Well folks, we hope the first half of the week treated you well as the US posted mixed economic updates - the spotlight has shifted over to the Canadian landscape with CPI falling to 7.6% for the twelve-month period ending in July. That said, another jumbo rate hike is still on the table so read on for your daily dose of market inspiration as market volatility is likely to present itself once again.
“Because a thing seems difficult for you, do not think it impossible for anyone to accomplish.”
- Marcus Aurelius
The market continued moving forward yesterday, albeit with a slim gain of just 16bps - volatility heightened in the first half of trading and then hit a four-and-a-half-month low of 19.41! This comes as the US reported some very negative figures on both the housing and business data sides of the equation, with a key tell for the economy being that mortgage demand has slumped to a 22-year low as applications for new mortgages decreased 2.3% on the week previous; this is highly interesting as the fixed 30-year mortgage rate has fallen to a 2-month low of 5.5%, indicating that there is actually a real fall in the demand for housing.
Panning to Canadian markets, while inflation was lower than expected and continues to be better than the figures reported in the US and much of the EU, the BOC’s governor Tiff Macklem is still quite Hawkish and likely to hit the market with another 50bp+ rate hike. That said, the TSX60 has also continued its bull run, adding 74bps in the first half of the week, bringing the index to 1221 points. FOMC minutes from July’s meeting show that governors are still on board with additional rate hikes to stamp out inflation, while they have also laid out plans to double the pace of the balance sheet tapering in September. This comes as many, including Dr. Micheal Burry, suspect that the Fed hasn’t lived up to its promises regarding the selling of assets. What concerns Burry the most is the increase in mortgage-backed securities that the Fed has on its balance sheet. Through all of this, the market is posturing for another up-date with the Dow, S&P and Nasdaq all up 11, 17 & 21 bps respectively.
Short: Deere & Company ($DE-NYSE) | Timeline: 2 days
Farmers have been faced with higher than normal input costs in areas such as fertilizer, feed, and gasoline, as a result, it’s unlikely that they had the disposable income to purchase top-of-the-line equipment the likes that Deere & Co offers. Analyst expectations place the company's EPS at $6.65, with expected revenues reaching $12.927Bn. This represents a 2.4% decrease from Q2’s reported EPS while representing an expected increase in revenue of 7.4% relative to Q2. Although the company has found support at $360 throughout the past few trading sessions, we expect earnings to be a catalyst for a gap down. There is plenty of room for the company to fall as the next line of support rests at $324.83. We also expect the company to slash guidance for the remainder of the year, and potentially into 2023.
Short: Bed Bath and Beyond Inc($BBBY-NASDAQ) | Timeline: 2 days
After a recent exponential climb upwards throughout the past 10 trading sessions, a cataclysmic filing from Gamestop’s own Ryan Cohen will likely pull the legs out from under the bulls on this trade. After heralding the return of Bed Bath and Beyond, and promising to hold his stake and call options until they were in the $80-$90 range, rallying the market behind him in the process, Ryan Cohen made some truly believe in the company, or at least the trade. However, that all changed earlier this week when Ryan Cohen’s holding company, RC Ventures, filed a Form 144 showing the company’s intent to sell it’s entire stake of 9.45M shares. Keep in mind, that the total shares that BBBY has outstanding is only 75M. This kneecap to retail traders has sent the stock plummeting in the premarket, however, we believe that there is still far more room for the company to fall before it returns to average trading prices.
Chart of the Day - Five Year Returns Following Black Swan Events