S&P 500 hot streak, Amazon & Apple disappoint, CN Rail keeps profit outlook, Fairfax beats, Aritzia posts strong growth
We aren’t religious but yesterday the kids were asking all kinds of questions about God. We did our best to answer, unsure of our own conviction on any of our responses. At one point I found myself saying “We are all God’s children.” Without missing a beat the eldest responds, “His wife must be very tired then.” Bless her.
In this special episode of In the Money with Amber Kanwar, we unpack what a Mark Carney-led Liberal minority means for Canadian investors — from markets and monetary policy to energy and geopolitical strategy. This episode features Frances Horodelski, Jim Thorne of Wellington-Altus, and Eric Nuttall of Ninepoint Energy Partners. You can watch here.
Eyes wide shut: If you didn’t look at the day to day moves, you might think that April was a real nothing burger of a month for stocks. Indeed, the TSX was down 0.6% for the month of April and the S&P 500 (which was down 12% at one point) exited the month with a loss of only 1%. The NASDAQ is flat for April. Flat! This morning futures look to add to the mid-April rally with the S&P 500 attempting a rally for the 9th session in a row. Hope that China is ready to come to the negotiating table with the US on trade is fueling the gains. We just got a read of job growth in America that was much stronger than expected (+177,000 new jobs added vs the expected +138,000 gain). Good news is good news for the markets with futures accelerating and bonds selling off after the print. Disappointing results from Apple and Amazon are not dampening the enthusiasm (more on the below).
China bites: Apple is under pressure after warning that tariffs will increase costs by $900 million while sales in China fell more than anticipated. The mix of rising costs and weaker sales is denting the stock this morning. Jefferies is downgrading the stock saying the tariff impact is going to expand over time and create more earnings downside. Apple unveiled a $100 billion buyback to support shares, however Angelo Zino at CFRA points out this is smaller than what was announced last year. Citi says investors shouldn’t be spooked by the quarter and it remains a buy here. “Apple’s fundamentals remain intact, and the company delivered decent results/guide in a tough tariff environment. Maintain Buy on valuation as stock screens defensive on (price to cash flow) and (return on invested capital) vs Mag 7,” wrote Citi’s Atif Malik. Amazon shares are flat right now as investors weigh better than expected sales and profit against a weaker than expected outlook. Tariffs are hanging over the company like a dark cloud. “Obviously none of us knows exactly where tariffs will settle or when,” said Amazon’s CEO Andy Jassy on the conference call. Normally, its cloud business can offset weakness in retail but here too the performance was…cloudy. Sales grew 17%, but that is the slowest in a year and contrasts with stronger performance from Microsoft.
All aboard: CN Rail is higher in the pre-market after beating profit expectations and more importantly maintaining its profit outlook for the year. This stands in contrast to CP Rail which cut its forecast this week. CN Rail’s CEO, Tracy Robinson, said the company has not yet seen significant impact of tariffs on their volumes so far but acknowledged there is uncertainty. Desjardin’s Benoit Poirier says its a surprise they are maintaining their profit outlook of 10-15% earnings growth considering a “stronger loonie, weaker economy, and incoming import air pocket.” He is not expecting earnings growth to come in as forecast, instead pegging growth for the year at 8.5%. It looks like most analysts aren’t convinced CN Rail will hit the high end of their profit forecast, but given the stock has been run over many are comfortable suggesting you can buy it here. “While we are moderating our estimates by 1% and lowering our target price to $168 (recognizes pullback in market valuation levels), we see the risk/reward as attractive with valuation trending currently at historical lows,” wrote BMO’s Fadi Chamoun.
Canada’s Berkshire: Watch shares of Fairfax at the open after it blew past profit expectations despite huge payouts associated with the California wildfires. Fairfax incurred $781 million of losses from the wildfires but still managed to show a big profit in its property and casualty insurance business with claims paid still less than premiums collected. “Better-than-expected underwriting profitability has become a recurring theme and once again, a key highlight,” wrote Scotia’s Phil Hardie. Shares of Fairfax have been an unrelenting star performer touching an all-time high yesterday.
Aritzia girl: Watch shares of Aritzia at the open after the retailer posted better than expected sales and profit. Sales grew 31% from last year while e-commerce surged 42%. This is against the backdrop of a stock that has dropped 30% from the January peak. Stifel calls the quarter a “blow-out” but notes that the forecasted margins are weaker than expected. This is because the company doesn’t plan to pass along the full increases from tariffs to the consumer and will instead absorb some of the increased cost. Their outlook also bakes in a significant slowdown, which may be conservative says Stifel’s Martin Landry. “Management anticipates a material deceleration in comparable sales as the year unfolds and expects Q4 comparable sales to be negative. While this is a potential scenario, there is also a likelihood that the company’s momentum continues into the summer and the fall,” says Landry.
