Cole Smead got Canadian energy right when few investors wanted anything to do with the sector. Now, after some of his biggest stock picks have delivered enormous returns, is there still money to be made? Cole was one of the top-performing stock pickers in our mid-year review, claiming both the number one and number three spots thanks in large part to his winning Canadian energy bets. Now, he returns to explain why he believes the Canadian oil trade is far from over, even after a massive rally.
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FROM AMBER’S DESK
Time change will soon be upon us – but not for those in northwestern Ontario. It was announced yesterday that the region won’t be “falling back” with the rest of us come November 1. Which means after that, Ontario will be split in two: one part that never changes clocks again and the other part who’s kids that think 6am is now 5am. On the bright side, maybe we will finally be on time for school.
Here are five things to know today
1.
Inflation heats up more than expected, stocks sell-off, bond yields spike
Inflation in the US re-accelerated to 3.7%, which was more than expected and the fastest pace of growth since May. Core inflation also rose more than expected, increasing 2.6%. Going into the print, the market had all but priced out the chance of a rate hike at the next Fed meeting which is on October 28th. Odds were sitting at just 24%, that has jumped to 34% after the print. With December now sporting 92% chance of a rate hike. It doesn’t help that oil prices are up for a fifth day in a row thanks to attacks on Saudi Arabia.
Later today, Anthropic will host an investor day ahead of its IPO. This could end up being a bigger catalyst for the market as investors await its revenue outlook. Steve Eisman warned on our podcast that if Anthropic falters, the whole AI trade could come tumbling down. The pain in tech has been building in the semiconductor sector, the index is down 7% in the last couple of days. This has been weighing on the S&P 500 because semis now make up 17% of the index. However, it hasn’t been a complete washout in AI. The Magnificent Seven Index hit another record high just yesterday.
2.
Bank of America drops 5.5% on weak trading
A combination of weaker trading revenue and a penalty for money laundering are dragging shares lower this morning. Bank of America’s profit declined and missed expectations as both equity trading and fixed income trading revenue were weaker than expected. It is the kind of trading slump we saw with peers like JPMorgan and Goldman Sachs.
The stock was weak ahead of earnings because the bank was fined $1.2 billion by US regulators for money laundering violations. For perspective, TD Bank was fined more than $3 billion across multiple regulators for its anti-money laundering lapses. The fine and earnings miss are piling on to an already depressed sentiment. Bank of America is down about 17% from the peak in August.
3.
Morgan Stanley flat on mixed quarter
Morgan Stanley was beset by the same troubles as peers in fixed income trading, but strength in equity trading and wealth management help to offset. The bank took in record inflows thanks to demand and interest for new IPOs. Helping to stem the disappointment in the fixed income division is the fact that equity trading and wealth management are much larger businesses for Morgan Stanley. Still, the bank hasn’t been spared from the sell-off in the sector. Shares are down 18% from the peak in July and hit a fresh 6-month low just yesterday.
4.
BlackRock +3.5% as earnings beat, inflows strong
Assets under management increased 15% from last year to a new high of $15.49 trillion. BlackRock saw a total of $205 billion in net inflows, $68 billion of which was raised for private market opportunities. Asset growth matters because the amount BlackRock charges to manage those assets is also increasing – by 11% this quarter.
Yet the world’s largest asset manager receives almost no love in the market which has soured on the group amidst private credit concerns. Shares have traded sideways for the past year and underperformed the S&P 500. If you want to quibble with the results, you could argue they were supported by performance fees which doubled from the previous quarter and are more reliant on the market remaining elevated. Glenn Schorr of Evercore isn’t fussed and sees 16% upside in the shares. “Entering a seasonally strong 4Q for ETFs, the set-up for (BlackRock) continuing on a path of strong organic growth, an improving (assets under management) profile and gaining profitability…,” he wrote in a note to clients.
5.
Fairfax buys Indian bank for $5.6 billion
The purchase of a stake IDBI Bank is the biggest foreign investment ever in the Indian financial service sector. The deal gives Fairfax 60% ownership in the bank. It represents progress on Prime Minister Narendra Modi’s priority to attract more foreign investment into the country by reducing state-owned enterprises. For Fairfax, the deal significantly increases its presence in India which is benefiting from a rising middle class. Fairfax has been on a tear recently, having just helped to finance the purchase of UK pharmacy chain Boots.
It is also occurring against a backdrop of thawing relations between Canada and India. The two countries are currently in the fifth round of trade negotiations and a deal could be signed by the end of the year when Prime Minister Modi visits Canada in December. I own Fairfax.
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