Frances Horodelski

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The secret of my influence is that it always remained secret – Salvador Dali, born on this day in 1904.

Market moving news

Oil inventory data from the American Petroleum Institute saw a strong build (3.45 million) and the Street expects the DOE numbers to follow suit with a 750,000 building to another eight-decade high. Disney shares down 5 per cent on weak numbers ($1.36 vs $1.40), and the search for a new future leader. Sleep Country reported a four per cent beat.Bluesky Hotels & Resorts is buying InnVest Real Estate for $2.1 billion or $7.25/share cash. Activists who own 29 per cent of the stock of InnVest are in agreement. The collapse of the Staples/Office Depot deal (as the courts have said a final ‘no’ and the companies have now officially called it quits) is putting pressure on ODP (-26 per cent) and SPLS (-10 per cent). After yesterday’s rally, greed is back to 67 on the CNN index. Gold up, oil up, Yen and euro up, equity markets down (with European banks giving back yesterday’s gains). Things feel tentative. No big earnings or economic news to drive things although Macy’s reported a drop in sales for a fifth straight quarter.

Seasonality

While there are so many rhymes (Sell in May and Pray, Sell before the June Swoon) that are fodder for comedians, there are distinct seasonal patterns that are often profitable (as always, until they aren’t). In any event, here are two. From the Stock Trader’s Almanac: “Silver has a strong tendency to peak or continue lower in May, bottoming in mid to late June.” In the past 43 years, this trade has worked more than 2/3 of the time (better than a coin flip) and successful nine out of the past 10 years. Another very distinct seasonal trend is a strong U.S. dollar in May (which indeed could support the silver weakening trade). According to MKM Partners’ technical analyst Jonathan Krinsky, the U.S. dollar has been the strongest in May of all the 12 months in nine of the past 10 years!

U.S. earnings summation

According to Factset with 87 per cent of the S&P 500 having reported, earnings are down 7.1 per cent year-over-year with negative growth having been posted for four quarters in a row. Revenue down five quarters consecutively. Thomson Reuters has earnings down 4.1 per cent, but excluding energy, +0.1 per cent. Between the two groups, there is quite a discrepancy in calculating consensus earnings where Thomson Reuters has a $135 earnings estimate and Factset is using about $125 – which alters valuation parameters pretty significantly for the S&P 500. Yardeni Research is using $119 this year (and consensus top down forecasts appear to be in the $120 range generally). So pick any E you want to calculate the P/E and you’ll decide whether the market is cheap or expensive.

Sun Life Financial

This is a comment from BMO’s analyst (Tom MacKinnon) on Sun Life, which underscores how complex insurance companies can be. He breaks down the five cent beat (11 cents better than his number) as follows – 3 cents from higher than expected investment experience gains; 5 cents in a higher-than-expected impact from policyholder experience largely due to favourable morbidity in U.S. employee benefits and 3 cents in better than expected impact from credit/other items. Sales growth was good in the U.S. and Canada, weak in Asia. MFS net sales were negative while margins were weaker. Dividend hike of 4 per cent was in line with estimates. Things aren’t as simple as – “Sun Life beat by a nickel”.

Research pile

WSP Global downgraded to perform from buy at CIBC (target unchanged at $45); DHX Media initiated with Outperform at RBC ($10 target); Emerson Electric raised to buy at Argus ($61 target); Kinross Gold now hold vs sell at Goldman; Jazz Pharma upgraded to buy with $193 target at Mizuho; Staples downgraded at Jefferies and UBS to hold; Office Depot sell at UBS. According to RBC following a visit to the Wine & Spirits Daily Summit, rye whiskey is the fastest growing spirit (+37 per cent year-over-year), while Prosecco (+33 per cent) is the fastest growing wine. There seems to be some concern about bad craft and “flavoured” whiskeys as a possible problem for the whiskey category in the future. Finally, according to CIBC’s FX strategy group, a Stats Canada survey highlighted the overall decline in business investment in various sectors for 2016. Overall -4.4 per cent, but aggravated by a “slide of investment in mining, quarrying, oil and gas” of 23 per cent after a 31 per cent decline in 2015. CIBC retains a negative bias on the Canadian dollar with a mid-$1.30s (74 cent) target into the second half. Continue to watch two-year spreads (U.S. vs Canada) which have continued to narrow in favour of the U.S. My comment is that no-one is expected a June U.S. Fed hike and very few even as the year progresses. A surprise by the Fed – could play havoc with currencies.

Every morning Business Day Host Frances Horodelski writes a "chase note" to BNN's editorial staff listing the stories and events that will be in the spotlight that day. Have it delivered to your inbox before the trading day begins.