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It is the start of earnings season. Everything you need to know about the week ahead in my Globe & Mail column!
Here are five things to know today:
Crutch: Futures are down sharply as the markets are caught between trade tensions and the start of earnings season. On trade, markets had their worst day since April’s Liberation Day tariff tantrum Friday as China increased export controls on rare earths. This prompted US President Donald Trump to say there was “no point” in meeting China’s President Xi Jinping and warned of 100% tariffs on China starting November 1st. Then this morning China took aim at five American units of a South Korean shipping company. Negotiators from both countries are still talking and there could still be a meeting at the end of the month between the two leaders. We’ve seen this movie before but anxieties about the stock market being in a bubble could be creating an easy excuse for traders to sell. Earnings season kicks off today with JPMorgan, Citi, Wells Fargo, and Goldman Sachs all reporting (more below). Consensus expects 8% earnings growth in the third quarter from last year which would be a deceleration from the 11% growth we saw last quarter. “Economic growth, solid early reporters, positive guidance and FX support a broader profits recovery, but the latest tariff curveball poses risks going forward,” wrote Bank of America’s Savita Subramanian.
Bank on it: Investors are shrugging off JPMorgan’s profit beat this morning. Third quarter profit soared past estimates on the back of stronger trading and investment banking. CEO Jamie Dimon acknowledged there are some signs of softening in the US economy, but that it generally remained resilient. Still, the amount of provisions they took up for loans that could go bad was higher than expected and that is weighing on the stock. Wells Fargo is a standout this morning despite a mixed quarter. On the positive side: earnings beat expectations and the outlook for the next quarter was better than expected. On the negative side: much of the earnings beat was due to lower provisions for credit losses than expected ($641 million vs $1.1 billion expected) and net interest margins were weaker than expected. Positives are winning out this morning as the bank also lifted its return on tangible common equity (a measure of how effective a company is at generating profits for shareholders) now that it is no longer on punitive asset cap growth put in place seven years ago. Goldman Sachs, on the other hand, is falling 2% in the pre-market after equity sales and trading revenue fell short. Investors are really nitpicking here as overall revenue was a record for the quarter. A surge in investment banking was a big feature, soaring 43% from last year in what is likely to be a record year for M&A overall. Keep in mind Goldman was around a record before results and is up 37% so far this year. Citi is bringing up the rear with the stock modestly higher this morning. Sales were higher than expected driven by investment banking and fixed income, currency and commodity trading. It also boosted its forecast for sales and profit for the year which is helping the stock.
Double stuffed: Shares of Domino’s are rising in the pre-market after profit and sales beat expectations. Comparable same-store sales rose 5.2% vs the expected gain of 4.2%. The stock has been a disappointment trading at a 10-month low. That might be the reason it caught the eye of Warren Buffett. Berkshire is now the second largest shareholder revealing their stake at the end of 2024. The firm bought more in the first quarter of this year. Having said that, it is a small part of the Berkshire portfolio representing just 0.4% according to data from Bloomberg.
Please hold: Watch shares of BCE this morning after the telco outlined long-term financial targets that exceed current analyst estimates. BCE says it will grow sales 2-4% from 2025-2028 and hit revenue of $26.2-$27.8 billion, both figures are higher than current projections. The company says it can save about $1.5 billion over that period. The figures are being released ahead of their investor day today. The company says it will bring down debt and aim for “sustainable” dividend payout of 40-55% of free cash flow. Investors will likely want more detail around how the company will achieve that. Shares are little changed this year but down 20% over the past year and the company cut the dividend earlier this year. In a recent episode, dividend focused investor Laura Lau of Brompton Funds says it can take investors a very long time to forgive a company that has slashed their dividend.
That’s all she wrote: Strathcona dropped it’s hostile bid for MEG Energy on Friday in a surprise move. This comes after MEG Energy delayed a shareholder vote and accepted a sweetened offer from Cenovus. After the delayed vote, Cenovus acquired 8.5% of MEG shares. Strathcona’s CEO Adam Waterous said this created a “massively unlevel playing field” that prevented Strathcona from being able to win the game. Cenovus will be voting their shares in favour of their deal. “The MEG Board’s ability to continuously extend the Cenovus meeting date, and continuously allow Cenovus to purchase and vote additional shares” meant that Cenovus eventually will have enough shares to vote for itself to ensure it will meet the required 66 2/3% threshold,” wrote Waterous in an email. As for what this means for Strathcona, the company called a shareholder meeting to approve a special dividend of $10/share, which Waterous first revealed on our podcast back in July. National Bank expects some near-term pressure on Strathcona and is downgrading the stock. “Based on share price outperformance since our initiation this past June, an expanded valuation multiple (5.7x, up from 4.3x in June), higher debt levels, and a compressed FCF outlook, we are downgrading to Sector Perform from Outperform,” wrote National Bank’s Travis Wood.
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