In the Money: 5 Things to Know
Futures higher, Apple pops, Intel not as bad as feared, Exxon & Chevron report, CN Rail offers rosy outlook
I woke up at 5am and figured I would get cracking on the morning note before any of the kids woke up. Parents already know how this one ends. Despite being essentially motionless in a dark room, Child 1 sniffed me out. She has set camp in my closet, is currently on her third wardrobe change of the morning, and belting out “What is love? Baby don’t hurt me, don’t hurt me, no more.” Solitude is overrated when you’ve got a soundtrack like that.
The full interview with options trader Mark Sebastian of OptionPit is now up on YouTube. He had a lot of relevant insights applicable to today’s moves including nibbling away at Intel and calling Apple the new US 10-year treasury (more on both below).
Chicken: Markets put in a strong showing yesterday and US futures are indicating a good start to the day, but make no mistake the game of chicken being played around tariffs is also making its mark. US President Donald Trump has vowed to follow through on tariffs for Canadian and Mexican goods tomorrow. As of this writing, it remains unclear if oil will be exempt from those tariffs. On the back of the heightened risk of tariffs, gold shot up to a record high and that helped to propel the TSX to a fresh record and its best one-day rally since November. The Canadian dollar dipped below $0.69 US before stabilizing this morning. The TSX resilience is at odds with the weakening Canadian dollar, wrote John Aiken of Jefferies. He notes that the last time there was a trade spat between the US and Canada over steel and aluminum, the TSX fell nearly 13% (between July 2018 and December 2018). With the TSX at a record high, Aiken remarked on the disconnect between stocks and the currency (see chart). “While the CAD has faced pressure since the U.S. presidential election, equity valuations have been much more resilient,” wrote Aiken, “This is a disconnect from our standpoint that could see pressure on equity valuations, should tariffs be applied.” While the overall market is resilient, there are definitely areas that tariff fears are showing up. Auto makers like Ford and General Motors are down since the election and auto-part makers are also under pressure. Steel stocks have also succumbed to tariff anxiety.
An apple a day: Shares of Apple are up 4% in the pre-market after sales and profit came in better than expected and the company promised iPhone sales in the next quarter would increase. Apple is calling for low-to-mid single digit growth in the upcoming quarter and that appears to assuage investor fears of deteriorating trends. Sales in China fell 11% while iPhone sales were down 1%, both were worse than expected. On the plus side, the services business continued to grow reaching record revenue and increasing 14% from last year. Still, the weakness in iPhone sales is troubling considering this was the quarter with Apple Intelligence (Apple’s AI offering). Tim Cook, CEO of Apple, did point out that markets that had Apple Intelligence performed better than ones without. There is no Apple Intelligence in China. The weakness in China means that it is becoming a smaller part of Apple’s total sales. There may be growth opportunities elsewhere, notes Amit Daryanani at Evercore. “Emerging markets are starting to become sizable enough that they are offsetting China headwinds and AAPL share is still low,” wrote Daryanani in a note to clients.
Intel on Intel: Shares of Intel are tenuously higher in the pre-market as sales didn’t fall as much as feared at the embattled chipmaker. Sales dropped 7% in the quarter, but that was better than expected and it lost less money than analysts were expecting. I guess that is good news? Nevermind that the chipmaker forecasted an 11-18% drop in sales the upcoming quarter. Part of the reason for the slight rally this morning could be because it is trading near a 14-year low and investors have already priced in the worst of it. The company is in the middle of a CEO search and recalibrating its reliance on the US government as the Biden admistration supported Intel with billions in funding while the there is uncertianty as to whether the Trump administration will do the same. Unclear if the rally will hold given a lot of headwinds and no clear signs of a turnaround. “While investor focus has shifted to longer-term prospects, INTC’s latest revamp suggests that potential recovery has moved further out,” wrote Stifel’s Ruben Roy.
Energized: Investors are figuring out what to do with energy stocks as some of the biggest oil producers on the planet report quarterly results. Profit at Exxon Mobil slipped from last year, but came in higher than expected. Chevron, on the other hand, missed profit expectations and the shares are down a little in the pre-market. Both, however, are continuing to shovel record cash back to investors through dividends and buybacks. Exxon said it gave back $36 billion in shareholder distributions - only five other S&P 500 companies gave back more. While investors contemplate Trump’s energy strategy, Chevron has already adopted “Gulf of America” in its results to talk about production in the Gulf of Mexico after Trump ordered it renamed on his first day in office. Imperial Oil is set to report this morning and commentary on the prospect of tariffs on Canada’s energy sector will be closely watched. Canada’s oil producers have been underperforming US peers so far in 2025 (see below).
Chugging along: CN Rail reported weak quarterly results that may be overlooked as the company offered a rosy forecast promising better days ahead. Profit declined 10%, which was worse than expected, while revenue also decreased (-3%) and a measure of efficiency (operating ratio) worsened. However, the railroad company said they would be able to deliver 10-15% profit growth this year. 2024 was unkind to CN Rail. Everything from an economic slowdown to labour disruptions has sent the stock to around a 52-week low and has it trading at a rare discount to peers. I’ll confess this one is on my watch list. Several analysts, including TD Cowen have upgraded the stock recently. However, TD Cowen’s Cherilyn Radbourne is a little nervous about the rosy profit forecast. “We believe that favourable set-up still prevails, supporting our Buy rating, but we would rather have seen CN guide more conservatively,” she wrote. While the valuation is luring in the analysts, execution may be needed to get the stock moving said Cameron Doerksen at National Bank. “On our updated 2025 forecast, CN shares are trading at 19.4 P/E, which is below the five-year forward average of ~22x for the stock…CN has historically traded at a ~2.0 turn premium to the U.S. peers,” wrote Doerksen, “We remain hopeful for a better 2025 for CN Rail, but concede that the company may need to show solid execution in the coming quarters if the stock is to move meaningfully higher,” he wrote. He’s got a buy on the stock.
