Two Huge Stories | Bitcoin ETFs Approved and US Banks Kick Off Earnings Season

The Week in Review

Major North American stock markets posted gains this week, recovering from last week’s losses, which ended a 9-week streak of gains.

The latest US inflation numbers came out on Thursday, and in a surprise to many, the CPI was up more than expected, prompting a bumpy week in fixed income. The 10-year US Treasury bond ended the week at 3.95%, after reaching 4.07% earlier in the week.

The big story of the week, though, had to be the approval by the SEC of new bitcoin ETFs. We’ll cover this story more later in this newsletter.

A lot has changed in recent months, with some of the strongest headwinds such as rising inflation and high interest rates easing or on the verge of easing. As investors, we can breathe a sigh of relief.

But, we still need to make it through the upcoming earnings season to truly get a broader sense of where things are going as we head into spring and then summer.

The first real test of this season’s earnings came Friday, with some of the biggest US banks reporting. JPMorgan Chase, Citigroup, Bank of America and Wells Fargo all reported Q4 results. The share price of most of these stock pulled back, despite most (Wells Fargo being the exception) beating expectations. Morgan Stanley, Goldman Sachs, PNC, Charles Schwab and US Bancorp report next week.

As we kick off earnings season, let’s remember Arthur Ziekel’s words. When companies announce, listen carefully for snippets of bad news, because where there is smoke there is often fire.

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A stock that is trading with an RSI below 30 is considered to be in “oversold” territory. This might suggest that the stock is due for a recovery, however it is not a recommendation to buy. Always perform your own due diligence.

In this episode of Pulse:

• US Inflation Report

• US Spot Bitcoin ETFs Approved

• Harvest ETFs

• BMO Lures RBC Executive

• Aritzia on Fire

• Meta offers $51 Million settlement

• Market Movers

• VIX at Multi-Month Low

• Hertz Selling EVs

• Rexall Up For Sale

THE ECONOMY
Inflation Rises

The annual US inflation rate rose more than expected in December, coming in at 3.4%, up from 3.1% in November. Markets were forecasting 3.2%.

On the positive side of things, energy costs dropped 2%, with gasoline down 1.9%, utility gas service down 13.8%, and fuel oil down 14.7%.

On the flipside, some of the notable increases were food costs, up 2.7%, shelter rising 6.2% and transportation services up 9.7%.

The surprising rise in inflation caught many off guard and brings into question the belief that the US Federal Reserve will start cutting rates in March. As it stands today, the market is still pricing in a 75% chance of a 25 basis point cut, but there are also 21% odds that they will leave things as is for at least another meeting.

Core inflation, which strips out the volatile food and energy costs, registered at 3.9% year over year, down a smidge from November’s 4.0%

CRYPTO
Finally! US Bitcoin ETFs are a Thing

Finally, after months of speculation and a huge number of stops and starts, the Security and Exchange Commission approved new bitcoin exchange-traded funds in U.S. markets.

It was an eventful week. First off, a fake Tuesday post from the SEC announced that bitcoin ETFs had been approved, and the price of BTC shot up to around $47,600 on the news. Minutes later though, the SEC said that their X account had been hacked, and the announcement was fake. Immediately, BTC dropped back to around $45,400.

Then, one day later, the SEC officially announced that the new funds were approved, leading to a huge inflow of funds into the new ETFs. According to Reuters, there was $4.6 billion in volume in the first day of trading, with the bulk of the volume running through Grayscale, BlackRock and Fidelity.

By Friday, bitcoin was trading at $42,653 USD.

Despite all the excitement, not everyone believes this is the panacea for cryptocurrencies, and warn investors to remain cautionary.

SEC Chairman Gary Gensler, for one, did his best to temper expectations.

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BANKING
BMO Scoops RBC Executive

It's been interesting times in the Canadian banking sector over the past year or so and it looks like things may be heating up as the sector attempts to right the ship.

According to an internal memo, the Bank of Montreal will be making a big move and will be scooping a co-head of Canadian investment banking at the Royal Bank. Effective April of this year, Carrie Cook will become BMO's global head of investment and corporate banking. Cook’s current co-head, Trevor Gardner, is expected to stay on to lead RBC’s domestic investment banking division.

Cook has a 25-year track record in the business, having spent time at CIBC world markets, and more recently at RBC since 2011.

At her work at RBC, Cook co-headed the Canadian Banking division of RBC Capital Markets, the largest capital markets business of all the Canadian banks. BMO is currently third by this measure, with TD Bank holding the second spot.

RBC reported $4.14 billion in net income from the capital markets division last year, with BMO reporting net income of $1.68 billion.

YOUTUBE INSIGHTS

In case you missed it, my news video on Monday this week talked about a number of headwinds our Canadian banks are facing. Have a look here.

RETAIL
Aritzia Lights Up the Charts

It's not every day that a company reports a 39% drop in net income and yet sees its share price spike by more than 20 per cent. But, that's exactly what happened to Vancouver-based Aritzia when it announced earnings on Thursday this week.

It’s been a bit of a wild ride for the company the past couple of years. Around mid 2022 shares of Aritzia went on a tear, rising from around $33 a share in June to $54 by mid-November. That trend then reversed and the share price dropped around 65% over the next year.

In an investor call Wednesday, CEO Jennifer Wong said the company was making progress in righting its inventory levels, and promised new products for the upcoming season.

Being a Canadian apparel company, Aritzia enjoys the love and support of a lot of domestic investors. Hopefully the new season will justify this pop in share price.

LEGAL
Meta to Pay $51 Million

Social media giant Meta has offered to settle a class action lawsuit by paying $51 million to certain users in four Canadian provinces. The dispute arose as Meta used some of its users images and names in Facebook’s “Sponsored Stories” advertising without obtaining permission. The allegations date back more than a decade.

In the original filing, the plaintiffs sought damages of between $830 million and $2.1 billion.

In June 2022, Justice Nitya Iyer of the BC Supreme Court cleared the way for the class action lawsuit to proceed. She agreed that on its merits, the class didn't expressly or impliedly consent to Facebook's use of their likenesses.

To participate in the settlement, you need have been a resident of BC, Saskatchewan, Manitoba or Newfoundland and a member of Facebook at any time between January 1, 2011 and May 30, 2014. Individuals are eligible to join the legal action if they:

(a) at any time during this period were registered with Facebook using their real name, or had a profile picture that included an identifiable self-image, or both; and

(b) had their real name, identifiable portrait, or both used by Facebook in a Sponsored Story.

One estimate has it that as many as 4.3 million people could qualify as part of the Canadian class action settlement.

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