The market dealing with a blessing and a curse. "The economy is not sending any signals that we need to be in a hurry to lower rates." That was the line from Fed Chair Powell this week that caught the market's attention. The blessing is that the economy is doing well. That is good for employment; that is good for consumer spending; and it is good for corporate profit prospects. The curse is that the stock market, which feeds on the mania of lower interest rates, recognizes an economy doing well means the Fed isn't likely to cut the target range for the fed funds rate as much as previously thought. The latter connection was an added weight on the market, which was already sagging on further consolidation activity in the wake of the post-election rally and further angst that sticky inflation will keep the Fed from cutting rates as much as previously thought. The difference is that the Fed chair paid some lip service to that particular idea in more direct terms than he did at the press conference following last week's FOMC meeting. Hence, the market is taking back some of the rate cut premiums embedded in stock prices. The 10-yr note yield faces stiff overhead resistance at 4.48% (the November 6 post-election high). There has been chatter that long-term rates are rising on account of inflation worries, which some participants felt would be inflamed if the Fed keeps cutting rates at this juncture. With the signaling from Fed Chair Powell that the Fed doesn't need to be in a hurry to lower rates, he might have surreptitiously quelled some of that inflation angst. If so, the 10-yr note yield would have some room to back away from the 4.50% level, which could end up being a good thing for stocks. For now, there is still tension on the interest rate line because the economy continues to walk a no landing line. For now, I continue to consider the "Buy the Election, Sell the Inauguration" playbook to be a possible play.

Should you have any questions or concerns, please feel free to reach out.

Portfolio Notes

(+) indicates a positive development, (-) indicates negative, and (~) indicates neutral

(+) Alibaba (BABA-US) beat profit expectations in its September quarter, citing an acceleration in growth in its cloud business unit. Net income came in 43.9 billion Chinese yuan ($6.07 billion). Revenue reached 236.5 billion yuan ($32.72 billion). The company’s New York-listed shares have gained ground this year to date, up almost 17%. The results come at a tricky time for Chinese commerce businesses, given a tepid retail environment that reflects broader sluggishness in the world’s second-largest economy. Markets are now watching whether a slew of recent stimulus measures from Beijing, including a five-year 1.4-trillion-yuan package announced last week, will help resuscitate the country’s growth and curtail a long-lived real estate market slump. The impact on the retail space looks promising so far, with sales rising by a better-than-expected 4.8% year-on-year in October, while China’s recent Singles’ Day shopping holiday regained some of its luster. Alibaba touted “robust growth” in gross merchandise volume for its Taobao and Tmall Group businesses during the festival, along with a “record number of active buyers.” Owned in Core, ESG+ and Opportunity Portfolios.

(+) Alimentation Couche-Tard (ATD-T) Japan's Seven & i Holdings has received a buyout proposal from a member of its founding Ito family, it said, a potential $58 billion white-knight bid as it weighs a rival offer from Canada's Alimentation Couche-Tard. The offer for Ito-Kogyo, a company linked to Vice President Junro Ito and a top shareholder in 7-Eleven owner, is non-binding and under review by the same special committee set up to assess Couche-Tard's takeover bid. Separately, the Financial Times reported that "preliminary and limited" talks between Seven & i and Couche-Tard have begun, citing people familiar with the matter - a development that comes after months of reluctance on the part of the Japanese company to talk about a deal. Sources have previously said Couche-Tard has sweetened an original offer to $47 billion. Owned in Core and ESG+ Portfolios.

(+) Blue Owl Credit Income The private credit fund celebrated its 3-year anniversary and maintains one of the longest track records in the non-traded BDC market. Over the last 3-years, OCIC has generated an annualized total return of 10.5%, achieving equity-like returns (largely yield-based) with substantially less volatility. The overall health of the portfolio is strong and credit quality trends remain stable, with just two names (Walker Edison & Pluralsight) on non-accrual out of 341 portfolio companies (representing 0.003 of the portfolio based on fair value. Although interest rate policy will continue to evolve, we believe base rates will remain elevated, likely enhancing direct lending returns relative to the long-term average. So far in 2024, the total return is 8.12% with 2 months to go. The annualized yield is 11.98% (base distribution + September special distribution). Owned in Core and Cash Flow Portfolios.

(+) BWX Technologies (BWXT-US) The nuclear fuel stock advanced on the back of Bank of America’s price target hike. The firm now sees shares hitting $160, which reflects upside potential of more than 20%. Bank of America also said the stock’s recent rally can be attributed to the “scarcity premium” in the small modular reactor market. Owned in Opportunity Portfolio.

(+) Cameco (CCO-T) Shares jumped on news that Russia, the world's largest supplier of enriched uranium, said that it had imposed temporary restrictions on the export of enriched uranium to the United States, a symbolic tit-for-tat move after the U.S. banned Russian uranium imports. Russia holds about 44% of the world's uranium enrichment capacity and about 35% of U.S. nuclear fuel imports used to come from Russia, according to the U.S. office of nuclear energy. Owned in Core and Opportunity Portfolios.

(+) Coinbase Global (COIN-US) has experienced significant volatility. Initially, the company reported disappointing third-quarter results, with revenue and earnings falling short of Wall Street estimates, leading to a substantial drop in share prices at the end of October. Despite this, Coinbase managed to turn a profit during the quarter, driven by a surge in trading activity. Following the U.S. presidential election, Coinbase shares soared by 31% in a single day, benefiting from a broader crypto market rally sparked by Donald Trump's win. Additionally, Coinbase, along with Binance, recorded a $9.3 billion stablecoin inflow amid the bullish market sentiment. Shares are up 60% in November alone. Owned in Opportunity Portfolio.

(+) Constellation Software (CSU-T) There were some puts and takes this quarter, but largely speaking our positive thesis remains intact. To begin, organic growth and acquisitions fell short of RBCCM’s estimates. With respect to the former, CSU experienced some pressure as the company transitioned away from lower margin revenue (e,g., professional services and hardware). The latter reflects the fact that were no acquisitions greater than $100MM. Keep in mind that acquisitions of this size can be lumpy, but we remain comforted that the TAM remains large and CSU has a long history of being price disciplined. Net net, despite lower organic growth/acquisitions, EBITDA was still modestly ahead of the street driven by margin expansion. Looking ahead, we continue to view CSU as a core position for Canadian total return accounts. Owned in Core and ESG+ Portfolios.

(+) MicroStrategy (MSTR-US) said it bought $2 billion in bitcoin in 10 days with another $42 billion to go. The self-proclaimed largest corporate holder of bitcoin continued to ride the post-election frenzy in cryptocurrency plays. MicroStrategy is still a software and services company, with all its revenue coming from that business. But the stock has traded more like bitcoin than like other software-sector stocks since the company said it was adopting the cryptocurrency as its primary treasury reserve asset in 2020. And its actions suggest its bitcoin bet is going to grow exponentially in the coming years. It has rocketed 46.8% since Donald Trump’s election win, while bitcoin has run up about 25% over the same time to also trade in record territory. Trump has vowed to embrace cryptocurrencies, by building a U.S. cryptocurrency reserve and by creating a more favorable regulatory environment. Owned in Opportunity Portfolio.

(~) On Holding (ONON-US) traded flat after reporting an EPS miss with its Q3 report. However, the Switzerland-based athletic footwear company was able to report strong upside revenue. Revenue rose 32.3% over the year which was a much better than expected. The strong top line growth in Q3 was fueled by significant acceleration in On's direct-to-consumer (DTC) channel, which includes online and company-owned stores. In terms of boosting global brand awareness, ONON said its presence at the 2024 Olympics helped. Stories have been amplified through traditional and social media. In the US, awareness of the On brand has doubled since last year, now reaching close to 20%. In Paris, brand awareness almost tripled. ONON says it is heading into the holiday season with a lot of confidence to fulfill strong consumer demand for the brand in Q4. Owned in Opportunity Portfolio.

(+) Shopify (SHOP-T) The provider of an eCommerce platform for entrepreneurs, SMBs, and corporations, has been on a roll, defying the macroeconomic headwinds and that momentum only gained steam in Q3. The company exceeded revenue expectations, generated even stronger GMV growth of 24%, and issued upside revenue guidance for Q4. Given the sluggish consumer spending trends, it may seem quite surprising that they were able to achieve these impressive results. While Shopify is mostly known for catering to sole proprietors and SMBs, it continues to gain traction with larger enterprises. For example, in Q3, SHOP signed Reebok, Hanes Brands, Vera Bradley, and Lionsgate Entertainment as new customers. Investing in AI and launching new tools that help streamline time-consuming tasks for business owners is providing competitive advantages and generating strong merchant growth. Shopify Flow, which allows merchants to easily create custom automations to help them run their businesses more efficiently, and Shopify Tax, are two merchant automation tool that are seeing strong adoption. The company also recently launched Sidekick, an AI-powered adviser for merchants that generates new backgrounds and product descriptions. Lastly, Shopify Payments, which allows merchants to accept payments without a third-party payments provider, continues to experience healthy growth. In Q3, Shopify Payments penetration increased to 62% and facilitated $17.0 bln in GMV, representing 42% growth. The main takeaway is that they are continuing to buck the macro-related headwinds as its eCommerce platform becomes the go-to destination not only for entrepreneurs and SMBS, but also increasingly for larger enterprises. With this strengthening momentum behind it, Shopify is poised for a very strong holiday shopping season. Owned in Core and ESG+ Portfolios.

(+) Spotify (SPOT-US) The music streaming platform climbed after a fourth-quarter profit forecast topped analysts’ estimates. Spotify monthly active users in the third quarter totaled about 640 million, up 11% from a year earlier and above the 639 million analysts had forecast, according to FactSet. Owned in Opportunity Portfolio.

(~) StandardAero (SARO-US) reported its first quarter as a public company with solid results coming in just above consensus expectations. There were no big surprises in the quarter and the company was able to provide positive updates on its various initiatives including the LEAP program, its recent acquisition of Aero Turbine, and its leverage coming down to 3.5x on a post-IPO basis. Revenue came in at $1.24B, up from $1.10B the year prior. EBITDA came in at $168MM, up from $134MM the year prior. SARO is the world's largest independent, pure-play provider of aerospace engine aftermarket services for fixed and rotary wing aircraft, serving the commercial, military and business aviation end markets. Owned in Opportunity Portfolio.

Company of The Week: Cameco

INVESTOR PRESENTATION

 

Weekend Reading

What does Trump’s victory mean for Canada? All roads lead to a weaker loonie Rosenberg Research thinks Canadian dollar at 66 cents is in the cards. FINANCIAL POST

Canadian inflation in focus as the BoC considers additional rate cuts Given the Canadian economy’s weak momentum, we continue to expect the BoC to cut the overnight rate by an additional 50 basis points on December 11th. RBC ECONOMICS

Gold has always been the target Bitcoin’s market cap has just surpassed that of all the above-ground silver—the noble metal that has served as money for over 4,000 years. STATSTREET

The (Secret) Process To Becoming A Member At Augusta National Golf Club The membership initiation fee for Augusta National Golf Club is surprisingly low at $40,000 and way less than places like Shinnecock Hills or Los Angeles Golf Club, which have initiation fees of $300,000 to $500,000. HUDDLE UP

Narratives, Affect and Popularity in Investing Stories are what we tell, and Narratives are what we believe in. PERISCOPE

What America Just Voted Against Josh Brown has been reading and listening over the past week and, from what he can surmise, there wasn’t a singular issue that produced Trump’s landslide in both the popular vote and the electoral college. The parable about the three blind men feeling different parts of the elephant to try to describe the whole animal is an apt one here. To try to pinpoint the one thing that animated tens of millions of people to vote for Trump is to miss the larger story. JOSH BROWN

A User’s Guide to Restructuring the Global Trading System Stephen Miran, senior strategist at hedge fund Hudson Bay Capital, made waves this summer with a paper he co-authored with Nouriel Roubini that argued the U.S. Treasury was taking political considerations into its debt-issuance plans, a charge so explosive it got a rare on-the-record denial from Treasury Secretary Janet Yellen. Now he’s back with a new paper arguing, more or less, the incoming Trump administration can have its tariff cake and eat it too. HUDSON BAY CAPITAL

‘Hygge’ in your ‘hytte’: turf cabins lure the international ski crowd Beloved by Norway’s naturalists, these retreats in the wilderness are riding the ‘coolcation’ trend as international buyers look to colder climates for their holiday homes. FINANCIAL TIMES

Diversions

Return of the King Discover the story behind Elvis Presley's triumphant '68 comeback special Netflix

Tyson vs. Paul The heavyweight fight between Jake Paul and Mike Tyson is the product of months of sweat, tears, and anticipation. Netflix Live Tonight

Cross The series is based on James Patterson's Alex Cross novels and follows the titular homicide detective played by Aldis Hodge. Prime Video

The Day of the Jackal From the 1971 Frederick Forsyth novel, twice adapted for the big screen, is set all across Europe and into western Asia. Prime Video