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Uncorrecting: It took the S&P 500 three months to slump by 10 per cent, but it is on course to erase those losses in just 2.5 weeks. Cooler U.S. inflation figures yesterday helped to fuel an “everything rally” that propped up stocks and bonds. Today, the rally continues as the baton gets passed to today’s economic data. Chinese retail sales and industrial production came in better than expected and U.K. inflation fell to a two-year low. Moments ago, we just got another read of activity in the U.S. that is a perfect Goldilocks situation for investors. U.S. retail sales didn’t fall as much as feared in October, the previous month’s strength was revised higher and a read of producer prices came in softer. The consumer is strong, while inflation is coming down. This porridge is just right.
Bullseye: Shares of Target are up more than 10 per cent in the pre-market after the retailer blew past profit expectations, even as sales continue to weaken. Sales fell nearly five per cent, which is the second straight quarterly decline and the second-worst slump since 2009. However, it wasn’t as bad as feared. In the face of a spending slowdown, Target has been working to reduce costs, reduce inventory and resist the urge to discount product. While the rally is impressive, keep in mind the stock is bouncing off the lowest level in three years and is down nearly 60 per cent from its pandemic peak. The CEO struck a cautious tone when it came to the outlook for the American consumer, something we will watch for when Walmart reports tomorrow.
No greedflation here: Loblaw reported quarterly results that beat profit and sales expectations on the back of strength in discount food sales and drug store sales (something my household can personally attest to this cold and flu season). The company is quick to point out that while food sales grew 4.5 per cent, this is less than the pace of Canada’s food inflation. They also point out their margins shrunk in part because they increased promotional activity. They also cite elevated “shrink” which can be a code word for increased theft. What they don’t point out is that revenue surged to a record high of $18.3 billion. I don’t think I’ve ever seen an earnings press release that celebrated undershooting industry price growth and highlighted promotional activity while not mentioning once that revenue was at a record. But with executives being hauled up to Parliament Hill, perhaps it is not the right environment to celebrate those wins. Metro also reported, missing profit expectations, but the company heralded its ability to get above $20 billion in sales for the first time.
Winter is coming: Shares of Birchcliff could come under pressure after earnings missed expectations, cash flows were below while costs were higher. The natural gas producer also increased its budget by nine per cent for the rest of the year. Scotia thinks the market reaction to this will be negative. However, National Bank sees this is as a prudent approach as the set up for 2024 looks better. We will put this all to CEO Jeff Tonken when he joins me this morning at 11:30 a.m. ET.
What the 13F: My favourite time of the quarter is 13F season. This is where money managers who manage over US$100 million must disclose their holdings 45 days after the quarter ended. So it’s backward-looking and probably not all that investible, but still fun to look at. Warren Buffett’s Berkshire Hathaway ditched shares of General Motors and Johnson & Johnson (both have performed poorly this year). Michael Burry, of “The Big Short” fame, closed out his short on the S&P 500 and is now short semiconductors including the mighty Nvidia. Interesting with that stock at an all-time high. On an aggregate basis, the stock with the single biggest increase in positioning was Uranium Energy. Uranium stocks have been the hot spot this year, with the uranium stocks among the best performers in the TSX Energy complex.