The AI trade is getting tired, inflation isn’t going away, and some of the market’s biggest winners may no longer be the best places to invest. Is it time to get defensive? On this episode of In the Money with Amber Kanwar, top-performing stock picker Lyle Stein, President of Forvest Canada returns with a warning for investors: “This is a time to be more cautious than optimistic.”
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FROM AMBER’S DESK
My eldest is 9 today. She got a jump on the celebrations waking up at 5am. Those who have followed along for years know this is true to form – she starts her day ready to be shot out of a cannon. She’s our family engine – without her we’d just sit around on the couch all day. Every adventure we’ve had as a family is because of her – surfing, snorkeling, learning to remove a fish from the hook, rock climbing on weekends, Taylor Swift level performances every night – life is never dull when she is around.
Here are five things to know today
1.
Stocks mixed: tech higher, oil continues to slide, US midterms ahead
Oil prices plunged yesterday on hopes of peace between the US and Iran. This nicked our energy sector although the TSX manaager to finish the day higher thanks to a rally in financials, materials and real estate. Lower oil prices are calming inflation fears brining yields down and lifting gold prices which have struggled against a rising US Dollar.
Tech stocks are rallying despite weakness in Palantir and Apple (more on that below). Palantir is getting punished because its outlook suggests growth will decelerate from the previous quarter. Semiconductors are higher this morning which is supporting the Nasdaq.
Today Americans head to the polls to vote for the Senate and the House of Representatives. Betting markets have Democrats taking both chambers of Congress. How much will this stall the Trump agenda? That will be a key question in the coming days. But for the market I will end with this from Jim Reid at Deutche Bank: “The S&P 500 has been higher one year after the midterms for all 20 midterm votes since WWII.”
2.
Apple drops 3% on margin warning
The smartphone maker modestly tightened in its margin forecast and this is overshadowing a better than expected sales forecast for the holiday season. Apple says gross margins will be 45-46% next quarter – worse than the 47% expected. The erosion is because of higher memory chip prices and expenses related to Siri AI digital assistant. Still, sales will be robust with Apple projecting 7-10% growth for the holidays – better than the 6.1% expected. Keep in mind shares of Apple have outperformed as it largely sits out the AI spending frenzy.
Despite the headwinds in hardware, that part of the business was actually a bright spot thanks to a product refresh cycle. It is the services business that decelerated. “Services growth decelerating further is an issue,” wrote Erik Woodring of Morgan Stanley, “…Which should elevate concerns of possible AI disruption in key parts of Apple’s Services business.
The strength in hardware comes ahead of a new product cycle with the launch of Apple’s flip phone, Duo. “iPhone growth of 17% y/y before Duo volumes, a record installed base, and a revenue guide above the Street say the premium cycle is turning; the margin guide says memory is the cost of it, and we would rather own the cycle than fade the margin,” wrote Dan Ives of Yorkville Ives.
3.
Shopify drops 15% pre-market on sales miss
The e-commerce platform continues to be one of the most volatile stocks on earnings day. Today’s disappointment stems from revenue growth missing expectations for the first time since 2022 and lighter than expected profit forecast for the next quarter. To be clear, growth was robust at 32% but 16 basis points shy of expectations. When you trade at 80x earnings, basis points can matter.
“Shopify delivered a more mixed Q3 with a smaller-than-typical top-line beat in 3Q as gross merchandise volume came in slightly below expectations but with solid profitability beat,” wrote Tyler Radke at Citi.
4.
Pfizer flat despite raised forecast
The stock has been on a tear recently hitting the highest level since July 2024 – so the bar was high. Having said that the stock remains down 50% from its Covid-era peak. Profit beat expectations this quarter by 20% thanks to stronger than expected sales across most drug categories except for its pneumococcal vaccine suite. New products are also helping to offset a continued slide in its covid vaccines and while it remains a smaller part of their business it is one of the key reasons they increased their forecast.
Healthcare stocks have caught a bid recently as investors hunt for alternatives to the AI trade. We will talk about opportunities here in our next episode!
5.
Thomson Reuters quarterly results create confusion
Investors trying to figure out if AI is disrupting or boosting Thomson Reuter’s business were met with a confusing set of results. Technically revenue and profit beat expectations following the majority sale of its printing business. However, it looks like the beat was aided by licensing content from Reuters to AI companies. This feels like something Investor Relations dropped the ball on – most analyst commentary is struggling to understand how recurring this revenue is going to be.
Furthermore, the outlook for the next quarter looks a little soft according to TD’s Vince Valentini. While its legal and corporate business were better than expected, tax was a little weaker. Shares have lifted in the last several months, but remain down 43% from the peak last year. Lyle Stein has been buying at these levels saying he believes the stock has bottomed. Tune in to find out more!
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