Futures lower, China data better, Nvidia event this week, what if BCE cut?
Jeez, I leave you for one week and everything went off the rails. The S&P 500 officially corrected, falling 10% from it’s all-time high. There was only one day last week without tariff announcements. Hudson’s Bay, which has has operated every week for the last 350 years chose last week to announce they would liquidate. Oh yeah, and we have a new Prime Minister.
If you are looking for a bit of optimism in your life, check out my interview with Jordan McNamee of the Optimist Fund.
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Lucky charms: Futures are tentatively higher this morning. Call it the luck of the Irish. Bespoke points out that stocks are positive on St Patrick’s Day 61% of the time. We will take anything at this point. Initially futures were lower when they opened Sunday night after US Treasury Secretary Scott Bessent called pullbacks “healthy”. While there was a big rally on Friday, the S&P 500, Nasdaq, and Russell 2000 all finished the week in the red for the fourth straight week. Sentiment is terrible. A survey of investors (AAII) showed bearish sentiment above 55% for the third straight week which has only occurred one other time – right before the March 2009 low according to Bespoke Investment Group. Maybe good if you are a contrarian. This morning we got a read of US retail sales which grew less than expected while the prior month’s decline was revised lower. The OECD lowered its growth prospects for 2025 citing uncertainty stemming from tariffs. This week we will get an interest rate decision from the Federal Reserve. While the Bank of Canada cut rates last week, inflation has not been on the side of Americans and the Federal Reserve is unlikely to cut interest rates at this meeting.
The journey of a thousand miles: News out of China is a source of some optimism this morning. Retail sales and industrial production were stronger than expected. In addition, authorities announced a special action plan to help stabilize the stock market and increase domestic consumption. Copper is higher hitting a 5-month high. Oil prices are also slightly higher this morning after falling for 8-weeks in a row, it’s longest losing streak since 2015. Tomorrow’s episode of In the Money with Amber Kanwar features Cole Smead of Smead Capital Management. He is an American investor who is buying Canadian energy stocks. He will tell us why on the show tomorrow.
Nvidia watch: Shares of Nvidia and quantum computing stocks are all higher in the pre-market ahead of the company’s GTC AI conference which begins today. Jensen Huang’s speech is scheduled for tomorrow while the company will also host a “quantum day” on Wednesday. Shares of Quantum Computing (+18%), D-Wave (+14%) and Rigetti (+3%) are higher in anticipation.
The first cut: Scotia’s Maher Yaghi is going through an intellectual exercise examining how to trade a potential dividend cut from BCE. “We have worked with our quant team to review a sample of 94 companies that have cut their dividends in order to better understand how to trade a dividend cut,” wrote Yaghi in a note to clients. They say it is best to “cut once and do it right.” To that end, BCE needs to cut its dividend by at least 50%, says Yaghi, to put it on a sustainable path. History shows that stock outperformance really begins 1-2 months post cut. “Cut the dividend, stop the DRIP, focus excess (free cash flow) on debt repayment and don’t waste capital on stock buybacks.” says Yaghi, “Those would be our recommendations to BCE to convince markets that the dividend cut will only occur once and to see real positive EPS consensus revisions.”
Trumped trade: Market pullbacks are healthy, but that is not the only thing that is happening to America’s stock market. Since Trump’s inauguration, US stocks have started to underperform global stocks (see chart below from Bespoke). This includes the Canadian market which is still down for 2025, but not down as much as US markets. The poster child for the Trump rally, Tesla, has also fallen victim to the unwind of the Trump trade. Shares of the company run by Trump’s bestie are around a 5-month low and have suffered losses 8 weeks in a row.
