Stocks are likely to be volatile in the week ahead as investors watch tensions between Russia and Ukraine and debate how quickly the Federal Reserve can raise interest rates.
Markets were roiled in the past week and bond yields spiked after a hot inflation reading Thursday upended many Wall Street forecasts for interest rate hikes. Investors were dealt another blow Friday after the White House warned that Russia could invade Ukraine during the Olympics. Both the U.S. and U.K. have called for their citizens to leave Ukraine as soon as possible.
“I think the Fed is keeping everyone on edge, and this is going to add to that edginess,” said Peter Boockvar, chief investment officer at Bleakley Advisory Group. “So we had a three-week earnings respite from the macro. We turned micro, and this week we were reminded earnings season is pretty much over and all macro issues matter again.”
The major averages slid sharply on Friday afternoon, and Treasury yields came off the highs they set after Thursday’s report that January’s consumer price index jumped by 7.5%, a 40-year high. The S&P 500 lost 1.8% for the week, falling to 4,418.
With about two hours left to Friday trading, U.S. National Security Advisor Jake Sullivan told a White House briefing that there were signs of Russian escalation at the Ukraine border. Sullivan said it was possible an invasion could occur during the Olympics, despite speculation to the contrary.
“Up until now, I’d say it was all about monetary policy. This throws an extra unknown into the works,” said Marc Chandler, chief market strategist at Bannockburn Global Forex. “The dollar is rallying, oil prices have rallied and stocks are selling off… Even if nothing happens this weekend, people will be nervous about it in the next week.”
Boockvar said the Russian tensions complicate the central bank’s outlook, and an invasion would add to already hot global inflation. “It’s causing problems for the Fed because this basically would inflate oil prices, food prices, wheat, fertilizers and everything else and just make the Fed’s inflation fighting capability that much more difficult to maneuver,” he said. “The Fed can’t back off. You can’t blame geopolitics as a reason not to hike rates.”
He said if the central bank were concerned about an economic impact, it could slow hikes.
Fed speakers will be a highlight in the week ahead, particularly St. Louis Fed President James Bullard who appears on CNBC’s “Squawk Box” Monday at 8:30 a.m. Bullard added to market turbulence and the sharp jump in bond yields Thursday when he said that he would like to see rates rise by 100 basis points (or 1 percentage point) by July.
“I think volatility remains elevated as we transition from essentially this more dovish Fed to this more hawkish Fed policy which we’re experiencing,” said Patrick Palfrey, senior equity strategist at Credit Suisse. “We haven’t yet settled on how hawkish we are going to be and until we can chart a new path for interest rates hikes with some consistency, I think volatility is going to remain elevated, and that’s going to be more true for high valuation companies.”
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What to watch
The Federal Reserve releases minutes from its last meeting on Wednesday. Investors will watch it carefully for any new insights on its plans for rate hikes, the inflation outlook or comments on its balance sheet.
There will also be more important inflation data, when the producer price index is reported Tuesday. That report is also expected to be very hot, after January’s CPI. Surging inflation has caused consumer sentiment to slump, and now economists are watching consumer spending closely. That means January’s retail sales will also be important when it is reported Wednesday.
There is also a final rush of big earnings reports, with Cisco,Nvidia and AIG Wednesday. Walmart reports Thursday, and Deere reports Friday.
“We’re starting to transition beyond earnings, I think investors took a fair amount of comfort that profit margins stayed as high as they did,” said Palfrey. “I think the question is as we look out at the next couple of quarters, are we able to pass through prices at the same rate?”
Fed debate
Palfrey said investors are looking for more clear communications from the central bank. Bullard is the only Fed official who endorsed a 50-basis-point hike, while others, like Cleveland Fed President Loretta Mester said she does not expect to raise the fed funds target rate by more than a quarter point. Fed Chairman Jerome Powell has left the door open to a half point hike but did not say he favored it.
Fed Governor Lael Brainard speaks Friday, as does Fed Governor Christopher Waller. Mester speaks Thursday.
Liz Ann Sonders, chief investment strategist at Charles Schwab, said some investors wonder if market volatility could slow the central bank’s tightening path.
“The Fed is full steam ahead. They have to be… They’re still adding to the balance sheet. We’re still at zero on rates,” she said. “There’s nothing in my mind, unless an asteroid lands on earth and blows us all to smithereens, that makes the Fed say we’re fine, we’re going to stay at zero.”
“They’re admitting themselves they’re behind the curve. They let the inflation cat out of the bag. I don’t think they thought it would have the traction it has had,” she said.
Rate rally and reverse
When bonds sell off, yields go higher and they jumped this past week. The 10-year yield was as high as 2.06% Friday. After the Ukraine news, the 10-year yield was back down to about 1.93%.
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The 2-year yield was at a high of 1.63% Friday, up from 1.32% the week earlier. The biggest moves were Thursday, and the yield on the 2-year note moved more than 20 basis points Thursday. But by Friday afternoon, it had fallen back to 1.51%.
TOKYO (AP) — Japanese technology group SoftBank swung back to profitability in the July-September quarter, boosted by positive results in its Vision Fund investments.
Tokyo-based SoftBank Group Corp. reported Tuesday a fiscal second quarter profit of nearly 1.18 trillion yen ($7.7 billion), compared with a 931 billion yen loss in the year-earlier period.
Quarterly sales edged up about 6% to nearly 1.77 trillion yen ($11.5 billion).
SoftBank credited income from royalties and licensing related to its holdings in Arm, a computer chip-designing company, whose business spans smartphones, data centers, networking equipment, automotive, consumer electronic devices, and AI applications.
The results were also helped by the absence of losses related to SoftBank’s investment in office-space sharing venture WeWork, which hit the previous fiscal year.
WeWork, which filed for Chapter 11 bankruptcy protection in 2023, emerged from Chapter 11 in June.
SoftBank has benefitted in recent months from rising share prices in some investment, such as U.S.-based e-commerce company Coupang, Chinese mobility provider DiDi Global and Bytedance, the Chinese developer of TikTok.
SoftBank’s financial results tend to swing wildly, partly because of its sprawling investment portfolio that includes search engine Yahoo, Chinese retailer Alibaba, and artificial intelligence company Nvidia.
SoftBank makes investments in a variety of companies that it groups together in a series of Vision Funds.
The company’s founder, Masayoshi Son, is a pioneer in technology investment in Japan. SoftBank Group does not give earnings forecasts.
Shopify Inc. executives brushed off concerns that incoming U.S. President Donald Trump will be a major detriment to many of the company’s merchants.
“There’s nothing in what we’ve heard from Trump, nor would there have been anything from (Democratic candidate) Kamala (Harris), which we think impacts the overall state of new business formation and entrepreneurship,” Shopify’s chief financial officer Jeff Hoffmeister told analysts on a call Tuesday.
“We still feel really good about all the merchants out there, all the entrepreneurs that want to start new businesses and that’s obviously not going to change with the administration.”
Hoffmeister’s comments come a week after Trump, a Republican businessman, trounced Harris in an election that will soon return him to the Oval Office.
On the campaign trail, he threatened to impose tariffs of 60 per cent on imports from China and roughly 10 per cent to 20 per cent on goods from all other countries.
If the president-elect makes good on the promise, many worry the cost of operating will soar for companies, including customers of Shopify, which sells e-commerce software to small businesses but also brands as big as Kylie Cosmetics and Victoria’s Secret.
These merchants may feel they have no choice but to pass on the increases to customers, perhaps sparking more inflation.
If Trump’s tariffs do come to fruition, Shopify’s president Harley Finkelstein pointed out China is “not a huge area” for Shopify.
However, “we can’t anticipate what every presidential administration is going to do,” he cautioned.
He likened the uncertainty facing the business community to the COVID-19 pandemic where Shopify had to help companies migrate online.
“Our job is no matter what comes the way of our merchants, we provide them with tools and service and support for them to navigate it really well,” he said.
Finkelstein was questioned about the forthcoming U.S. leadership change on a call meant to delve into Shopify’s latest earnings, which sent shares soaring 27 per cent to $158.63 shortly after Tuesday’s market open.
The Ottawa-based company, which keeps its books in U.S. dollars, reported US$828 million in net income for its third quarter, up from US$718 million in the same quarter last year, as its revenue rose 26 per cent.
Revenue for the period ended Sept. 30 totalled US$2.16 billion, up from US$1.71 billion a year earlier.
Subscription solutions revenue reached US$610 million, up from US$486 million in the same quarter last year.
Merchant solutions revenue amounted to US$1.55 billion, up from US$1.23 billion.
Shopify’s net income excluding the impact of equity investments totalled US$344 million for the quarter, up from US$173 million in the same quarter last year.
Daniel Chan, a TD Cowen analyst, said the results show Shopify has a leadership position in the e-commerce world and “a continued ability to gain market share.”
In its outlook for its fourth quarter of 2024, the company said it expects revenue to grow at a mid-to-high-twenties percentage rate on a year-over-year basis.
“Q4 guidance suggests Shopify will finish the year strong, with better-than-expected revenue growth and operating margin,” Chan pointed out in a note to investors.
This report by The Canadian Press was first published Nov. 12, 2024.
TORONTO – RioCan Real Estate Investment Trust says it has cut almost 10 per cent of its staff as it deals with a slowdown in the condo market and overall pushes for greater efficiency.
The company says the cuts, which amount to around 60 employees based on its last annual filing, will mean about $9 million in restructuring charges and should translate to about $8 million in annualized cash savings.
The job cuts come as RioCan and others scale back condo development plans as the market softens, but chief executive Jonathan Gitlin says the reductions were from a companywide efficiency effort.
RioCan says it doesn’t plan to start any new construction of mixed-use properties this year and well into 2025 as it adjusts to the shifting market demand.
The company reported a net income of $96.9 million in the third quarter, up from a loss of $73.5 million last year, as it saw a $159 million boost from a favourable change in the fair value of investment properties.
RioCan reported what it says is a record-breaking 97.8 per cent occupancy rate in the quarter including retail committed occupancy of 98.6 per cent.
This report by The Canadian Press was first published Nov. 12, 2024.
