#5things: Before The Bell

Final trading month of the year, Stellantis tanks, Canadian bank earnings this week

Monday. For many it means a return to the grind and doing someone else’s bidding. For parents it means the end of the grind and doing someone else’s bidding. Cheers to your first warm cup of coffee in days.

Home stretch: Today is the first trading day of the last month of the year. What a year it has been. The S&P 500 notched its 53^rd record high and is poised to put in its first back to back-to-back 20%+ increase since 1998. The TSX is also at a record high and on track for its best yearly performance since 2009. On the S&P 500, every single sector is higher for the year. Financials are the best performing sector followed by tech. Interestingly, techs tocks are actually down over the last month due to semiconductor weakness. The sector isn’t as sanguine about Trump’s tariff threats and has been hit with a dose of reality about the PC market. On the TSX, all sectors are higher except for the telcos. Tech stocks are actually the best performing sector for 2024 with financials in second place thanks to the takeout of CI Financial and Canadian Western Bank. But even without those transactions, every single financial stock is higher this year except for TD. This week Canadian banks report their quarterly results (preview below). This morning futures are a bit downbeat ahead of jobs data on both sides of the border Friday. Earnings have slowed to a crawl but we do have Salesforce on Tuesday.

Not my problem: Shares of Stellantis are down 7.5% after the sudden departure of CEO Carlos Tavares. He’s leaving two years earlier than expected after a 46% drop in shares this year. This leaves Stellantis without a leader during an industry-wide slowdown. Stellantis joined peers slashing its full year sales and profit forecast back in September. The company says there will be a new CEO in a process led by the chair John Elkann. Elkann is a known quantity to investors, he is the Chair of Ferrari and stepped in as interim CEO in 2020. Ferrari shares are up 140% since then. “As such,” wrote Tom Narayan of RBC, “It may be entirely possible that Stellantis can get through this rough patch.” But Narayan says there are still plenty of headwinds like carbon emissions compliance in Europe, Chinese competition and the threat of tariffs that keep them on the sidelines.

Mar-a-lago eh: Prime Minister Justin Trudeau flew to Mar-a-Lago to have dinner with President-elect Donald Trump on Friday evening. This comes just days after Trump threatened to slap tariffs on us if we don’t strengthen the border. It seems like relations were smoothed over if the pictures are any indication with Trudeau posting on X “I look forward to the work we can do together, again.” I’ll watch for any relief in stocks that have been hit hard as a result of trade tensions like Bombardier, BRP and the auto-part makers.

Notable calls: Shares of the Gap are higher after JP Morgan said sales are at an inflection point. The analyst likes that we are now seeing a “consistent playbook” after four straight quarters of revenue growth under its turnaround CEO Richard Dickson. Cloudflare is rallying after Morgan Stanley says it has AI potential. They’ve put a street-high price target of $130/share which implies 30% upside from here. RBC has started covering Primaris REIT with a buy saying this small-cap REIT punches above its weight. “The combination of its unique strategic positioning in retail, superior growth profile, below-average leverage, and discounted valuation should appeal to a broad investor base., wrote Pammi Bir in the initiation. Lastly, Scotia says they see a scenario where BCE could and should cut its dividend. While it is not their base case, Maher Yaghi said it could happen in two scenarios 1) another material US acquisition 2) CRTC significantly reducing wholesale rates. “If the company is seriously looking to expand its business in the U.S. we believe that the board should consider cutting the dividend,” he wrote this morning. The dividend yield currently sits at 10.5% and the stock is trading around the lowest level since 2011.

Bank on it: Canadian banks have been in rally mode since last quarter and are set to report quarterly results this week. Scotia reports Tuesday, RBC and National are on Wednesday, and BMO, CIBC, TD are out Thursday morning. All banks except Scotia are expected to raise their dividend. Scotia will be interesting to watch because there have been at least four upgrades going into quarterly results. National Bank’s Gabriel Dechaine says there is a chance that Scotia increases its profit forecast for the year. BMO will be one to watch because its credit performance as been worse than the other banks and the stock sold-off sharply after the last two earnings results. We could be in for another “credit clearing” event, warns Dechaine. However, he also says if the bank takes provisions for credit losses higher this could actually be positive for the stock. “The bank may take a more pro-active approach in provisioning…If such a scenario materializes, we believe the market reaction could be positive,” he wrote in an earnings preview. And then there is TD. The only bank stock in the red this year. Which also makes it a candidate for that good old “worst will be first” trade (taking last year’s underperformer and overweighting it the following year). With all the anti-money laundering issues, a big fine and an asset cap, needless to say the bar is low. That could create an opportunity says Scotia’s Meny Grauman. “TD heads into reporting season with very low expectations and maximum negativity,” Grauman wrote in a preview note, “(This creates) a low bar for a better than expected result…any constructive forward guidance would be a big plus, and is clearly not being factored into the bank’s current valuation.”