Decision day: Futures are flat after the S&P 500 hot streak came to an end yesterday. The TSX, on the other hand, managed to put in a strong showing finishing at a record high. Today is loaded with catalysts: Bank of Canada rate decision at 9:45am, Federal Reserve rate decision at 2pm, Meta & Microsoft report earnings after the bell. Eyes will be on the Federal Reserve and whether they pave the way for a September rate cut to appease two potential dissenters and, of course, the man in the White House. We just got a read of second quarter GDP that showed a strong rebound in economic activity in the second quarter. US GDP advanced 3% after a falling 0.5% in the first quarter. The growth also came with higher inflation. However, consumption was a little lighter at 1.4% vs 1.5% expected. It is the second worst growth in consumption in two years (the first was last quarter). Outside of economic data, watch for the pricing of the Figma IPO which is said to be 40x oversubscribed. Figma is an online tool that allows teams to collaborate on a design and has many AI-driven automation features. If you need a vibe check: strong economic growth, all-time highs for stocks, hot IPOs, and record M&A. Is this a market in desperate need of a rate cut?
Venti: Starbucks is popping despite weaker than expected profit and sales. When a turnaround stock does well on bad news, I pay attention. Starbucks posted a 2% drop in total sales but investors are taking comfort in the fact that US sales weren’t as bad as feared (-2% vs expected -2.5%) and Chinese sales were a bit better (+2% vs expected +1.44%). Margins were a disaster in the quarter with operating margins down 6.6% from las year. And yet, the stock is up. “We can see why bulls come away with the narrative post quarter given,” wrote Citi’s Jon Tower. He says there are enough “nuggets” of top line growth to offset concerns but isn’t ready to recommend the stock just yet noting there are risks to their transition especially when it comes to weaning customers off promotions.
Charge it: Visa is getting a different treatment this morning: results better than expected but the stock is down. It seems like investors continue to look for reasons to sell the stock vs add here. First was the stablecoin scare a few weeks ago. Now a 5% profit beat isn’t enough and there is disappointment the company didn’t increase their full-year forecast. “Investors are left wanting more after the beat did not lead to a FY25 increase to guidance and calls for a F4Q25 revenue deceleration,” wrote RBC’s Daniel Perlin. “We view the selling as overdone, particularly as the primary difference between F3Q25 and F4Q25 is due more muted currency volatility and the y/y growth rate faces tough comps for (value-added services) due to lapping the Olympics.”
In play: Dye & Durham could pop at the open after announcing a strategic review this morning that may include the sale of the company. The legal software company has been locked in a battle with its founder Matt Proud who has been pounding the table that the company should explore a sale given the weak stock performance. The strategic review is a win for Proud especially because Dye & Durham will also be putting one of his recommended directors, David Danzinger, on the board. Cormark upgraded the stock to speculative buy with a $17/share price target implying 88% upside from here.
Steel yourself: Shares of Algoma Steel are plunging after suspending its dividend on the back of a significantly higher quarterly loss than expected. Algoma is in the eye of the storm when it comes to steel tariffs after the US imposed 50% tariffs on steel coming from Canada. Algoma hasn’t been able to pass those price increases on to the customer saying it is “not feasible” to pass them on in most cases. Tariffs have cost them a total of nearly $75 million so far this year. Suspending the dividend only saves them about $5 million.
