Well, wow! It was quite a strong day in the markets indeed with the S&P 500 up a hefty 3.1% and Toronto up 0.9%.
As I listed to FED Chair Jerome Powell earlier today, I heard him say that once rates do get to some terminal rate, they would be staying there for a while. He said it would be a mistake to then start cutting rates too early. I thought stocks would fall on the news. But he also indicated that the next rate hike might be 50 basis points rather than 75. And the market interpreted his remarks to indicate that the terminal rate that the FED would get to before pausing would be somewhat lower than previously thought.
Overall, my sense is that the market may have over-reacted to the upside. Time will tell.
Stocks rising on this and perhaps other news included:
Shopify, up 9.5%
VISA, up 3.8 % and Apple, up 4.9%
After the close, Costco released November same-store sales growth of 5.3% (this excludes the impact of volatile gasoline prices and foreign exchange impacts). I believe this is the lowest same-store sales growth figure in several years or longer. Starting with the pandemic int he Spring of 2020, Costco has reported very strong same-store sales often in the mid-teens and finally slipping back under 10% earlier this year.
5.3% year over year same-store sales growth seems low in light of inflation. It suggests that volume was down.
I wonder if this is some kind of “canary in the coal mine”. Are consumers finally starting to get taped out? Or have they returned to shopping at smaller grocery stores?
Canada at 6.6% was stronger than the U.S. stores and that does not surprise me given what I see on my occasional trips to Costco.
I’ll be interested to see any analyst commentary on this tomorrow. I just checked and I see Costco is down 3.0% in after-hours trading due to the lower same-store sales growth.
Also tomorrow, I will be watching for the earnings release from Canadian Western Bank. As noted previously, I expect a decline in profit due to higher operating costs and a write-off of some software. The adjusted earnings growth will also be modest or perhaps a small decline I think. But I expect loans and deposit growth to be strong and the bank to have a rosy outlook for 2023. I don’t expect big issues with actual loan losses but the models may require an increase in projected loan losses due to economic conditions.