With this edition we discuss how Mr. Trump’s decisive policies lead to definitive trade ideas, and why they’re bad for the loonie. A remarkable archeological find in Mexico is the diversion and we look ahead to important data releases including earnings reports for major stocks.
Trader on the New York Stock Exchange WednesdayTIMOTHY A. CLARY/AFP/Getty Images
Election aftermath
New regime means new trade ideas
There are potential election-related trade opportunities available, whether domestic investors are happy with the result or not. Citi U.S. equity strategist Scott Chronert offered a list of 20 election-related trades Tuesday morning. Below I’ll sort them through for the most promising for Canadian investors, and I also present input from Scotiabank strategist Hugo Ste-Marie.
Some of the ideas in Mr. Chronert’s Twenty Election Trades to Track research report are too difficult for the average investor to execute. The first idea, for example, is to buy the nine-day VIX futures contract and sell the 30-day.
The strategist likes the Russell 2000 as a beneficiary of Mr. Trump’s America first policies. Planned tariffs will protect smaller U.S. firms from foreign competition (while causing higher consumer prices). This idea has already proved prescient – the Russell 2000 was up nearly 5 per cent midday Wednesday.
The new president is likely to open more government land for oil production. The extra supply won’t help the crude price but the increase in activity will help oil services stocks. Relatedly, infrastructure spending should be refocused on roads and bridges – the old fossil fuel-centric economy – rather than renewable power, electric vehicles and fuel cells.
Mr. Chronert recommends smaller regional banks over the megacap money center banks but I doubt this will interest Canadian investors much – domestic investors tend to stay in the domestic market for financials.
Mr. Chronert mentioned commodities in passing – he favours those that benefit from the expected inflation arising from new tariffs – but Mr. Ste-Marie, in a Wednesday report, was more definitive. He forecasts that the initial downturn Wednesday morning in the copper price will continue as less U.S. support for renewable power delays electrification.
Mr. Ste-Marie also reiterated his preference for U.S. corporate bonds over government issues. Mr. Trump’s policies are inflationary and will force government bond yields higher (Reminder: bond prices and yields move in opposite direction). Corporate bond prices can be driven by profit results in addition to the broader interest rate environment.
Mr. Ste-Marie ended his report on a positive note for investors: “A Trump cocktail of deregulation and lower corporate taxes, coming with some Fed rate cuts, might send growth into overdrive in 2025.”
Currencies
Trump policies bad for the loonie
Another Trump presidency is unequivocally bad news for the Canadian dollar. As David Rosenberg pointed out yesterday, Mr. Trump’s announced corporate tax cut will make the U.S. a more favourable destination for foreign investment.
Mr. Trump is also expected to open more government land to oil production. The prospect of more supply will depress the crude price, and thus Canada’s terms of trade that drives the loonie’s value.
U.S. bond yields climbed sharply Wednesday morning in expectation of new U.S. tariffs that will create inflationary increases in consumer goods. (Mr. Rosenberg, as an aside, does not think tariffs will be inflationary but he is in the minority so far). Canada’s bond yields, thanks to a weak economy, are low and likely heading lower as the Bank of Canada cuts rates. The yield spread – U.S. Treasury yields minus government of Canada bond yields – is widening.
Crude prices and relative yields are consistently the most important drivers of the loonie’s value. With both of them moving in the direction that causes our currency to weaken, it’s hard to estimate how far it can fall before the domestic economy recovers.
You can read Mr. Rosenberg’s full reaction to Wednesday’s Trump-inspired market rally here. (He thinks investors are getting ahead of themselves).
A Lidar image shows what archeologists in Mexico say is a newly discovered lost Mayan city, which they named Valeriana, hidden deep in the southern jungle of Campeche, Mexico.Luke Auld-Thomas et al, 2024/Reuters
Diversions
New Indiana Joneses don’t have to leave the office
A student uncovered a Mayan city buried under vegetation in southern Mexico from thousands of miles away in the comfort of his own office. The student, Luke Auld-Thomas at Tulane University in New Orleans, used lasers to measure the slope of hills in the Mexican jungle. An algorithm developed at the University of Houston had previously been developed that can determine whether hills are naturally occurring or resulting from human construction.
The new find was named Valeriana after a local lake. It includes the ruins of pyramids, plazas, and a ball court. The full details of the story are on the Wired site here.
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The essentials
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The Rundown
How investors, economists and market strategists are reacting to Trump’s win
The bond market is now facing a particularly challenging time under Trump
Wednesday was a very bad day for Canadian pot stocks following the U.S. vote
The Report on Business on why more junior gold miners are about to be snapped up
What’s up next
Net change in employment for October is the big data release domestically, coming Friday. The unemployment rate for October is also out Friday and economists forecast a one-tenth uptick to 6.6 per cent. September building permits is the only other potentially interesting release coming up; it’s next Tuesday.
For earnings, the BCE Inc. report ($0.772 per share expected) on Thursday should be interesting and Cameco Corp. reports the same day ($0.236). Telus Corp reports on Friday ($0.236 – not a typo, it’s the same EPS expected for Cameco).
Next Tuesday is a big day for Canadian corporate earnings as Shopify Inc. (US$0.269), Power Corp. of Canada (C$1.144) and Suncor Energy (US$1.094) all announce results.
The Fed meeting on Thursday and accompanying announcement of rate policy is the big economic event in the U.S. – a 25 basis point cut is expected. The month-over-month change in the U.S. consumer price index ex-food and energy is out next Wednesday and economists forecast a 0.3 per cent rise.
S&P 500 earnings include Rockwell Automation Inc. (a company I follow to track robotics use) on Thursday and Home Depot Inc next Tuesday.
See our full economic and earnings calendar here (You can bookmark the page – it gets updated weekly)