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February 22nd, 2019

The Ups and Downs of the Markets

By PRATTE

Blogue 9 fev EN

Another week of volatility as investors remain cautious regarding geopolitical tensions. Walmart posted solid quarterly results boosting its stock. The TSX, meanwhile, had a good start this week, with the Toronto Stock Exchange up 11.3% since the beginning of the year. So here is what happened in the markets this week.

Market Brief

The US stock market was closed on Monday for a holiday in the United States. The three major US indexes opened lower Tuesday after a good performance last week. The Dow was down 57 points at the open, pulled down by J.P. Morgan’s losses that erased Walmart’s earnings. The S&P 500 and Nasdaq both opened down 0.2%. The next day, the markets opened slightly higher, as investors were cautiously awaiting the details of the central bank meeting (Fed). “The excitement of the day revolves around broadcasting the minutes of the meeting (of the Federal Reserve’s Monetary Policy Committee) held in January,” said Paul Donovan of UBS.

The three major US indexes opened lower Thursday pulled down by mixed indicators on the health of the US economy. Durable goods industrial orders posted gains of 1.2% in December, thanks among other things to the automotive sector. However, without the transportation sector, these numbers increased by only 0.1%. Nike’s stock was down 1.01% at the opening, following the announcement of the injury of a future basketball star who was injured after his Nike shoe tore, affecting Nike’s image.

Friday hopes of a possible agreement between China and the United States gave strength to markets who opened up. Just one week before the expiration of the agreement between the two countries, it was announced on Friday that the US president was going to receive the chief negotiator of China, Liu He, at the White House on Friday.

The Canadian stock market was also closed Monday to celebrate Family Day. The TSX started on Tuesday with 14-point gains helped by a 10-month rise in gold prices. The TSX had a good day on Tuesday with strong gains, up 99 points. “After a gloomy December, the US and Canadian markets had one of the best year starts of this century,” said Craig Jerusalim, Portfolio Manager at CIBC Asset Management. Indeed, the TSX is up 11.3% since the beginning of the year. The trend continued Wednesday for the TSX, up 25 points at the open, thanks to the good performance of gold prices. This good performance ended Thursday, the TSX opened slightly lower, pulled down by materials. The TSX rose to a four-month high on Friday, helped by gains in the energy sector as oil prices were up.

Walmart

The US company released on Tuesday solid quarterly results above analysts’ expectations. The holiday season has been beneficial for the company as its online sales exploded by 43% thanks to major investments on its web platform. For the quarter ending January 31st, Walmart reported a net income of $3.69 billion, or $1.27 per share, compared with $2.18 billion a year ago. The company posted earnings per share of $1.41, eight cents higher than analysts’ expectations. Revenues rose nearly 2% to $138.79 billion from $136.27 billion a year ago.

With more than 4,703 stores in the United States, the company has announced plans to invest more in redeveloping its stores. Executive Director Doug McMillon said a “favourable business environment” has helped Walmart increase sales and gain market share for its competitors, particularly in the food and toy sectors. As a result of this news, the stock gained 4% pre-market, shares are up 7% since the beginning of the year.

Gold Rally

Gold performed well this week, benefiting from its safe-haven status as markets swim in an unstable political and economic climate. “The uncertainty of the trade talks and fears that the U.S. equity market may be running out of steam is creating capital flows into a more protective allocation,” said Peter Hug, global trading director at Kitco Metals Inc. “The issue with Brexit, which comes to fore in five weeks, has the potential to derail the entire continent, and dealers across the pond are seeing increased physical demand for gold,” he said in a daily note.

Gold prices reached their best highs in ten months on Wednesday as the US dollar retreated to begin the day. The ounce of gold was trading at $1337 Wednesday before the minutes of the Fed that could, according to many, create a volatility effect for the price of the ounce.

Tilray

The second-largest Canadian cannabis producer announced Wednesday that it has signed an agreement to acquire Manitoba Harvest, a producer of hemp seed products. Priced at $419 million, the deal would allow both companies to launch a line of products containing CBD (a cannabinoid found in cannabis) in the United States, allowing Tilray to sneak quickly into the US market where Manitoba Harvest is already available in more than 13,000 outlets, including Walmart, Amazon and Costco.

The legalization of the CBD in the United States has opened the door to derivatives and several Canadian cannabis companies have shown their interest in this market over the last few months. According to the Brightfield Group, the CBD market in the United States is estimated at 591 million US dollars and is expected to reach 22 billion US in 2022. The company’s stock was up 7.1% Wednesday following the news while its shares are 15% higher since the beginning of the year.

Caisse de dépôt et placement du Québec
Despite the volatility of the markets, the Caisse de dépôt et placement du Québec announced Thursday a return of 4.2% in 2018, increasing its assets by $11 billion. This is a return above the reference portfolio of 2.4%. “In 2018, our investment strategy was put to the test. For the first time in many years, global equity markets have ended in negative territory […] Our goal of building a strong and resilient portfolio to perform well in such markets has been achieved” said President and Chief Executive Officer management of the Caisse, Michael Sabia.
However, the Caisse’s stock market returns posted a negative performance of -7.2% in Canada and -7.9% in Emerging Markets. In addition, the Caisse also suffered the setbacks of SNC-Lavalin as it holds a 20% stake in the company. However, it was the investments in unlisted private companies that allowed the Caisse to achieve a good performance with a return of 16.6%..

 

 

Pratte Portfolio Management is a firm registered with the Autorité des marchés financiers (AMF) and the Ontario Securities Commission (OSC).
Intended to provide general information about markets and securities and not to meet your specific needs, this report is the result of the author’s only work. The opinions (including any recommendations, if any) expressed in this report are those of the author only and do not necessarily represent those of Pratte Portfolio Management and do not constitute securities investment advisory activities designed to meet your specific needs.
The information contained in this report is derived from sources believed to be reliable, but the accuracy and completeness of this information can not be guaranteed and, in providing the information, the author and Pratte Portfolio Management assume no liability whatsoever. This information was current as of the date indicated in this bulletin, and neither the author nor Pratte Portfolio Management assumes any obligation to update it or to report any new developments with respect to this information. This report is intended for distribution in jurisdictions where the author and Pratte Portfolio Management are registered for trading in securities. Any distribution or diffusion of this report in another territory is forbidden. The author, Pratte Portfolio Management, its affiliates and their respective directors, officers and employees, and the companies with which they are associated may, from time to time, hold securities referred to in this report.
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