On Thursday, the S&P 500 was down 0.8% and Toronto was up 0.3%.
Last week markets got a strong boost from lower yields in the bond markets on expectations that the interest rate increases might be at an end and that rates would decline somewhat within a year or so.
Today, some of that hope was dashed as a U.S. 30 year treasury bond auction resulted in higher yields and as The FED Chair made comments that seemed to suggest that the rate increases might continue. Similarly in Canada the deputy governor of the Bank of Canada made comments about interest rates remaining higher for longer. “Get used it it”, she said, or words to that effect.
The 5 year government bond yield in Canada jumped about 15 basis points today. That’s not good news for stock prices.
As mentioned earlier today, AutoCanada got clobbered and was down 23%. It has a lot of debt.
Canadian Tire was down 2.5% after reporting weaker results. The weakness was largely expected. It now seems likely that it faces weakness for at least the next few quarters. But it remains a reasonably strong company for the long-term, I believe.
Cameco was up 4.5%.
After the close, Andrew Peller reported results and some very strange news.
Revenues were about flat. The good news is that profits were up sharply – but this was largely due to “Wine Sector Support Payments”. Not a great sign when an industry needs support payments. CEO John Peller has argued that this is just a repayment of fraction of all the excise taxes his company pays and should not be considered to be a subsidy to the industry.
In somewhat surprising news, John Peller announced that he will retire within a year after a suitable new CEO is found.
In a really strange development they announced that all four of its independent directors are leaving immediately ostensibly to “support a proactive refreshment of the board”. This leaves the Board consisting of only John Peller and his brother Angus Peller who is an M.D. John Peller indicated that the departing Board members “strongly supported the senior management team and all out employees”. That sounds unlikely. More likely there was a huge disagreement between the independent Board members and John Peller. One of these independent Board members had been elected (or appointed) only in 2023. He was in the business of capital management and personally owned 162,000 shares. I suspect he was not satisfied with the performance of the company. Well, John Peller seems to indicate the departures were amicable but we shall see how the market reacts.
Other companies reporting after the close included Stantec with a good report. Also Constellation Software with once again a strong report.
Overall it seems likely that the the next few months in the stock market is going to be mostly tough going. Higher interest rates are taking a toll on many companies.
Today I reluctantly lighted up a little on my large Canadian Western bank position. That stock looks under-valued. They have a strong history of very limited bad loans. But I can’t be sure that their Q4 results on December 8th will not be disappointing so to be prudent I lightened up just a little. They have been saying that loan interest rates have been catching up to their higher deposits costs and therefore that should push up earnings. But the possibility of bad loans is always there. So far they have not announced staff cuts but they did say if earnings are not improved they will look at cutting expenses.