Canada just slipped into a technical recession, stocks are sitting at record highs— and one renowned $22 billion firm is leaning in, not backing away. On this episode of In the Money with Amber Kanwar, Alex Letko, Portfolio Manager at LetkoBrosseau, explains why he remains bullish on Canada despite growing skepticism. While headlines point to slowing GDP, he argues the underlying economy is more resilient than it feels—supported by real wage growth and steady consumer spending. He also tackles a debate in the market right now: Canadian banks trading at record highs and premium valuations. Rather than calling it a bubble, he makes the case that strong earnings, oligopolistic structure, and potential pension fund inflows could continue to support the group.
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24hrs in Montreal and I didn’t even get a bagel. But the Sohn Conference where I was the MC raised $1.4 million for children’s health!
Here are five things to know today
June swoon: Stocks are in the red this morning and if the losses hold the S&P 500 could break its 9-week win streak. We got a read of US payrolls that showed 172,000 jobs were created, well above the 88,000 expected. The previous month was also revised higher. That isn’t doing much to save the mood of the equity markets which is pricing in higher odds of a rate hike. But perhaps the bigger factor driving markets right now is the fact the S&P 500 index lords said they wouldn’t make any fast entry exceptions for SpaceX. This means it won’t be included within the index on an accelerated basis. It’s a hit to the IPO because billions in passive funds will not be automatic buyers when it debuts in 7 days. The NASDAQ and FTSE Russell index makers, however, will waive their typical requirement for length of time as a public company and free float of shares to allow fast entry into their respective indices. Tech stocks are under pressure following the decision. Maybe a pullback is healthy because according to Citi strategists, the market is flashing the biggest warning sign since the Great Financial Crisis. Their “Bear Market Checklist” now raises 10 out of 18 red flags, which is the highest since 2008. Having said that, it not as extreme as prior periods including 2000 and pre-2008. Indicators flashing red include things like valuation, equity risk premium, capex growth and above average EPS growth. “Overall, although the number of red flags is increasing, the BMC does not yet indicate a state of pronounced overexuberance,” wrote Citi’s global equity strategist Beata Manthey.
Oh Canada! The Canadian job market stunned in May adding 87,800 new jobs – higher than the 10,000 expected and better than every economist forecast. As an added bonus, the unemployment rate fell to 6.6% from 6.9%. While the prints are volatile, it suggests a recovery after a slow start to the year and weak economic performance. Before you ask, yes there was growth in public sector jobs (+20,400) but the growth in the private sector was more than double (+56,000). “The six-month average for employment is still slightly negative (-2K) and the unemployment rate is still a touch higher than the recent low recorded in January,” wrote CIBC’s Andrew Grantham, “For the Bank of Canada, today’s release shouldn’t change the current on-hold stance, even with the large headline beat.”
Downward dog: Lululemon is plunging 11% to an 8-year low after cutting its sales and profit forecasts for the year following lower than expected sales this quarter. Not exactly rolling out the red carpet for incoming CEO Heidi O’Neill who starts in September. There were some bright spots, particularly in China where sales jumped 23%. However, that was slightly less than expected. It also wasn’t enough to offset headwinds from the US (sales fell 6%) which contributed to total comps falling 2%. Lululemon said they saw a spike in negative comments in the media and on social channels on some disappointing product launches (another sheer pants fiasco) which contributed to weaker sales. “At the after-hours price of $111, LULU appears inexpensive at 9x (2027 earnings),” wrote Rick Patel of Raymond James, “But this assumes a stabilization/rebound takes hold next year. We don’t have high confidence on the timing of that outcome yet, and we accordingly remain on the sidelines.”
Ringing the register: Goldman Sachs is downgrading Suncor on valuation. While that analyst maintains a positive outlook on the company they see less relative upside after a “successful operational turnaround.” Shares of Suncor are up 133% on a total return basis since Rich Kruger became CEO – outperforming the 90% rallying in the TSX and TSX oil producers over that time.
Sign here: Docusign is plunging 5% after quarterly results as its forecast underwhelmed investors. Investors have put the document signing platform in the SaaSpocalypse bucket and the latest set of results didn’t do much to quash those fears. They are working on their own intelligent agreement management platform but it remains a “wait-and-see” story according to RBC’s Rishi Jaluria. Sales and profit beat expectations and the company actually boosted its forecast. Nevertheless, not enough for skittish investors.
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