US markets closed, UK meltdown, Costco sales surge, CNQ budget
After 2.5 weeks of “vacation” with the kids in Florida, my mother mercifully took our kids for the weekend so my husband and I could have a real vacation. All of a sudden, our shoulders dropped a little lower, our voices were a little kinder, and I didn’t care how long he spent in the bathroom. It was weird. On Sunday evening when the kids returned, chaos ensued immediately. Within 5 minutes one child slipped a smashed her head (she’s fine), a mirror came crashing down to the floor (no one was injured), all while another child tugged on me to follow her to a dark closet so she could show off her glow-in-the-dark t-shirt. The kindness in our voices had evaporated into the screams all around us. But I’d lying if I didn’t admit there was a little part of me that thought, “Ah. Everything is back as it should be.” I think that is called love. Or Stockholm Syndrome.
Day of Mourning: The US stock market is closed in observance of former President James Earl Carter Jr. The US bond markets will close at 2pmET. These markets could certainly use a day off. Yields in the US may be edging a little lower right now but the recent rise has sparked concerns that these higher interest rates could be a meaningful headwind to stocks. Despite those concerns, US markets managed to finish flat yesterday. The TSX, on the other hand, had a stronger showing with tech, gold and financials powering the gains. But even though the index finished higher, there were more stocks that fell on the day than rallied. Not the healthiest sign. While today is quiet due to limited US trading, tomorrow will be busy with jobs data on both sides of the border. Aritzia reports after the bell today.
Across the pond: While yields have been rising in the US, it has been a lot more aggressive in the UK. The yields on a UK 10-year hit the highest level since the financial crisis. This means they surpassed the level from the mini-budget crisis of 2022 that forced Liz Truss out as Prime Minister. The British Pound has fallen to the lowest level vs the US dollar since November 2023. This is happening because of fears that the government will not be able to reign in spending and control the deficit. These fears are being compounded by the fact that the sell-off in yields means interest payments are going up. It’s a vicious cycle. British stocks, however, are having a great time. That market tends to do well when the currency is cheaper because many of them have international revenues.
Buying in bulk: Costco reported very strong sales growth for the month of December. Sales in the US surged nerarly 10% against the expectation for just 5% growth. While some of the strength came from a favourable calendar shift that pushed Black Friday sales in to December, analysts are noting the results are strong across the board. E-commerce sales surged 35.7%. “Market share gains, a shorter season, and a bit better consumer,” are helping to fuel Costco wrote JP Morgan’s Christopher Horvers. “(The results) shows underlying growth remains nearly 2x U.S. Retail Broadly, as its extreme value resonates with its core upper income member,” wrote Greg Melich of Evercore. And for all the concerns in Canada, Costco’s sales here were up 10.3% for the month. While shares of Coscto have pulled back recently, it continues to trade near all time highs and near nose-bleed valuations (50x forward earnings). However, as JP Morgan points out, very few retailers have executed as Costco has. “No other major retailer has succeeded in every country it entered,” wrote Horvers.
Budget season: Canadian Natural Resources put out its budget this morning which featured few surprises. It plans to boost production by 12% and capital spending by 13.5%. It is expecting better demand for Canadian crude in the US and international markets. Interesting, considering the political backdrop between Canada and the US right now that could put the energy sector in the crosshairs. However, most analyst notes this morning are not fretting over this war of words. “This budget underscores why we like CNQ,” wrote Menno Hulshof of TD Cowen, “Significant capital flexibility given best-in-class portfolio diversity and infrastructure dominance, with this dominance driving material cost structure advantages.” After hitting an all-time high in April, the stock has struggled to reclaim it. This has been due to a combination of volatile oil prices and a rotation into other names like Suncor. With recent rally in crude, oil producers are up 11% from the December low.
Pen is mightier: A group of UnitedHealth shareholders are pushing for changes to the health insurers business practices one month after the killing of the UnitedHealthcare CEO Brian Thompson. The group that is pushing for change is part of the Interfaith Center on Corporate Responsibility, which is an alliance of 300 institutional investors managing a combined $4 trillion in assets. They are calling for UnitedHealth to issue a report on the public health costs of delayed or denied access to treatment. These kind of issues have been weighing on investors with the stock down nearly 15% since the shooting.
