A trader works on the floor at the New York Stock Exchange on March 23. We will get our first glimpse of how the war in Iran affected the American economy this week, writes Amber Kanwar.Brendan McDermid/Reuters
My husband is ready to have his heart broken again. After swearing off baseball, nay all sports, following the Blue Jays crushing World Series defeat last year, it appears he is ready to love again. He is taking our daughter to a game this week. It’s the kind of delusional optimism I wish he would apply when I say, “I think a road trip with three kids would be fun.”
Here are five things to know this week:
Duration risk: The key driver for the markets will continue to be the war in Iran as it enters its fifth week. The S&P 500 fell for a fifth week in a row, its longest losing streak since 2022. The NASDAQ entered correction territory with a 10-per-cent pullback. The S&P/TSX Composite hasn’t been spared, down 7.6 per cent from the record high. Under the hood, the damage is worse. Sixty-four per cent of TSX stocks are in correction territory while 75 per cent of stocks are in correction on the S&P 500.
“We can’t call the duration of this conflict with any accuracy,” said Amritha Kasturirangan, vice-president and portfolio manager at Franklin Templeton’s Franklin Equity Group, on my podcast last week. “But a few things stand out … the timing of mid-term elections and the rising price of gas at the pump. If you start getting close to a five-handle [on gas prices], that starts creating massive consumer anxiety. Those should act as natural brakes on this administration’s willingness to prolong the war.” The US$30-billion fund manager said this, coupled with positive underlying fundamentals like the AI productivity cycle, should win out the day for investors.
The price of war: We will get our first glimpse of how the war in Iran affected the American economy this week. Inflation may first show up in the ISM reading of the manufacturing sector, specifically the prices paid component. At last reading, prices paid hit the highest level since 2022 and that was before the spike in energy prices.
On Friday, we will get the U.S. jobs report, which is expected to show growth of 51,000 jobs. While that would be better than the 92,000 jobs lost in February, it is still well below 125,000 average monthly job gains over the last 10 years. “With the labour market returning to modest net job growth in March, the energy prices shock is expected to keep the Fed on hold at least until September,” wrote Scott Anderson, chief U.S. economist at BMO Economics.
Difficult go: Embattled subprime lender Goeasy will report results Tuesday, after delaying its earnings with a disastrous warning about write-downs, which forced the company to suspend its dividend. That led to a 72-per-cent crash in the stock this year. A few weeks ago, Goeasy announced more than $200-million in charges owing to losses in its auto and powersport lending business. This followed reports from short-seller Jehoshaphat Research in September, accusing the company of sitting on improperly delayed credit losses.
Now that the stock has cratered, and the short-seller has said the worst is over, investors (if there are any left) will want clarity on the path toward recovery. Last week, the company announced amended lending agreements, which provides up to $983-million in liquidity. “[The lending agreement announcement] implies that GSY can avoid a worst-case scenario of having to undertake a dilutive equity raise and/or having to idle more of its lending operations,” wrote ATB Cormark’s co-head of equity research Jeff Fenwick. “And provides time and space for GSY to reorient its business plan.” Analysts expect a loss for the fourth quarter.
On the ropes: Nike reports Tuesday after the bell with its stock trading at an 8½-year low. A new chief executive officer, product realignment and activist investor have all failed to halt the stock’s decline. Analysts expect earnings per share will drop 43 per cent from last year while sales growth remains anemic. China, which represents 15 per cent of sales, has been a pain point. Last quarter, sales in the Chinese market fell 17 per cent.
Nike has been dealing with twin battles. The first is the self-inflicted wound of attempting direct-to-consumer sales, which led to lost market share. The second is tariffs, which have negatively affected Nike because it makes the bulk of its products abroad. The worst of the tariffs may be behind it, argued Barclays analyst Adrienne Yih, who upgraded the stock earlier this month. She sees “inflections” in the financials and notes the company is making good progress on turnaround efforts, which “provide a solid foundation for a more constructive investment thesis.”
Cool start: The Canadian economy is expected to show no growth in the month of January when the figures are released Tuesday morning. We will also get a flash estimate for February. These are numbers from before the war broke out, but they will give us a sense of how much the Canadian economy was under pressure in the lead-up to the war.
We will also get a read of Canada’s trade position with new data out on Thursday. Recall, last year Canada posted its widest trade deficit on record outside of the COVID years. Economists expect this will start to narrow, in part because of oil prices. “We expect a narrowing in Canada’s trade deficit from $3.6-billion to $1.8-billion driven by a partial rebound in auto exports and higher oil prices. The deficit should continue to narrow in March after the Middle East conflict drove oil prices sharply higher,” wrote RBC senior economist Claire Fan and economist Abbey Xu.
In the Money with Amber Kanwar is Canada’s top investing podcast. New episodes out Tuesday and Thursday. Subscribe now! www.inthemoneypod.com