Dado Ruvic/Reuters
I’m supposed to write five things to know this week, but really there is just one thing:
Nvidia we trust: Not to hyperbolize the significance of the artificial-intelligence chip maker releasing its quarterly results, but if the markets were to channel my eldest daughter they might say something like “If the results don’t blow everyone’s mind, I will literally die.” After a 5-per-cent pullback in the past two weeks in the Magnificent Seven, it may feel that way to investors. Nvidia Corp. NVDA-Q is down nearly 9 per cent from the October peak. Analysts are expecting Nvidia’s third-quarter earnings per share, or EPS, to increase 60 per cent and sales to grow 57 per cent. For a US$4-trillion company with more than US$200-billion in sales to be growing more than 60 per cent every quarter is unprecedented. There are also anxieties about how tech companies are treating their purchases of chips from an accounting perspective.
Short-seller Michael Burry has been among those raising concerns, saying tech companies are extending the useful life of these chips, which means depreciation over a longer term, boosting their earnings. This would imply, then, that you don’t need to buy Nvidia chips as frequently. “All roads lead to OpenAI and Nvidia; if either of them falter, we’re going to have problems,” Shane Obata, portfolio manager at Middlefield Ltd., said on my podcast last week. He doesn’t see that happening any time soon.
Indeed, Citi’s Atif Malik said investors should buy Nvidia into quarterly results expecting a “beat and raise” quarter. He put a 30x multiple on 2026 earnings.
Still, a beat might not be enough. Microsoft Corp. MSFT-Q, Meta Platforms Inc. META-Q and Palantir Technologies Inc. PLTR-Q all beat profit expectations but shares still sold off when they reported.
Wherefore art thou, data: The U.S. government shutdown is over but the market is two months behind on data. We may get September jobs data later in the week. That may not be enough to tip the scales in favour of an interest-rate cut. The market has dialled back odds of a December cut by the Federal Reserve in the absence of data. And we may never get the jobs or inflation data for October. Even when the data start coming out again, they will capture the upheaval from the effects of the shutdown, clouding the true economic picture for the Federal Reserve.
“Several officials, including a few not typically of hawkish persuasion, have signalled they are uncommitted to easing further,” wrote Bank of Montreal senior economist Sal Guatieri, “aligning with Chair Powell’s earlier warning that a follow-up rate cut is ‘far from’ a done deal.” Minutes from the rate-setting Federal Open Market Committee’s meeting should shed some light on this fracturing given that the last rate-cut decision included two dissenters. One called for no rate cuts and another called for double the rate cut. At least here at home, we will get a complete picture with inflation expected to cool to 2.2 per cent in October from 2.4 per cent. Not that it matters for central bank policy, because the Bank of Canada has already signalled it is done cutting rates.
Retail therapy: Walmart Inc. WMT-N and Target Corp. TGT-N both report quarterly results this week and all eyes will be on what they tell us about the state of the U.S. consumer. Walmart is trading near record highs but the stock has actually lagged the overall market in the past six months. The world’s largest retailer announced last week that CEO Doug McMillon will be retiring after nearly 12 years at the helm, with the head of the company’s U.S. business tapped to replace him. No doubt this will dominate questions on the conference call, in addition to focus on sales strength in the back-to-school season. Target also reports results this week and the stock has struggled to get off the mat. It continues to languish around six-year lows as investors expect same-store sales to fall for a third quarter in a row.
Hammer home: Home Depot Inc. HD-N and Lowe’s Companies Inc. LOW-N report quarterly results against a peculiar set of circumstances. Since the Fed started cutting rates again in September, the stocks have sold off more than 10 per cent. One would think that amid rate cuts and a boost to the housing market, home-improvement stores would start to perk up. Analysts aren’t expecting a big pop in sales, in part because of a strong hurricane repair-related sales surge this time last year. Tariffs are also a concern, expected to weigh on margins. The other, less-discussed factor: ICE raids that have created a labour shortage for builders, who then make fewer bulk purchases.
If one wants to be optimistic about the stocks, look at home prices in the United States, said Bank of America senior retail analyst Robert Ohmes. “Over the long term, home price appreciation has had the greatest correlation with [Home Depot’s] comparable sales,” he wrote in a preview note to clients. Recently, U.S. home prices have started to pick up, potentially a leading indicator.
One is the loneliest number: There is just one TSX Composite company reporting this week: Metro Inc. MRU-T The grocery chain will report on Wednesday morning and is expected to show a 12-per-cent jump in profit and 2.7-per-cent increase in same-store sales. The stock has been rallying into results but is off nearly 10 per cent from its all-time high earlier this year after warning of a refrigeration problem at its frozen-food distribution centre in Toronto. The company warned in October it would take a $22-million hit this quarter because of these issues.
In the Money with Amber Kanwar is Canada’s top investing podcast. New episodes out Tuesday and Thursday. Subscribe now! www.inthemoneypod.com