A.I. Drives NVidia Stock Higher - Your Money February 24th 2023

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We don’t want to say blind sided because we have been getting preliminary inflation through the month indicating inflation still needs some taming, but we find it remarkable to the degree to which Wall and Bay Street reacted to the data this week as if it were coming right out of left field. And in fairness we did not have any major dips, but it cumulated in a 1000-point drop on the DOW. Furthermore, Fed Chair Powell and most of the other Federal Reserve Presidents have continued to argue for higher interest rates until inflation gets back down to 2%. We don’t need to remind you we think this is an arbitrary number set by central bankers post the 2008 Financial Crisis. Realistically, corporations can handle higher levels of interest rates and higher levels of inflation if they are stable. Drastic moves tend to upset the economic apple cart.

And enough with the bad news. Yes, the interest rate sensitives got clipped like utilities, real estate and telecom (anything with a long-term stable dividend) but that is somewhat to be expected when the 10-year bond yield heads to 4%. On the plus side energy stocks rebounded along with several material stocks, and healthcare in the US and in Canada, thanks to some earnings beats (especially CIBC) our subsectors mostly tracked their US counterparts. So energy climbed higher plus, Consumer Staples nearly broke even (George Weston up 2.4% this week and Maple Leaf Foods jumped nearly 4%) and when you throw in a smattering of gold stocks, Stantec, Gilden Activewear, Nutrien and Onex and voila, the TSX only dropped 296 points this week (we have to assume my fat fingers didn’t hit the wrong keys on the old calculator) which is not bad in this emotionally charged atmosphere.

Furthermore, we got solid earnings beat from CIBC, although when you drill down through the numbers, rising trading revenues more than offset the 14% drop in personal and corporate banking revenue. And of course, commercial banking and wealth management saw a net increase in net income. Bottom line we expect better numbers starting on Tuesday when the other six banks start reporting. We like banks when dividend yields hit 5% or better. That is not to say their stock prices can drift lower resulting in a 6% or possibly 7% yield but when that happens, consider mortgaging your children or spouse to buy more stock. Historically you will be well rewarded.

Having said that, it is a light week on the economic front aside from the jobs data on Friday, there should not be anything that could upset the apple cart. Note we are not expecting any surprises from the monthly manufacturing data (it will likely be negative again) and we should see yet another slight bump in consumer confidence but neither of which should create panic in the markets. The more dangerous activities will likely come from a handful of Reserve Bank officials who might provide speculative comments ahead of the next rate decision on March 22nd.

In addition, its confessions week for the retailers with announcement from Costco, Dollar tree, Target, and Best Buy. Plus, if you are into that sort of stuff, Salesforce.com. Remember they are still suffering some effects from unforeseen management changes over the last quarter. We cannot speak highly enough about their products, but that does not always translate into higher stock prices. And if that is not enough, Tesla will hold an “investor day” on Wednesday which usually entails new products, production goals and goodies.

Speaking of goodies, (and as a carnivore  we use the term lightly) Beyond Meat came out with a surprise beat sending the stock higher, ( again they did not actually turn a profit but they are attacking their cost structure like a Texan at an all you can eat rib fest resulting in a 10% price bump ) but it was more than offset by a decline in Boeing Stock following the announcement to curtail production of their Dreamliner planes.

In Canada, Stats Can will give us the GDP numbers for December and for the year, (the rumour is 1.5% for 2022) plus the latest manufacturing stats which hopefully ticked higher given stronger energy prices.

All told, we will be glad to put February behind us and look forward to March

Happy trading and stay safe.

Steve Bokor and the Ocean Wealth Team.

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Steve Bokor

Steve Bokor

Portfolio Manager