School is out for the summer and I’ve been seeing memes for parents encouraging us to soak up every precious moment because “you only get 18 summers with your children.” The guilt trip is real. Instead of piling on and telling you to savour every “I’m bored!” and “Why do I have to go to bed if the sun is still out?” I’ll hit you with some math. Eighteen summers is more than 1,100 days. So don’t feel bad if you need to spend a few of those hiding in a dark closet eating snacks meant for your kids.
Here are five things to know this week:
Homework: We will begin a new trading month with some breaks. Canadian markets will close for Canada Day Wednesday and U.S. markets will be off Friday for Independence Day. Even though it is summer, you might want to do some homework on changes that are taking place in the market. There is a lot for sale in the market right now. Gold is at a seven-month low and oil is down 40 per cent from the post-war peak. Tech is also full of basket cases. Apple AAPL-Q is down 8 per cent this month, Microsoft MSFT-Q touched a three-year low last week, and Meta META-Q has fallen 16 per cent this year and is trading at 17x forward earnings. There are reasons, investors selling the big spenders and buying the beneficiaries of spending like semiconductors. But there is always a rationale for a sell off. Meanwhile, you know what sector finally came back to life in June? Health care got off life support after its stocks sold off hard following the war. Yet health care touched a record high last week in a broad rally, including everything from biotech to insurers and med tech. Time to sharpen your pencils.
Data dump: Even with a slimmer workweek, we can’t evade two major data points. On Tuesday, we will get a read of Canada’s GDP in April, which is expected to show a rebound from a dismal first quarter that put the country into a “technical” recession. And on Thursday, the U.S. jobs report will be released. Right now, consensus is looking for 113,000 new jobs south of the border and for unemployment to be steady at 4.3 per cent. If job growth surprises to the upside, look for a “good news is bad news” reaction in the market, after the recent rate decision by the Federal Reserve showed that a rate hike was on the table. Not everyone agrees. Veronica Clark, a New York-based economist at Citi, is out with a street-low call of just 25,000 jobs for the month of June. She notes that jobless claims have been increasing over the last few weeks and job postings on Indeed.com have been falling. Right now the market is pricing in higher odds of a rate hike than a cut, which could be challenged if unemployment starts to rise. “This would be a more important sign that the labour market remains fragile,” she wrote in a note.
Just get on with it: Is Nike NKE-N ever going to “just do it” when it comes to the turnaround? Long suffering shareholders want to know! Hope is fading fast with the stock hitting an 11-year low last week. Is the bar low enough? Not according to two analysts who downgraded the stock last week ahead of the company’s earnings on Tuesday. Both Evercore and Keybanc threw in the towel on their buy ratings. “We believe the turnaround efforts are taking longer to materialize than expected,” Ashley Owens, KeyBanc vice president, wrote. She says that sales uncertainty in China and yet another management transition (a new CFO starts in August) are clouding the outlook. Both sales and profit are expected to be down year over year.
Soggy cereal: General Mills GIS-N has been another dog in the portfolio, down 22 per cent so far this year. Misery loves company and it seems like all packaged food companies are in the doldrums, including Kraft Heinz Company KHC-Q, Conagra Brands, Inc. CAG-N, the Campbell’s Company CPB-N and PepsiCo, Inc. PEP-Q Changing consumer preferences, higher input costs and lower pricing power have all conspired against the sector. And the popularity of Ozempic has probably weighed on it too. The owner of brands like Haagen-Dazs, Natural Valley and Cheerios is trading at 10x earnings with a 6.7 per cent dividend yield and last week perked up to a two-month high. Don’t let that lure you in, UBS warned in a note. “Although valuation screens as attractive on both an absolute and relative basis, we do not see valuation alone as a meaningful catalyst for many names across our Packaged Food coverage, and without greater visibility into improving demand trends,” Peter Grom, equity research analyst with UBS, wrote in a note. He warns that the outlook for 2027 could disappoint as well.
Working on your birthday: Canadian officials will be celebrating our nation’s founding 159 years ago by trying to secure the next 16 years. USMCA expires on July 1 and Canadian, U.S. and Mexican officials will be meeting virtually to officially begin the review process. Canada and Mexico have both expressed the desire for a 16-year renewal. The U.S., in what has become a routine fashion, has said they could just walk away. And so the art of the deal begins. “We’re not expecting any big news on that front yet, but even a small step forward could provide some relief for a loonie testing the 70-cent level,” BMO chief economist Doug Porter wrote in a note.
In the Money with Amber Kanwar is Canada’s top investing podcast. New episodes out Tuesday and Thursday. Subscribe at www.inthemoneypod.com