Your Weekly Guide to Financial Insights and Market Trends
Vikki Zhao and Olena Li
PUBLISHED Mon, April 8, 2024, 14:30 PM EST. 6 min read.
The first quarter of 2024 saw the S&P 500 increase by 10%, starting the period just below its previous highs of 4800 before breaking out and maintaining a consistent upward trajectory. Despite initial expectations to the contrary—given that inflation outpaced predictions in January and February, anticipated Federal Reserve rate cuts were halved to three from six, and bond yields saw an upward trend—the market has performed remarkably well with minimal volatility. This unexpected surge can largely be attributed to the strength of the economy.
With the real GDP of US for 2023 closing at 2.5% year-over-year and projections for 2024 GDP growth revised up to 2.2%, the anticipated recession has not materialized. The market’s resilience seems to be rooted in optimistic views on inflation, a dovish Federal Reserve, and improved economic forecasts.
“Our analysis remains bullish on stocks, predicting additional growth in a scenario where the economy manages a soft landing, with a year-end target for the S&P 500 between 5145 and 5610, spurred by above-trend growth.”
———— Tony Yuan
However, the market’s smooth rise is expected to face challenges ahead. Numerous factors could potentially disturb the market’s current state, but we believe that the positive aspects—such as economic strength, an optimistic earnings outlook, a more favorable inflation trajectory, anticipated Fed rate cuts, reasonable valuations, and enthusiasm for artificial intelligence—surpass the negatives like overly bullish sentiment, the weakening of traditional economic indicators, possible missteps by the Fed, electoral uncertainties, and geopolitical tensions.
In light of these dynamics, we suggest embracing any market dips as opportunities, given the improving risk/reward profile.
This week’s economic focus is on inflation figures. The last week employment data shows the labor market has been a boon for job growth, contributing to economic expansion. The employment sector to stay robust, although any signs of weakness could alter the economic outlook. The recent Job Quits rate suggests potential for reduced employment expenses, contributing to lower inflation—a positive sign for the economy’s soft landing.
The upcoming CPI figures this week will be scrutinized, especially as the market has largely overlooked the unexpected inflation increases in January and February.
In terms of bond yields, the start of Q2 witnessed the 10-year Treasury yield climbing to 4.4% from 4.2%, marking the highest point year-to-date. We suggest observing the trend for about three days to confirm any breakout, noting that rising bond yields have generally been challenging for stock markets in recent years.
The first quarter’s earnings season is set to kick off at the end of this week. Key areas of interest include possible shifts in the technology sector’s leadership, consumer sentiment (with recent cautious outlooks from various firms), adjustments in the second half’s earnings forecasts, and market reactions to these developments.
On the technical front, the 20-day moving average has provided support since the lows in October, and recently tested at 5184. This level is crucial to monitor for any indications of slowing market momentum. The rally’s strength has created several support zones, such as the 50-day moving average at 5070, the previous highs at 4800, and the 200-day moving average at 4630.
GOOD NEWS
Good news for Dollarama shareholders: Dollarama (DOL.TO) raises dividend by almost 30% as profit and sales rise, now paying a quarterly dividend of 9.2 cents per share.
Good news for Samsung shareholders: Samsung (SSNLF.US) reported a 931.3% surge in Q1 operating profit, ending six consecutive quarters of decline, driven by a turnaround in its crucial semiconductor division and strong sales of the Galaxy S24 smartphone.
Good news for Nuvei Corporation shareholders: The Nuvei (TSX: NVEI and NVEI.U) is going private in a US$6.3 billion deal, four years after its record-breaking tech IPO, with each share valued at US$34.
Good news for Lightspeed Commerce Inc. shareholders: Lightspeed (TSE:LSPD) had a brief surge in stock value after the Montreal-based point-of-sale software maker announced a 5% increase following news of 280 employee layoffs, although the gains were later reversed.
BAD NEWS
Bad news for telecom shareholders: Following BMO Capital Markets’ downgrade, BCE hit a 10-year low at $44.74, while Rogers and Quebecor both dropped around three percent.
Bad news for Tesla shareholders: Tesla (NASDAQ: TSLA) released its first-quarter vehicle production and delivery report on Monday (April 1), showing significant weakness, leading to a sharp drop in stock price by about 5%. The company’s stock price has fallen by over 30% year-to-date. \
Bad news for INTC shareholders: Intel (NASDAQ:INTC) revealed a substantial loss in its chip manufacturing sector, causing pre-market shares to drop by 5% on April 3.
Bare Trust Exemption Sparks Taxpayer Concerns
The Canada Revenue Agency’s (CRA) recent decision to exempt bare trusts from reporting requirements has left taxpayers and professionals frustrated. Despite significant efforts to comply with new regulations, stakeholders were informed of the exemption just days before filing deadlines, leading to wasted resources and confusion.
This move, coupled with past instances of last-minute changes, underscores a lack of respect for taxpayers and their advisors. As regulatory uncertainty persists, there is a growing call for a more transparent and inclusive policy development process to restore trust in the taxation system.
“Taxpayers wasted money and tax professionals lost sleep only to be told the rules had changed.”
Kim Moody
Dozens of new Canadian ETFs launched in Q1, shrugging off an ‘outlier’ 2023
A surge in new Canadian ETFs launches in Q1 signals a return to normalcy after a record year of delistings in 2023, with 50 new funds introduced amid strong demand for money market and cash alternative products, reflecting shifting market dynamics and investor preferences.
Bank of Canada Survey: Recession Concerns Ease
The latest Bank of Canada survey indicates a shift in Canadian businesses’ sentiment, with fewer fearing a recession. Despite facing weak demand, optimism grows as firms anticipate interest rate cuts in the next year. Improved sales outlooks and market expansion efforts are driving this optimism. Business conditions are showing signs of improvement, and fewer firms are bracing for a recession. However, challenges remain in wage growth, pricing behavior, and investment plans. Overall, the survey reflects cautious optimism among Canadian businesses.
RBC Reopens Former HSBC Canada Branches
Royal Bank of Canada (RBC) has completed its acquisition of HSBC Canada, reopening branches under its own brand. Despite concerns about consumer choice, RBC proceeded with the takeover, closing the deal last week. The $13.5-billion acquisition makes HSBC Canada the seventh-largest bank in Canada, with RBC now serving approximately 780,000 clients and employing 4,500 staff. RBC’s CEO, Dave McKay, highlights the importance of the acquisition in connecting Canadian businesses and investors to global markets.
BCE hits 10-year low, Rogers dips after BMO sours on telecom outlook
BCE shares hit a decade low, while Rogers dips following a pessimistic outlook from BMO on the telecom sector. Analyst Tim Casey slashed Rogers’ price target to $65 and downgraded BCE and Quebecor Inc., citing growing competition and declining cable revenue. BCE fell 2.5% to $44.74, hitting its lowest level since October 2013, while Rogers and Quebecor both dropped about 3%. Casey expects tough competition to impact Rogers’ core sales and a price battle in Quebec to squeeze margins.
Indigo To Go Private After Agreeing to Sweetened Takeover Offer
Indigo Books & Music Inc. has agreed to go private after a sweetened offer from Trilogy Retail Holdings Inc. and Trilogy Investments LP, owned by Gerald Schwartz, for $2.50 per share in cash, up from $2.25 per share offered in February. The deal, subject to shareholder approval in May, reflects a 69% premium on Indigo’s share price when Trilogy first made its bid. If approved, the transaction is expected to close in June, with shares delisted from the Toronto Stock Exchange. Indigo’s board unanimously recommended accepting the offer, citing benefits for minority shareholders amidst business challenges, including a ransomware attack and board member departures.
Toronto Home Sales Down in March as Prices Climb Upward
Toronto home sales dip in March as prices climb; average selling price up 1.3% YoY to $1,121,615. TRREB reports 4.5% drop in GTA home sales compared to last year, with 6,560 homes sold in March. New listings down 3%, but up 15% YoY. TREB expects price growth to continue into spring, anticipating tighter market conditions if borrowing costs decrease later this year.
Canada’s Unemployment Rate Rises to 6.1% in March, Fueling Speculation of June Rate Cut
Canada’s unemployment rate rose to 6.1% in March, increasing bets for a rate cut in June. The uptick in unemployment was driven by a surge in the number of people searching for work or on temporary layoff, marking the largest monthly jump since August 2022 and the highest unemployment rate since January 2022, outside of the COVID-19 pandemic. Wage growth in March saw a slight increase, but there were declines in employment in the accommodation and food services, wholesale and retail trade, and professional, scientific, and technical services industries. However, employment rose in the healthcare and social assistance sectors, as well as in construction. Market expectations for a rate cut by the Bank of Canada in June have increased to close to 75%, up from 67% before the release of the data.
The US Releases Non-Farm Payroll Data
Data from the US Bureau of Labor Statistics shows that non-farm payrolls increased by 303,000 in March, surpassing the 12-month average of 231,000. Adjustments raised January and February’s combined payroll gains by 22,000. Following the release, the US 2-year/10-year Treasury yield curve inversion deepened to -31.7 basis points, and the swap market shifted Fed rate cut expectations from July to September. Investors’ outlook on the March non-farm payrolls report was optimistic, suggesting stronger economic growth or better-than-expected labor market performance. Recent remarks by Fed Chair Powell indicate the Fed’s reluctance to cut rates despite lingering inflation above target, with the unemployment rate remaining historically low.
Rubrik Announces IPO Plan
Cloud data management platform Rubrik announced its plans to go public on Monday, with the company intending to list on the New York Stock Exchange under the ticker symbol RBRK. For the fiscal year ending in January, Rubrik saw revenue growth of approximately 5%, reaching $627.9 million. However, its net loss widened from $277.7 million in the same period last year to $354.2 million. Earlier this year, Reddit (NYSE: RDDT) and Astera Labs (NASDAQ: ALAB) also made their debut on the U.S. stock market. This comes after a two-year lull in the IPO market. Following record-breaking IPO activity in the U.S. stock market in 2021, tech investments have dried up in both public and private markets due to surging inflation and rising interest rates.
UBS Repurchase Plan to Instill Confidence
Swiss banking giant UBS announced a new stock repurchase plan worth up to $2 billion on Tuesday, set to commence on Wednesday, showcasing confidence in the future. Prior to the announcement of the new buyback program, UBS had already repurchased shares worth nearly 1.2 billion Swiss francs ($1.32 billion). Earlier in 2022, UBS repurchased 298.5 million shares for $5.2 billion, equivalent to 8.6% of its total shares outstanding. This repurchase may aim to bolster market confidence in the company’s stock price, following UBS’s admission last week in its annual report of the risk of “significant errors” that UBS may not discover, potentially leading to material misstatements in UBS’s financial performance as reported in its financial statements.
Tesla sales fall short by biggest miss ever in brutal blow for EVs
Tesla’s first-quarter vehicle deliveries fell significantly short of expectations, marking the largest miss in seven years, causing shares to plunge and extending the S&P 500’s biggest rout. Despite attributing part of the decline to the transition to an upgraded version of the Model 3 sedan and shipping delays, Tesla still produced more cars than it delivered, raising concerns about demand.
Taiwan Earthquake Threatens TSMC Chip Production
On Wednesday (3rd), Taiwan was hit by a 7.5 magnitude earthquake, resulting in at least 4 deaths, potentially causing delays in production for the world’s largest chip contract manufacturer, Taiwan Semiconductor Manufacturing Company (NYSE: TSM). The company, which manufactures chips for giants like Apple (NASDAQ: AAPL), NVIDIA (NASDAQ: NVDA), and Qualcomm (NASDAQ: QCOM), may face production delays, leading to global supply chain bottlenecks. Pre-market on Wednesday, TSMC’s stock price fell by 1.4%.
Southwest Airlines Incident Spurs FAA Investigation into Boeing 737 Engine Failure
On Sunday(7th), the engine cowling of a Boeing 737-800 aircraft belonging to Southwest Airlines (NYSE: LUV) detached during takeoff from Denver, striking the wing flap. Fortunately, the flight safely returned to Denver International Airport and landed. The Federal Aviation Administration (FAA) announced an investigation into the incident, declaring a halt to MAX 9 flights for s5+everal weeks and prohibiting Boeing from increasing MAX production rates. Additionally, the FAA mandated the company to develop a comprehensive plan to address systemic quality control issues within 90 days. The Department of Justice also launched a criminal investigation into the matter. Moody’s Investors Service placed Boeing’s rating on a watchlist for possible downgrade at the end of last month. Boeing’s stock price has also fallen nearly 30% year-to-date.
Canadian House Resumes
The House of Commons resumes sitting this week ahead of the federal budget on April 16. The Liberal government has already made several budget-related housing announcements in recent days during a campaign-style tour across the country.
Canadian Energy Conference
Some of the biggest names in the Canadian energy industry are meeting in Toronto this week at the BMO Capital Markets CAPP Energy Symposium. The conference set for Tuesday and Wednesday comes as the price of oil trades at its highest level since October.
Canadian Rate Announcement
The Bank of Canada will make its interest rate announcement and release its monetary policy report on Wednesday. The central bank is expected by economists to keep its key interest rate target on hold at five per cent, but the report will be scrutinized for any signs about when it might begin cutting rates.
Canadian Home Sales
The Canadian Real Estate Association will release its March home sales figures on Friday as well as its updated forecast for the year. The housing market is being closely watched this spring as potential buyers wait to see what happens with mortgage rates this year.
U.S. Inflation Data
The United States is set to release the Consumer Price Index (CPI) for March and the meeting minutes from March on Wednesday (10th), with economists expecting the core inflation rate, excluding food and energy costs, to drop from 3.8% in February to 3.7%. On Thursday (11th), the U.S. will also release Producer Price Index (PPI) data.
European Interest Rate Meeting
The European Central Bank will hold an interest rate meeting on Thursday (11th), with markets widely anticipating the ECB to keep rates unchanged and start cutting rates in June. There is nearly a 100% market expectation for a 25-basis-point rate cut in June.
Chinese Economic Data
China is scheduled to release CPI, social financing, and other data on Thursday (11th), and import-export data on Friday (12th).
The First Quarter Earnings Season Kicks Off with Banking Giants JPMorgan Chase, Citigroup, and Wells Fargo Reporting on Friday, April 12th. Other Major Companies like Delta Air Lines and BlackRock are Also Releasing Quarterly Updates This Week.
The S&P 500 Index has Surged Over 9% Year-to-Date, Marking its Strongest First Quarter Performance Since 2019. However, Sustaining this Momentum in the Stock Market Might Require Companies to Deliver Robust Earnings Amid Increasing Expectations.
Simultaneously, Rising Yields Have Boosted the Appeal of Bonds, Diminishing Investor Incentives to Hold Stocks if Corporate Earnings Remain Subdued. Investors Also Need to Monitor Companies’ Views on the Economy and Inflation to Assess Current Economic Growth Trajectory and Whether Consumer Prices are Cooling Down.
