors, using puts on the S&P 500 and Nvidia, and preparing his portfolio for what could happen when AI spending eventually rolls over. At the same time, Tardif remains net long equities through gold and oil, explains why he sees gold stocks as significantly more attractive than copper right now and tells us his top gold stock.
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FROM AMBER’S DESK
My body got the memo following yesterday’s unsuccessful attempt at waking up early – today I’ve been up since 4am. My loss is your gain – the newsletter is out early! Maybe I am amped up because our season premiere episode with Rick Rule is off to a rocking start – clocking in at over 90,000 downloads since its release on Tuesday! That’s a record for our little show.
Here are five things to know today
1.
Stocks attempt recovery after third session of declines
Weakness in equities is being compounded by further pressure in the bond market. The US 10-year yield is at the highest level in nearly 3 year while the 20-year hit 5.3%. Higher oil prices are feeding into inflation expectations and market bets that central banks will have to raise rates. The ECB hiked rates for the second time since the Iran war just this morning – while also boosting its inflation outlook. The selloff in yields is testing the resolve of US Treasury Secretary Scott Bessent who unveiled a scheme last month to buy back bonds in order to tame the sell off in bonds.
Yesterday Treasury followed through announcing a plan to buy back $6 billion in bonds, falling short of the $8-$10 billion expected by Wall Street. This comes just a day after Bessent touted “I am the house now,” daring traders to go against him in his efforts to prop up the Yen. It’s a strange turn of the tables for Bessent, notes Ipek Ozkardeskaya of Swissquote. Back in 1992, Bessent was working for Soros in London and was instrumental in betting against the British Pound despite efforts by British authorities to defend the sterling. Ultimate, markets won out and Soros/Bessent’s bets paid off and sterling collapsed. “34 years later, Bessent finds himself at risk of making the same mistake: thinking that the US Treasury can tame the longer end of the US yield curve by buying more bonds when the fundamentals are strongly working against that,” wrote Ozkardeskaya, “Energy prices are rising, inflationary pressures are mounting, Federal Reserve (Fed) is being politically pressured, US debt is soaring, the current administration is conducting an irresponsibly and unsustainably expansionary fiscal policy too, while appetite for US Treasuries has notably weakened amid repeated geopolitical and trade tensions, and foreign investors are increasingly looking at alternatives – gold being one of the most relevant ones.” Woof.
It doesn’t help that US President Donald Trump promised $5,000 to every adult if the Republicans win the midterms. Don’t pinch yourself – this is real life. This is also the definition of bribery and would cost over $1 trillion if executed.
The day ahead has several catalysts: We get a read of producer price inflation in the US ahead of consumer price inflation tomorrow. Inflation is expected to rise but unclear if that will matter given it is backward looking and inflation expectations are rising. Earnings from Oracle and Adobe are due out after the close today. Investors haven’t had a favourable view of high spending and cash burn at Oracle while Adobe has been a favourite SaaSpocalypse punching bag. They recently announced a new CEO so that call will be more interesting than usual.
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2.
Macy’s (-3%) and American Eagle (-14%) fall pre-market
The drop in Macy’s is a surprise because comparable sales materially outperformed and the department store increased its forecast. The tock initially surged 7% but has reversed course. Even though it increased its forecast for the rest of the year, it was below or at consensus mostly and given the better than expected performance this quarter investors are disappointed there wasn’t a bigger boost.
The plunge in American Eagle is easier to understand: same-store sales increased only 6% vs the 6.46% expected. Although 14% drop in shares is a punishing move for a 50 basis point miss. The trouble is that the miss was at its American Eagle branded stores while the strength in Aerie was not enough to offset as it is a smaller brand. Women’s clothing was particularly weak while markdowns weighed on margins at namesake stores.
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3.
Canadian earnings to watch: Empire, Transat, D2L
Empire may come under pressure after same-store sales missed expectations. Still profit grew more than anticipated with the bottom line increasing 14%. The weakness in the top line was due to softer than expected food sales as the grocer’s internal inflation remained below CPI.
Transat posted a disappointing set of quarterly results with profit half of expectations while sales also missed. The holiday destination airline and tour operator has been struggling down 32% over the past year compared to Air Canada which is up 49% over that time. Higher fuel prices aren’t helping with costs going up and the airline having trouble passing on those increases according to Cameron Doerksen at National Bank. “Although any near-term liquidity concerns have been addressed by the new government-backed credit facility, we remain surprised that Transat has been largely unable to pass on any of the higher jet fuel costs though higher airfares,” he wrote.
Watch D2L at the open after reporting a surprise loss in the quarter, lower sales than expected and cutting their forecasts for the year. The education and training software platform warned that they are seeing softer demand within their advisory professional services. They also had a setback in a product launch.
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4.
Enbridge drops 3% pre-market after US pipeline deal
Enbridge announced it is buying Tallgrass Energy’s crude oil pipelines from Blackstone for $2.5 billion (US) and plans to fund the deal with cash raised from an equity sale. The bought-deal was priced at $66.85/per share (Canadian). I’ll watch for uptake. It’s the first major deal for the company since a spate of deals in 2023 – which was also the last time they raised equity. Enbridge is loaded with debt and with interest rates higher – we will see if the equity markets are willing to sop this up. At $66.85/share the deal is just a 3% discount to yesterday’s close but just a few months ago Enbridge was an $80 stock. A trading desk on the deal told me the deal is “well subscribed” which feels short over “oversubscribed” so we will see how the stock looks at the open. Earlier this week the company announced the Greg Ebel is set to retire this year and will be replaced by Michele Harradence in January. We interviewed Ebel for our Calgary Stampede show about what it would take to invest in Canada and it is notable that they are doing yet another deal in the US.
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5.
Apple up 1% in pre-market after iPhone Duo reveal
New CEO John Ternus is getting good reviews in a debut for him and their flip phone. This isn’t your dad’s flip phone. It’s basically like if an iPad and Razr had a baby. It’s sleek, intuitive, multiscreen, and starts at $2,000. Apple also increased prices on its existing devices to reflect higher memory chip costs but many analysts note that it wasn’t as much as feared. This has them worried about the impact to margins which could explain the slight weakness we saw in shares yesterday. Siri is also getting a brain with the promise of Siri AI launching with iOS27. Apple says Siri has been completely rebuilt to be more capable and personal.
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“Today’s ‘Surprise and Shine’ event felt different from past September product launch events…we believe this pace of innovation – as well as price point premiumization – is likely to materialize in multiple years of above-trend growth, making an ‘Apple AI’ bull case now more feasible.” — erik woodring, morgan stanley (overweight, $360 price target) |
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