The Week in Review
Market's Split Decision
Of the four major North American indices, only the Nasdaq was down on the week, and that was barely noticeable. The Nasdaq Composite slid 0.16%, so let's call that even. The TSX led the way with a gain of 1.03%, piggybacking on the strong week for the energy sector. The Dow Jones Industrial Average was up 0.79%, and the S&P500 saw a 0.46% gain on the week.
Microsoft had about a $100 Billion worth of news this week, some good and some not so much. Inflation was up again in September to practically nobody's surprise, housing prices in Canada are expected to drop next year, our trade surplus with the US took an unexpected turn, and it might be more difficult to get an AirBnB in Canadian cities in the future.
And, as always, we have the Winning & Losing stocks of the week.
Microsoft's $100B Week
After overcoming seemingly endless hurdles, Microsoft declared victory Friday with the announcement that it had finally closed its purchase of Activision Blizzard, paying $69 billion for the gaming company. There were times the deal looked like it wouldn't happen, but it did, at least for now.
One of the most obvious things that came out of this acquisition was the fact that governments love scrutinizing the big tech firms. Numerous government agencies from a number of different countries stepped in to try and block the deal. And although Microsoft has declare victory for now, the end chapter may not yet have been written.
As it turns out, not all of the legal challenges against the acquisition have been resolved. At point is the outstanding case launched by the Federal Trade Commission, which is currently under appeal and may take years to resolve. Microsoft made the decision to go ahead and complete the acquisition without that case being concluded, with the knowledge that it might actually be forced to unwind at some point down the road. A spokeswoman for the FTC continues to say that it believes that the deal is a threat to competition, and they plan to continue to pursue the litigation.
In other Microsoft news this week, the Internal Revenue Service said that Microsoft owes $28.9 billion in back taxes, penalties and interest. This dispute goes back many years and covers the time period of 2004 to 2013, in which the IRS says that Microsoft incorrectly allocated profits. Since that time, Microsoft has changed its corporate structure and practices, but it insists that the arrangements that it used back in the time period were legal. Like the merger case, this too will take its time to wind through the court system but surely Microsoft shareholders will be paying attention.
Inflation & The Fed
When you strip out food and energy prices, core inflation increased 0.3% on the month, and 4.1% over the past year. Shelter costs were once again the main factor in the inflation increase, increasing 0.6% for the month and 7.2% from a year ago.
Obviously, this isn't great news for Jerome Powell as the FMOC deliberates over its next interest rate decision. At its September meeting, officials from the Federal Reserve expressed differences on whether they would need to make any more rate increases. One thing they did agree on though, is that rates would have to stay higher for longer if they are to meet their objective of getting inflation back to 2%.
With these new inflation numbers, the odds increase of the likelihood of at least one more rate hike before the current tightening cycle ends. The FOMC has now raised his key interest rate 11 times since March 2022, and it now sits at the highest level in 22 years.
Cheaper Housing Anyone?
Who says Friday the 13th has to be scary? The Canadian Real Estate Association announced yesterday that the number of home resales fell 1.9% in September from August, with activity dropping in both Toronto and Vancouver markets. More importantly to those looking to get into the market, the home price index was $753,900 in September, 0.3% lower than August. The index removes the highest priced transactions from the calculation.
The association also revised his forecast downward, and now expects a 10% decrease in home sales over 2022, with the average price declining 3% to $680,686.
On a somber note, the report also noted that three of the countries largest lenders say that around 20% of their residential mortgage borrowers are seeing balances actually grow as their mortgage payments no longer cover the interest they owe.
Take That, Big Trading Partner
Stats Canada has released new numbers showing that Canada posted a surprise $718 million US dollar surplus in August. This number was driven primarily by two things: a surge in transfers of gold to the United States and higher crude prices.
As a sign of how difficult it can be to predict these things, a recent Reuter’s poll of analysts had resulted in a forecast of a $1.5 billion US deficit.
Exports to the United States increased 5.2% in August while imports from our southern neighbours rose just 0.6%. As a result, Canada's trade surplus with the United States widened from $8.2 billion in July to $10.4 billion in August.
Total exports for the month increased 5.7% and imports were up 3.8%.
The federal government has announced plans to limit the number of AirBnB's in municipalities in order to free up more rental units. Over the past number of months it has been looking at a lot of ways to address the housing affordability issues that are found in pretty much any community across the country, and their newest target is AirBnB.
With the new plan, the government is expected to try and induce municipalities to limit the number of Airbnb units through local bylaw amendments. It’s eyeing using the $4 billion Housing Accelerator fund to encourage municipalities to limit the number of short-term rentals. By using this tool it could address rental shortages in the larger Canadian cities such as Toronto, Montreal and Vancouver, where the lack of rental housing has reached crisis proportions, but also in smaller communities such as Whistler and Banff where there aren’t enough homes for even the local employees to live.
Another idea the government has floated is to leverage good old-fashioned taxation and tweak things there to discourage owners from listing properties for short term rentals For example, there has been chatter about increasing the GST that’s charged on this type of rental, making it less attractive.
Weekly Winners & Losers
Overall, things were pretty flat in the major markets this week. In a flip from last week, we saw strong gains in the energy sector this week.
The Top Gainers were:
Northrop Grumman (NOC), up 15.81%
Marathon Oil (MRO), up 14.15%
Sirius XM Holdings (SIRI), up 12.27%
Kinross Gold (KGC), up 11.30%
General Dynamics (GD), up 10.50%
Diamondback Energy (FNG), up 10.14%
Lockheed Martin (LMT), up 10.06%
The Health Care space took a hit this week, with a number of names in the sector taking losses. Here are the biggest losers of the past 5 trading days.
The Biggest Loser were:
DiVita Inc. (DVA), down 18.29%
Hormel Foods (HRL), down 13.15%
Baxter International (BAX), down 13.05%
Lamb Weston Holdings (LW), down 11.01%
Norweigian Cruise Lines (NCLH), down 10.75%
JD.com (JD), down 8.65%
DexCom Inc. (DXCM), down 8.45%
Illumina Inc. (ILMN), down 7.79%
Intuitive Surgical (ISRG), down 7.62%
Netflix (NFLX), down 6.77%
Abbott Laboratories (ABT), down 6.20%
Air Canada (AC), down 6.18%
In Other News this Week
🛢️ ExxonMobil announced this week that it has agreed to buy Pioneer Natural Resources for $59.5 billion, or $253 per share, in what's expected to be an all stock deal. According to the agreement, Pioneer shareholders will receive 2.3234 shares of Exxon for every pioneer share they owned. The deal is expected to close in the first half of 2024.
🏧 The White House has announced it's expanding it's push against what it calls "Junk Fees". There's a strong focus on America's big banks, with the aim to restore fairness in the markets.
🏘️ In what might turn out to be a huge real estate scandal, the RCMP has launched an investigation into the opening of part of Ontario's Greenbelt land for development.