Welcome to week 4 of the 2023 season folks! In light of this week’s slew of economic announcements being released, including retail, housing and jobless data, we have published a special report on the current state of inflation and interest rates - check it out here. Read on for your daily dose of inspiration with a rundown of the Canadian equity market, your daily trade idea and what’s going on in the macro picture within this 201st Coachman’s Report!
Markets in Review
Zeroing in on the Canadian equity market today - the TSX60 is trading at a very crucial area of value, having been unable to break through this 20,500-point level twice before in the past 6 months. The difference this time lies within the technicals, almost a week ago the index experienced a golden cross event, where the 50-day moving average crossed above the 200-day MA; this is widely thought of as a bullish marker and considering the relative outperformance of Canadian equities through last year, it may be the bellwether needed for further inflows to the market through 2023. Lastly, on a valuation basis, Canadian equities are actually cheaper than their US counterparts with the TSX60 trading at an 18x P/E, whereas the S&P has recently spiked to a 23x P/E multiple.
The following will serve as a review of the current Q4 earnings season data as well as a preview of the most anticipated issuers reporting through the week: Earnings Scorecard: For Q4 2022 (with 11% of S&P 500 companies reporting actual results), 67% of S&P 500 companies have reported a positive EPS surprise and 64% of S&P 500 companies have reported a positive revenue surprise. Earnings Growth: For Q4 2022, the blended earnings decline for the S&P 500 is -4.6%. If -4.6% is the actual decline for the quarter, it will mark the first time the index has reported a year-over-year decline in earnings since Q3 2020 (-5.7%). Earnings Revisions: On December 31, the estimated earnings decline for Q4 2022 was -3.2%. Nine sectors are reporting lower earnings today (compared to December 31) due to downward revisions to EPS estimates and negative EPS surprises. Earnings Guidance: For Q1 2023, 5 S&P 500 companies have issued negative EPS guidance and 2 S&P 500 companies have issued positive EPS guidance. Valuation: The forward 12-month P/E ratio for the S&P 500 is 17.0. This P/E ratio is below the 5-year average (18.5) and below the 10-year average (17.2).
Short: Baker Hughes Company (BKR-NASDAQ) | Timeline: 2 days
Baker Hughes Company (BKR), which provides a portfolio of technologies and services to energy and industrial value chains worldwide, reported earnings this morning before the market open. Unfortunately, the company missed earnings and revenue estimates by 4.97% and 2.53%, respectively, amid the weight of inflationary pressures and tightening monetary conditions. (Full Story)
Turning to the chart, BKR has had quite a volatile last 12 months, reaching highs of almost $40, and lows of $20. As the stock has settled in the high 20s to low 30s, a critical resistance level at $31 has formed, and a rejection is likely at this level - signalled by a falling Stochastic RSI supported by an earnings miss.
Zooming Out...
Binance’s Banking Problem
One of Binance’s banking partners, Signature Bank, has announced that as of February 1st they will no longer be supporting SWIFT transactions with the platform for any amount under $100K USD. This means that after February 1st, users who do not meet the threshold will have their assets effectively stuck in limbo. Luckily, according to Binance, only 0.01% of monthly users are served by Signature, and the company is exploring solutions for affected customers.
This announcement comes amidst an increasingly hostile regulatory picture for crypto, and just days after the US Justice department unveiled unlicensed money transmitting charges against the founder of Hong Kong based exchange bitzlato.
While Binance’s woes are currently limited to Signature Bank, there may be more headaches ahead for the average crypto investor if other institutions decide to follow suit. Moreover, users of other platforms including Cashapp have reported that they are unable to purchase cryptocurrency through the app as of Sunday- however, these claims are unverified and as such should be taken with a grain of salt.
Control Concerns…
Japan’s Finance Minister has announced that the country’s public finances have increased in severity to an unprecedented degree due to the supplementary budgets created in the years since the pandemic began. This announcement was made at the opening of the Japanese parliament early Monday morning, weeks after investors broke through the government’s self-imposed 0.5% yield on the 10-year bond twice in the past month.
That said, the 10-year yield has fallen back to just over 0.39% as the government utilized 1T yen worth of 5-year bonds to fuel the market. This capital injection demonstrated strong demand for the bonds as the central bank reportedly received roughly 3T yen in bids.
Making Headlines...
Bribery trial of ex-Ohio House speaker to begin in earnest
Opening statements are scheduled Monday in former Ohio House Speaker Larry Householder’s bribery trial in what federal prosecutors believe is the largest corruption case in state history. (Full Story)
Spotify is laying off around 6% of its workforce
Spotify on Monday announced plans to lay off around 6% of its global workforce in an effort to reduce costs and become more efficient. (Full Story)
Trump wants to ditch his deal…
Former President Donald Trump is preparing a Twitter comeback, with plans to drop an exclusivity agreement he has with his own platform, Truth Social, according to reports. (Full Story)
EU plans more Iran sanctions; won't list Revolutionary Guard
The European Union is set Monday to impose sanctions on several more Iranian officials suspected of playing a role in the crackdown on protesters, but won't add the Islamic Republic’s Revolutionary Guard to the EU’s terror group blacklist. (Full Story)
Chart of the Day: One of the most bullish charts in today's macro environment.
“If opportunity doesn’t knock, build a door.”
― Kurt Cobain
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