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%.

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.

The stocks that caught the eye this week

Biden and Republicans seek agreement on debt ceiling. US President Joe Biden and Republicans in Congress enter a critical week of debt ceiling negotiations, hoping to find common ground on spending levels and energy regulations to avoid a default that would devastating for the world’s largest economy.

Alberta wildfires: Vermilion Energy cuts production forecast. Vermilion Energy has lowered its production forecast for the current quarter due to a production disruption caused by wildfires in west-central Alberta.

Lower rates delayed by the recovery of the Canadian real estate market? Analysts believe signs of a recovery in the Canadian housing market after a tough year, as rising borrowing costs are expected to slow the rest of the economy, could push up inflation and delay a possible interest rate cut by the Bank of Canada.

Energy and trade: the G7 is considering new sanctions against Russia. G7 leaders plan to tighten sanctions against Russia at their summit in Japan this week, with measures targeting energy and exports that help Moscow’s war effort, officials said. officials with direct knowledge of the discussions.

US pipeline operator ONEOK is extending US$18.8 billion for Magellan. ONEOK on Sunday agreed to buy U.S. pipeline operator Magellan Midstream Partners in a cash and stock transaction valued at approximately US$18.8 billion including debt, which will allow ONEOK, which is focused on natural gas, to embark on the transport of refined products and oil.