Here are five things to know this week:
Fog of war: Iran will still be front and centre for markets this week. Investors had to recalibrate quickly last week after the United States and Israel launched attacks that were met with retaliation. Crude oil surged 35 per cent last week – the biggest weekly surge on record. Oil stocks were slow to participate, finishing just 1 per cent higher on the week. Bonds weren’t so sanguine. Fixed-income markets sold off on fears that higher oil prices mean higher inflation and lower odds on rate cuts by central banks. Friday’s job losses in the U.S. complicated that picture even further.
The U.S. unexpectedly shed 92,000 jobs in February compared with an expected gain of 55,000 jobs. The U.S. Federal Reserve has two mandates: price stability and full employment. The data is pulling the Fed in two different directions. “As much as the term ‘stagflation’ has been wildly overused in recent years, a true oil price shock would indeed increase the risks of stagflationary forces – higher inflation, weaker growth; not a market-friendly combination,” wrote BMO’s Doug Porter.
Time for a call: Before Iran, the market’s biggest preoccupation was AI eating software. Canada’s Constellation Software CSU-T has been caught up in those anxieties, with the stock down 43 per cent since its record high 10 months ago. It’s against this backdrop that Constellation reports results Monday morning and hosts a conference call. This will be the first time the company has held a conference call since 2018. The last one concluded with founder and then-CEO Mark Leonard saying, “We are thinking of eliminating these calls. We don’t believe they provide a lot of material information to shareholders.” Now, Constellation has a new CEO and the stock is languishing around a multiyear low. Needless to say, investors would like some material information. Having said that, if AI is eating Constellation’s business, it’s not showing up in forecasts. Analysts project 16-per-cent sales growth, which is in line with previous quarters.
The key question is whether software sales will be harder to increase and if margins become thinner. Optimists say the software sell-off could also be creating opportunities for Constellation. Just last week the company announced an equity investment in Sabre – a Texas-based travel tech company, which recently fell to a record low. This deal demonstrates two things, wrote RBC Capital Markets analyst Paul Treiber. “The decline in public market valuations and reduced investor sentiment for software assets may increase the likelihood that Constellation is able to acquire public software companies,” he wrote, “Moreover, Constellation’s willingness to deploy capital on software assets suggests that management does not believe that the long-term value of these businesses has been eroded by AI.”
Oracle of Ellison: The other AI punching bag has been Oracle ORCL-N. It is down 52 per cent from the peak in September. The maker of networking gear reports Tuesday after the bell. Concerns that Oracle is too exposed to OpenAI and has high levels of debt have crushed the stock. But in terms of fundamentals, Oracle has been a beneficiary of spending by hyperscalers on data centres. Total revenue is expected to soar 19.5 per cent year-over-year, which for Oracle is a big deal. That would be the fastest pace of quarterly sales growth since 2011. “While shares have been under pressure on broader software + financing concerns,” wrote Citi analyst Tyler Radke, “We still see ORCL on track to deliver one of the strongest revenue/EPS accelerations in tech as large AI contracts ramp in the years ahead.”
Lennar: If the homebuilders were hoping lower rates would stoke housing demand, the surprise attack in Iran has put a wrench in those plans. Rates have moved higher and it’s unclear if the Federal Reserve will be able to deliver on rate cuts if inflation picks up owing to higher oil prices. Shares of Lennar LEN-N fell 12 per cent last week in the aftermath and are trading at their lowest level since October, 2023. The homebuilder reports Thursday. Year-over-year sales are expected to fall 9 per cent and investors will be keen to hear about how aggressively incentives need to ramp up in order to entice buyers.
Streamers: How much of a boon to earnings has the precious metals rally been to streamers - financial companies that provide capital to miners in exchange for a right to purchase part of future production. We will find out with Franco-Nevada FNV-T and Wheaton Precious Metals WPM-T set to report next week. Both Canadian companies are expected to post record profitability thanks to higher metals prices.
In the Money with Amber Kanwar is Canada’s top investing podcast. New episodes out Tuesday and Thursday. Subscribe now at www.inthemoneypod.com