Retail investors step up, Canada’s core inflation problem, Home Depot satisfies, D-Wave pops, Air Canada upgraded
It’s not even summer and already I can feel my parenting standards slipping. Yesterday I let all the kids get in the bath fully clothed. My eldest slept in jean shorts and a crop top. And I just finished telling my husband the middle child can have a lollipop on her way to school. It’s the kind of indulgent parenting that you know is wrong but feels so good. Sort of like buying stocks after a debt downgrade.
Market swings? Tariffs? Recession fears? Richard Fogler doesn’t flinch. In this episode of In the Money with Amber Kanwar, I sit down with the cool-headed CIO of Kingwest & Company to unpack his no-nonsense investing strategy: buy great businesses at a discount—and hold. He’s a stock picker’s stock picker. You can listen on Apple, Spotify or here.
Unbothered: While Canadians were off nursing and/or celebrating the crushing defeat of the Toronto Maple Leafs, US investors rushed to buy stocks after the country lost its final AAA credit rating with Moody’s downgrading after the market close on Friday. To be clear, it was retail investors who rushed to buy stocks and saved the S&P 500 from a nearly 1% decline on the day and pushed the index into the green for a sixth session in a row. “Individual investors purchased a net $4.1 billion in US stocks through 12:30 p.m. in New York, the largest level ever for that time of day — and broke the $4 billion threshold by noon for the first time ever,” says David Lutz of Jones Trading citing the JPMorgan trading desk. The retail crowd accounted for 36% of trading volume – the highest level in history. While so-called “smart money” continues to sit this one one, retail investors are happy to step in. It is a marked departure from the last credit rating downgrade in 2011 when the S&P 500 fell an ominous 6.66%. Even Jamie Dimon wasn’t able to quell enthusiasm for buying stocks with his comments that investors are exhibiting “extraordinary amount of complacency” when it comes to pricing in tariff risks. The bond market wasn’t as sanguine and is charging more interest for holding US debt which has been deemed a little riskier now. We will see how this affects the TSX which closed at a record high on Friday advancing for a 9th session in a row – matching the longest win streak since the beginning of the year.
Great inflation debate: Headline inflation in Canada cooled to 1.7% in the month of April on the elimination of the carbon tax making it the slowest pace of price increases since September. However, economists were looking for 1.6% print and core measures actually increased. The Canadian dollar rallied on the back of the print as the details weren’t as comforting as the headline deceleration suggest. Investors pared back bets of another rate cut. “Signs of renewed weakening in the economy on one hand, as shown by the latest employment data, but stronger core inflation on the other makes for a tough decision for the Bank of Canada at its early June meeting,” wrote CIBC’s Andrew Grantham.
Good enough: Shares of Home Depot are popping 2% as investors squint to see the good news. Sales actually got worse from the last quarter (falling 0.3%) while profit missed expectations. However, sales in the US were a little better than expected and the company maintained its outlook for the full year which calls for just under 3% total sales growth. That appears to be good enough for investors who have been bracing for profit warnings all earning season because of tariffs.
Quantum leap: Shares of D-Wave Quantum are surging in the pre-market after announcing a new quantum computing system. Quantum computing is the next holy grail in computing power, but large scale applications have been elusive. The incremental good news is squeezing shorts, with nearly 20% of the shares outstanding short. It is also taking the likes of Rigetti and Quantum Computing along for the ride. These stocks have been incredibly volatile but as you can see below if you can endure the volatility, you’ve been rewarded. Recall, our very first episode of In the Money with Amber Kanwar back in January was with Eric Jackson of EMJ Capital who was pounding the table on these names.
Notable call: Air Canada is got upgraded at Jefferies to hold. While not a buy rating, it does suggest the worst may be over for the embattled airline stock which is down 15% so far this year. The analyst says the company did well navigating the “macro noise echoing across the border.” The price target goes to $18/share from $12/share which is where the stock is right now. Her sell call wasn’t perfectly timed. She downgraded from hold to sell in the beginning of April. Since then, Air Canada shares have recovered nearly 30% from the low.
Questions about small caps? Email us! Questions@inthemoneypod.com
