Gravitas: Really? Part Time Jobs?

October 06, 2023 | Michael Newton


The Newton Group Insights

Canadian employment rose another 64k in September to build on a 40k jump in August as surging population (+82k in September) continues to add to labour supply. Details of the September labour market data were more mixed than strong headlines would suggest. Most of the job growth was in part-time positions (+48k) and actual hours worked outright declined by 0.2%. And there are still signs that hiring demand continues to soften under the surface relative to surging labour supply, with broader unemployment measures pointing to more softening than the official unemployment rate itself implies. Still, it would be difficult for the Bank of Canada to look through very strong top-line employment growth, and wages are showing few signs of decelerating despite signs that labour supply is beginning to catch up to hiring demand. The RBC base-case does not assume further interest rate hikes from the Bank of Canada this year - and there is still another monthly inflation report and the closely watched Business Outlook Survey to be released before the central bank makes its next decision on interest rates on October 25th. But the BoC has been clear that it won't hesitate to respond with more hikes if necessary to cool labour markets and bring inflation down.

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Portfolio Notes

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

(new) JPMorgan Nasdaq Equity Premium ETF (JEPQ-US) JEPQ’s strategy is pretty straight forward but not easy to do as an individual investor. Having the ETF managed by the professional team at JP Morgan is important. It is designed to provide current income while maintaining prospects for capital appreciation. First, it buys and holds blue-chip tech payers like Apple and Microsoft, then it creates a “synthetic yield” by selling puts and writing covered calls around these positions. Tech stocks tend to command larger option premiums—even cash cows like AAPL and MSFT. JEPQ pays an 11.5% distribution with a floor in place thanks to the recent market turmoil. New position on Cash Flow Portfolio.

(~) Louis Vuitton (LVMUY-US) The luxury cycle has been turning of late and we are starting to see negative EPS revisions for luxury names. We should expect to see consolidation of strong multi-year gains for the luxury sector from here, also accounting for higher interest rates and lower disposable incomes for western consumers and a China macro situation that is not supportive. Having said that, LVMH offers the strongest margin protection, given its recent over-investment strategy, as well as higher variable operating expenses and diversified model across categories, channels, and price points. Its scale advantage is another key factor, as well as meaningful free cashflow. Owned in Core Portfolio.

(+) Nvidia (NVDA-US) This week Goldman Sachs added Nvidia to its Conviction Buy List. According to the firm, the company will be the principal "shovel supplier" in the artificial intelligence "gold rush." Additionally, it will maintain its status as the “accelerated computing industry standard for the foreseeable future given its competitive moat and the urgency with which customers are developing and deploying increasingly complex AI models,” Goldman said. The company will remain a standard for the foreseeable future “given its competitive moat and the urgency with which customers are developing and deploying increasingly complex AI models. Owned in Core, US and Opportunity Portfolios.

(+) Pembina Pipeline Corporation (PPL-T) Since the federal government bought the Trans Mountain pipeline in 2018, several groups have emerged as potential Indigenous ownership ventures, including Chinook Pathways, a partnership between Western Indigenous Pipeline Group (WIPG) and Pembina. Purchasing a stake in the Trans Mountain pipeline has been a slight overhang on its stock this year as the company would likely have to issue equity to fund the purchase. Now the question is how much? RBCCM believes investors are overestimating how much equity would be required. Even if a transaction does occur, it may be a while away as construction of TMX is not complete. Long story short, we continue to believe PPL is a top tier midstream company that provides an attractive and sustainable yield (6.5%), while providing exposure to growing natural gas and natural gas liquids production in Western Canada. PPL is on RBCCM’s Energy Best Idea’s list. Owned in Cash Flow Portfolio.

(-) Constellation Brands (STZ-US) Bolstered by another strong performance from its beer business, Constellation Brands (STZ) delivered a beat-and-raise Q2 earnings report that featured its largest EPS beat in nearly three years. Despite the difficult macroeconomic backdrop, STZ has been able to push through price increases as it capitalizes on the momentum of its Mexican beer brands. That's especially the case for Modelo, which was once again the top share gainer and #1 brand in the entire U.S. beer category. Considering how strong the beer portfolio is performing at the moment, there's likely some disappointment that STZ's outlook isn't more bullish. The Wine & Spirits business remains an overhang on the stock as it can't seem to gain any traction despite STZ's efforts to trim the portfolio and focus on higher end labels. Owned in Core Portfolio.

Weekend Reading

RBC MacroMemo - October 3 -30, 2023 Recession questions / New headwinds / 2024 election / Q3 GDP / Inflation backs up / Hawkish pauses RBC

More sellers, fewer buyers take pressure off housing prices in Canada The most striking trend that emerged in recent months has been the return of sellers to the housing market. September was a case in point where new listings increased sequentially in all major markets. RBC ECONOMICS

Miami Dolphin Head Coach Mike McDaniel's Unlikely Path To NFL Stardom This article examines Mike McDaniel’s story, including how fate got him a job with the Denver Broncos as a teenager, his short-lived football career at Yale, the time he got fired by the Houston Texans for being late, his stint in the United Football League, his battle with addiction, how he worked his way to head coach, and more. HUDDLE UP

10 Quotes That Shaped Barry Ritholtz's Investment Philosophy None of these will be surprising to regular readers; perhaps the cumulative impact of all 10 might be revealing. BARRY RITHOLTZ

Coffee Badging Bosses want people back in the office, but employees are finding a workaround CNBC

7 Beliefs About Money What can I spend? How should I spend it? How do I keep buying so much stuff when I keep telling myself to buy less stuff? FORTUNES AND FRICTIONS

“When all the experts and forecasts agree – something else is going to happen."

- Bob Farrell