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The Coachman's Report - Inflation Day

Well, here we are…Inflation Day! At 8:30 AM, we’ll know by what number the consumer price index increased, or, however far less likely, decreased within the month of April. With a rate hike of 50bps last week and the dawning realization that more are on the horizon, just maybe the gradual increase of prices has slowed down and the market will be given a chance to rejoice as monetary policy will finally have proven effective in easing inflation pressures across the board; regardless, volatility has held with the vix oscillating around the mid 30s keeping markets choppy for all involved, keep reading for an update on the market and trade ideas for safe passage across these harbours.


“If it is not right do not do it; if it is not true do not say it.”

- Marcus Aurelius


Market Talk

In short, the market was a roller-coaster yesterday, and it will likely continue to be until more unknowns reveal themselves within the shifting macroeconomic environment. With trading starting off bloody and then retracing higher levels in the afternoon, the market seems to be at a crossroads with the Q1 reporting season coming to an end and no longer acting as a catalyst for equity prices while the inflation print looms over everyone’s head. That said, in times like these, with geopolitical and economic risks afoot, it’s important to shift strategies towards ones that favour value. In the chart of the day farther below, we see how tech and energy stocks are at a crossover point regarding their returns since 2019. This draws attention to how the strategies employed in the 20-year bull market of the 2000s may have been outgrown in the 2020s, what do the numbers say? Tell us what you see below and whether you think fund managers should rotate back to valuation strategies or stay the course with growth names - as always if you email us back here we’ll do our best to respond within 1 business day!


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Long: Cenovus Energy Inc ($CVE-NYSE) | Timeline: 1-7days

Cenovus has a diversified portfolio of profitable assets that include refining and production operations across the US and Canada. Its largest customers are in Canada, the US, China, and Indonesia. Cenovus has an ability to not be affected by short-term swings in the prices of Brent Crude, as Cenovus produces many of its derivatives including oil, natural gas, diesel, and asphalt among others. Furthermore, on April 27th, the company announced that it would triple the base dividend in Q2 of 2022. This is in addition to the agreement made with shareholders that when debt is below $9bn, Cenovus will attempt to return half of its quarterly free funds flow back to investors, through variable dividends and share buybacks once the debt is reduced past $4bn (Source).

With the expected CPI report released later today expected to show that the US has passed peak inflation, the related expectation of increased consumer demand could send oil prices even higher. Although, it should be considered that if the inflation report is an upset it could turn south extremely quickly. In terms of technicals, during Tuesday’s trading session Cenovus bounced off of its 20-day moving average with strong upward buying pressure while trading far above its 50, and 200-day moving averages after a stellar quarter, and year.


Long: Sysco Corporation (NYY:NYSE) | Timeline: 3-5 days

Sysco Corporation (NYY), who engages in selling, marketing, and distribution of food products to restaurants, healthcare and educational facilities, and lodging establishments, reported earnings yesterday. The company stated demand for food away from home was "robust" in February and March as they snapped back from the impact of Omicron. True to their word, the foodservice distributor reported revenue of $16.9 billion and earnings of $0.71, beating forecasts by 28.33% and 5.67% respectively.

Taking a look at technicals, the share price has rebounded about 6% after a month-long beat down that sent both the RSI and MACD into extremely overbought levels. However, with this earnings report, it’s likely SYY will repeat this trend cycle once again as investors become more and more confident in the company.


Chart of the Day: Tech FAANG vs. Energy FAANG

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