Stock market: North American stock markets advanced at the end of the morning

MARKET REVIEW. The strength of the industrials, financials and base metals sectors allowed the Toronto Stock Exchange to advance late Tuesday morning, while the major American indices also gained ground.

The New York Stock Exchange is moving cautiously in the green on Tuesday after a decline the day before as several indicators paint a more optimistic picture of the American economy.

Stock market indices at noon
In Toronto, the S&P / TSX rose 81.55 points (+0.42%) to 19,668.87 points.

In New York, the S&P 500 rose 31.12 points (+0.72%) to 4,359.94 points.

The Nasdaq takes 140.73 points (+ 1.06%) to 13,470.14 points.

The DOW gained 141.79 points (+0.42%) to 33,856.50 points.

The loonie fell US$0.0019 (-0.2487%) to US$0.7582.

Oil lost US$1.39 (-2.00%) to US$67.98

Gold drops US$11.90 (-0.62%) to US$1,921.90

Bitcoin advanced US$74.33 (+0.24%) to US$30,477.29.

The context
Shortly before the opening, the Commerce Department published the status of durable goods orders which continued to rise beyond expectations in May, for the third consecutive month, thanks in particular to transport equipment. They rose by 1.7% and by 0.6% without the transport sector.

In Canada, inflation slowed in May, falling to 3.4% over one year against 4.4% in April against a backdrop of calm energy prices, even if food prices continued to rise sharply.

Over one month, prices increased by 0.4% in May, against 0.7% in April.

“All eyes are on the Canadian CPI index, because it tells us what the Central Bank of Canada thinks”, underlined the HFE analysts while the Canadian Central Bank is often the first of the major Western monetary institutions to initiate a movement in monetary policy.

To fight inflation, the Bank of Canada raised its main key rate by 0.25 points in early June to 4.75%, three months after being the first major central bank to pause its hikes.

For the United States, the PCE index, the Fed’s preferred measure for gauging inflation, will be released on Friday for the month of May.

As for the morale of American households, the Conference Board’s consumer confidence index for June turned out to be much better than expected at 109.7 points against 103.8 points expected and 102.5 points the month before.

Investors also have their eyes on the forum organized by the European Central Bank (ECB) in Sintra, Portugal.

Fed Chairman Jerome Powell will speak on Wednesday.

The ECB’s Christine Lagarde has already “sent a clear message that the cycle of rate hikes will continue,” commented Art Hogan of B. Riley Wealth Management.

The ECB will “continue” its rate hikes at its July monetary policy meeting because it is too early to “declare victory” in the fight against inflation in the euro zone, its president said on Tuesday.

Airlines are flying

In terms of values, the airline Delta (DAL) took off (DAL, +1.50%) after raising its forecast for the whole of its financial year thanks to an increase in demand and a drop in the cost of fuels. This also benefited other companies such as American Airlines (AAL, +2.77%) and United Airlines (UAL, +1.95%).

The travel sector followed suit, like cruise lines with a jump of almost 4% for Carnival (CCL) and 1.55% for Royal Caribbean (RCL).

Bad news from the side of the American manufacturer of electric pickups Lordstown Motors (RIDE) which finally declared bankruptcy while prosecuting the Taiwanese Foxconn which it accuses of not having kept its promises of commercial and financial partnership.

The title of the group created in 2018 collapsed by 44% and was worth only 1.53 US dollars (US$).

Pharmacy chain Walgreens (WBA) fell 9.94% after lowering its earnings forecast due to lower consumer demand for Covid tests and vaccines.

In the bond market, yields on 10-year notes were stable at 3.72%.

Stock market: what is moving in the markets before the opening on Friday

MARKET REVIEWS. Global stock markets were up on Friday, investors being reassured by the positive outcome on US debt and impatiently awaiting data on US employment to help them anticipate the next directions of central banks.

Stock indices
European markets were lower on Friday morning, hours after a robust session in Asia and on Wall Street.

London, Frankfurt and Paris yielded between 0.3% and 0.4% at the start of the session in Europe.

In New York, before the opening of the markets, the Dow Jones average of industrial values slipped by 0.2% and the broader S&P 500 index by 0.1%.

In Asia, the Nikkei 225 soared 2.0% in Tokyo. The Shanghai Stock Exchange rose 0.6% and the Hang Seng 0.5% in Hong Kong. Sydney added 0.3% and Seoul a solid 1.2%.

On the New York Commodities Exchange, the price of oil rose 2 US cents to US$71.31 a barrel.

The context
Upcoming central bank meetings are in the sights of investors. That of the American Federal Reserve (Fed) will be held on June 13 and 14, followed by those of the European Central Bank (ECB) on Thursday and the Bank of Japan on Friday.

In this context, the weekly jobless claims in the United States have been carefully scrutinized by analysts. In detail, registrations climbed in early June and are at their highest since October 2021, a sign that layoffs have multiplied.

“We need the US job market to lose some steam so the Fed can stop raising rates, otherwise major central banks will keep raising theirs,” said Ipek Ozkardeskaya, analyst at Swissquote Bank. .

“American companies laid off more workers in the first five months of this year than in all of last year,” the analyst added.

After ten consecutive hikes, analysts increasingly expect the powerful US monetary institution to take a break from raising its key interest rates in June, before another hike in July.

On the eurozone side, “the ECB may have to wait until September or even later before it has solid evidence that underlying inflation is slowing enough to put a pause or even stop the cycle of rate hike.”

Elsewhere in the economic news, inflation in China was near zero in May as ex-factory prices continued to plunge, signs of sluggish demand and a complicated environment for businesses, official figures showed on Friday.

The consumer price index (CPI), the main gauge of inflation in China, rose in May by 0.2% year on year, against 0.1% a month earlier, according to the National Bureau of Statistics (BNS), exactly what analysts interviewed by Bloomberg expected.

The bond is a little tense
Bond debt rates twitched slightly on Friday. The interest on the French 10-year loan was at 2.97%, against 2.94% the day before at the close. The interest of the German 10-year loan was displayed at 2.42%, against 2.40% the day before.

Croda falls in London
In London, the chemical group Croda fell by 12.52%, after announcing on Friday that a significant drop in sales at the start of the year would weigh on its annual result.

Commodities and Currencies
The price of a barrel of Brent from the North Sea for delivery in August fell 0.68% to US$75.44. Its American equivalent, the West Texas Intermediate (WTI), maturing in July, lost 0.71% to US$70.78.

The euro dropped 0.10% against the dollar, at US$1.0771.

Bitcoin fell 0.64% to $26,472.

Watch: Couche-Tard, Empire/IGA, and Walmart

What to do with Couche-Tard, Empire/IGA, and Walmart titles? Here are some analyst recommendations that could move prices soon. Note: the author may have a totally different opinion from that expressed by the analysts.

Couche-Tard (ATD, $67.27): the formal addition of 2,200 TotalÉnergies businesses adds $2 to RBC’s target
As Alimentation Couche-Tard prepares to unveil its annual results during the week of June 26, Irene Nattel of RBC Capital Markets formally adds to its forecasts the acquisition of the 2,200 businesses in four European countries from TotalÉnergies announced in March .

In his eyes, the $4.5 billion transaction represents the quintessence of the group’s acquisitions with its strategically complementary assets. The attractive price paid will also produce a financially profitable transaction for shareholders, adds the enthusiastic analyst.

Irene Nattel predicts that the largest purchase in seven years will add 5-7% to profits in the first year thanks to the sharing of best practices, the geographical complementarity of the network and the realization of revenue synergies.

In the current environment of high rates and economic uncertainty, the analyst reiterates that Couche-Tard remains a favorite stock for the second half, as the company can generate free cash flow throughout economic cycles. In addition, the still healthy balance sheet gives it the financial flexibility to consider various options to add to its value, she argues.

Even after the European purchase and those of Mapco Express and Red Stores, the debt represents only 2.25 times the operating profit which provides a transactional capacity of still 10 billion US dollars, estimates the analyst.

Irene Nattel expects the TotalÉnergies transaction to add 5-7% to annual profits between 2025 and 2027, 2-4% more than her earlier forecast which instead incorporated the potential buyback of 15% of shares during this period. period.

“At the time of the announcement of the transaction, we had left our guidance unchanged, but we had raised the valuation multiple (to 18.5 times the expected earnings) to reflect the potential earnings of the acquisition”, puts- her in context.

For the fourth quarter, RBC analyst forecasts operating profit of US$1.1 billion (up 1.4%) and earnings of US$0.55 per share (unchanged), more than the respective consensus of US$1.06B and US$0.50, despite the lower margins expected on gasoline at the pump compared to last year.

These estimates are based on a 4.7% decline in revenue to US$15.6 billion, but a 43 percentage point improvement in consolidated operating margin to 7.1%. The analyst points out that the 10% depreciation of the euro against the US dollar and 6.5% against the loonie are two headwinds for the results.

In the end, Irene Nattel raises her target from $85 to $87, i.e. 18.5 times the profit expected in mid-2025 and renews her buy recommendation. She notes that the stock’s current valuation remains within the historical average seen since 2014 despite robust financial performance.

Watch: CAE, Coveo and Alithya

What to do with titles from CAE, Coveo and Alithya? Here are some analyst recommendations that could move prices soon. Note: the author may have a totally different opinion from that expressed by the analysts.

CAE (CAE, $28.40): the civil sector continues its solid performance

CAE’s civil segment continued its strong performance in the fourth quarter with a 53% increase in revenue compared to the same quarter in 2022.

Revenues from this market segment stopped at $661 million, slightly above National Bank Capital Markets expectations ($650 million), said analyst Cameron Doerksen. The operating margin of 24.6% was also higher than the financial institution’s forecast (24%).

Cameron Doerksen also points out that CAE’s simulation center was used at 78% of its capacity, an increase compared to the third quarter (+5%), which allowed the company to return to a use similar to that of before the pandemic. There is still additional demand for the training of airplane pilots, particularly in the Asia-Pacific, which still gives room for manoeuvre.

CAE also reported backlog of $5.7 billion at the end of the fourth quarter compared to $5.6 billion at the end of the third. The company also received 62 flight simulator orders for fiscal 2023, the second highest total in its history after the 78 ordered in 2019.

On the side of the defense sector, the margins are still a little thin, advance Cameron Doerksen. Revenues were $526 million in the fourth quarter (+14%), still ahead of National Bank forecasts ($507 million), but margins came in at 5.7%, slightly less than what than expected by the financial institution (6%). The backlog remains healthy ($5.1 billion) and CAE has announced that new contracts won over the past year should offer higher margins. The analyst predicts better visibility on profitability in the coming quarters, with margins expected to reach 10%.

The analyst believes that CAE should continue to benefit from growth in its civil sector, which will be supported by the upcoming recovery in pilot training as well as an increase in flight simulator deliveries.

National Bank maintains its forecast of outperformance of CAE shares against its sector of activity as well as its target price of $37.