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%.
TORONTO – Roots Corp. may have built its brand on all things comfy and cosy, but its CEO says activewear is now “really becoming a core part” of the brand.
The category, which at Roots spans leggings, tracksuits, sports bras and bike shorts, has seen such sustained double-digit growth that Meghan Roach plans to make it a key part of the business’ future.
“It’s an area … you will see us continue to expand upon,” she told analysts on a Friday call.
The Toronto-based retailer’s push into activewear has taken shape over many years and included several turns as the official designer and supplier of Team Canada’s Olympic uniform.
But consumers have had plenty of choice when it comes to workout gear and other apparel suited to their sporting needs. On top of the slew of athletic brands like Nike and Adidas, shoppers have also gravitated toward Lululemon Athletica Inc., Alo and Vuori, ramping up competition in the activewear category.
Roach feels Roots’ toehold in the category stems from the fit, feel and following its merchandise has cultivated.
“Our product really resonates with (shoppers) because you can wear it through multiple different use cases and occasions,” she said.
“We’ve been seeing customers come back again and again for some of these core products in our activewear collection.”
Her remarks came the same day as Roots revealed it lost $5.2 million in its latest quarter compared with a loss of $5.3 million in the same quarter last year.
The company said the second-quarter loss amounted to 13 cents per diluted share for the quarter ended Aug. 3, the same as a year earlier.
In presenting the results, Roach reminded analysts that the first half of the year is usually “seasonally small,” representing just 30 per cent of the company’s annual sales.
Sales for the second quarter totalled $47.7 million, down from $49.4 million in the same quarter last year.
The move lower came as direct-to-consumer sales amounted to $36.4 million, down from $37.1 million a year earlier, as comparable sales edged down 0.2 per cent.
The numbers reflect the fact that Roots continued to grapple with inventory challenges in the company’s Cooper fleece line that first cropped up in its previous quarter.
Roots recently began to use artificial intelligence to assist with daily inventory replenishments and said more tools helping with allocation will go live in the next quarter.
Beyond that time period, the company intends to keep exploring AI and renovate more of its stores.
It will also re-evaluate its design ranks.
Roots announced Friday that chief product officer Karuna Scheinfeld has stepped down.
Rather than fill the role, the company plans to hire senior level design talent with international experience in the outdoor and activewear sectors who will take on tasks previously done by the chief product officer.
This report by The Canadian Press was first published Sept. 13, 2024.
VANCOUVER – Mediated talks between the union representing HandyDART workers in Metro Vancouver and its employer, Transdev, are set to resume today as a strike that has stopped most services drags into a second week.
No timeline has been set for the length of the negotiations, but Joe McCann, president of the Amalgamated Transit Union Local 1724, says they are willing to stay there as long as it takes, even if talks drag on all night.
About 600 employees of the door-to-door transit service for people unable to navigate the conventional transit system have been on strike since last Tuesday, pausing service for all but essential medical trips.
Hundreds of drivers rallied outside TransLink’s head office earlier this week, calling for the transportation provider to intervene in the dispute with Transdev, which was contracted to oversee HandyDART service.
Transdev said earlier this week that it will provide a reply to the union’s latest proposal on Thursday.
A statement from the company said it “strongly believes” that their employees deserve fair wages, and that a fair contract “must balance the needs of their employees, clients and taxpayers.”
This report by The Canadian Press was first published Sept. 12, 2024.
MONTREAL – Travel company Transat AT Inc. reported a loss in its latest quarter compared with a profit a year earlier as its revenue edged lower.
The parent company of Air Transat says it lost $39.9 million or $1.03 per diluted share in its quarter ended July 31.
The result compared with a profit of $57.3 million or $1.49 per diluted share a year earlier.
Revenue in what was the company’s third quarter totalled $736.2 million, down from $746.3 million in the same quarter last year.
On an adjusted basis, Transat says it lost $1.10 per share in its latest quarter compared with an adjusted profit of $1.10 per share a year earlier.
Transat chief executive Annick Guérard says demand for leisure travel remains healthy, as evidenced by higher traffic, but consumers are increasingly price conscious given the current economic uncertainty.
This report by The Canadian Press was first published Sept. 12, 2024.
