Tech stocks have caught the brunt of recent selling pressure.Shannon Stapleton/Reuters
The Halloween countdown is officially on and so is the countdown to costume delivery. KPop Demon Hunters is a global sensation but apparently Amazon didn’t get the memo. All it can tell me is that my order will arrive before Halloween. This isn’t cutting it with the kiddos. Neither are my daily lectures on the global nature of trade and the intricacies of supply chain management.
Blow-off top: Markets sold off Friday as U.S. President Donald Trump reignited tariff anxieties by threatening new levies on China. Mr. Trump threatened a “massive increase” on Chinese products coming into the United States and this sent global markets tumbling. The Nasdaq and the TSX both had their worst session since the first tariff tantrum in April. This week, we get the merciful start of earnings season, which will give us a distraction from the lack of key economic data from Washington. If the U.S. government shutdown persists into this week, it is unlikely we will get a read of consumer inflation on Wednesday as expected. Apparently, the data are being collected but may not be released until the end of the month. Producer prices and retail sales for the U.S. are supposed to come out on Thursday, but again that is up in the air. Looking at available data points (the ISM manufacturing index, home prices, gas prices), Bank of Montreal’s Robert Kavcic said there are signs of continuing inflation stubbornness. However, he still expects a rate cut by the Federal Reserve later this month. “Despite the data void, pre-shutdown momentum and ongoing indications of labour market softness should push the Fed to cut rates again later this month,” he wrote in a note to clients. Fed chair Jerome Powell speaks on Tuesday and investors will be keen for his perspective on making decisions in a data vacuum. Canadian markets are closed Monday for Thanksgiving.
Bank on it: U.S. banks are set to kick off third-quarter earnings season on Tuesday. The sector has been under pressure in October, down nearly 7 per cent from the peak last month. JP Morgan, Wells Fargo, Citi and Goldman Sachs report on Tuesday. Bank of America and Morgan Stanley report on Wednesday. A handful of regional banks and financials including BlackRock and American Express also report. At a high level, the U.S. banks are expected to show cost discipline, strong net interest margins and robust capital-markets activity. There are question marks around loan growth for businesses as Liberation Day anxieties halted lending. Investors will want to get a sense of whether that is coming back. “We do believe, however, the commentary on loan growth for [the rest of the year] will be more positive than the commentary from [last quarter’s] earnings calls,” Royal Bank of Canada’s Gerard Cassidy wrote in a preview note to clients. “We remain positive on the bank stocks over the next 12-18 months, but uncertainty created by the Trump Administration’s economic policies could still weigh on this outlook.”
To the rescue: Tech stocks caught the brunt of the selling pressure last week. This week offers a chance at redemption with ASML reporting results on Wednesday. The Dutch semiconductor equipment maker has had a tremendous run. “After >30 per cent appreciation in ASML … over the past month, investors are asking, ‘Can shares rally further?’ While such a dramatic move understandably gives investors pause,” Citi’s Andrew Gardiner wrote, the stock remains below its highs, “a rarity for the AI and semiconductor food chain.” Mr. Gardiner added the stock to the bank’s Focus List, saying there is upside to long-term growth forecasts. He noted that this time last year, key customers such as Intel and Samsung were cancelling their wafer fabrication equipment orders, but this year has seen a resurgence in spending.
Time for a checkup: Health care stocks have been under pressure, but Abbott Laboratories and Johnson & Johnson JNJ-N have been outperformers. Both report this week: Johnson & Johnson on Tuesday, and Abbott on Wednesday. J&J may be less about earnings and more about deal flow. The Wall Street Journal reported it is in talks to buy Protagonist Therapeutics Inc., which focuses on peptide therapies for everything from psoriasis and ulcerative colitis to obesity. J&J already has an exclusive licence for some key drugs. Abbott is expected to show a 32-per-cent jump in profit in the quarter. UBS says it is one of the last “growth at a reasonable price” plays left.
All aboard: CSX Corp.’s CSX-Q quarterly results will likely focus less on the results themselves and more on the new chief executive and industry consolidation. The railroader surprised investors by abruptly changing its CEO at the end of September, installing outsider Steve Angel at the helm. “Many see the appointment of Mr. Angel as a precursor to another rail merger,” wrote Steven Hansen of Raymond James. This will be the first opportunity to hear from Mr. Angel as rumours swirl about possible tie-ups between CSX, CP Rail and BNSF. The deal between Union Pacific and Norfolk Southern sparked speculation about who else in the sector needs a dance partner.
In the Money with Amber Kanwar is Canada’s top investing podcast. New episodes out Tuesday and Thursday. Subscribe now! www.inthemoneypod.com