To my clients:
It was an up week for North American stock markets with the Canadian TSX finishing up 0.8%; the U.S. Dow Jones Index up 2.2%; and the U.S. S&P 500 up 1.9%.
While shut down, one of the few data reports to be compiled by the U.S. Government was released this morning - the Consumer Price Index (the report was deemed necessary and compiled by the Bureau of Labor Statistics in order to calculate cost-of-living adjustments for Social Security payments). CPI showed a rise in inflation but, importantly, the rise was less than expected. At 3.0% year-over-year, inflation is too high, but the report was deemed tame enough to give the Federal Reserve the green light to lower rates next week.
And yes, next week is a very, very important week for markets (perhaps one of the biggest weeks of the year). Five (Apple, Alphabet, Amazon, Meta, and Microsoft) of the Seven “Magnificent 7” stocks report earnings; the U.S. Federal Reserve will announce its next policy decision; and U.S. President Trump will meet with Chinese President Xi at the Asia-Pacific Economic Cooperation (APEC) summit in South Korea to advance trade discussions. All of these are potential market moving events although I think that the earnings reported by the U.S.’s largest tech companies (i.e. the Mag 7) will be the most consequential for the markets in the short-term.
Also on trade, President Trump terminated trade discussions with Canada owing to a critical tv advertisement put out by the Government of Ontario. Despite talks being “terminated”, it is still expected that Trump and Carney will also meet at the APEC summit next week.
Lastly, for discretionary clients, I sold Alphabet (aka “Google”) this week and replaced it with META (aka “Facebook”). This was a bittersweet move, and one I was reluctant to make owing to the long-standing (and remunerative!) position of Alphabet in client portfolios. However, with the introduction this week of an AI powered browser being launched by ChatGPT parent company Open AI, I felt that there could be a significant threat to Alphabet’s core Google Search business. Supportive of the switch was the fact that RBC’s analyst has a share price target (in percentage terms) for META that is significantly higher than Alphabet’s. Further, owing to the importance of the Mag 7 (see above), I felt the need to replace Alphabet with a “like” name. Should my concerns over the threat to Alphabet’s search business be overblown, I could easily see moving back into Alphabet at a future date. But for the next 6 to 12 months I think its best to take a step back and see how events play out.
That’s it for this week. All the best,
Nick
Nick Scholte, CIM, FCSI
Senior Portfolio Manager
RBC Dominion Securities Inc. │ Tel: 604.257.7569
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