Here are five things you need to know this morning:
Magnificent week: The S&P 500 hit a record high for the first time in two years on Friday. It looks set to add to those gains this morning. Last week’s rally occurred even with rate cut expectations being pushed back. Is there no wall of worry the S&P 500 can’t climb? It has set record highs during both the last U.S. presidencies, the worst pandemic in a century, historic interest rate hikes and is now advancing in the face of a potential slowdown and rate cuts. As always, we can’t quibble. This year’s rally (yes I know it is only January) is concentrated, similar to last year’s. The largest 20 S&P 500 stocks have accounted for 110 per cent of index’s move, notes Bespoke, while the remaining 480 stocks have contributed negative 10 per cent of the move. Speaking of the largest, this week we get the worst of the “magnificent seven” reporting on Thursday. Tesla has lagged the group and is trading around a two-month low. We will see if CEO Elon Musk can turn things around. In Canada, we are building up to the Bank of Canada rate decision on Wednesday. The TSX doesn’t have the same gumption as the S&P 500 and is still off about six per cent from record highs.
Flair for the dramatic: The saga at Gildan Activewear continues this morning. The board is pulling a new rabbit out of its hat in its battle with shareholders. It alleges the U.S. hedge fund leading the shareholder campaign to replace them – Browning West – built a stake in the company illegally. The board is relying on the U.S. Hart-Scott-Rodino Act, which states that investors have to make a regulatory disclosure when they cross five per cent ownership in a company and uphold a 30-day wait period. Browning West says it did not act inappropriately calling the board’s actions “desperate and egregious.” What to do with the stock? Almost every analyst still rates it a buy, with the average analyst price target suggesting 24 per cent upside from here. Of course, that is basically where the stock was before Glenn Chamandy was turfed. Martin Landry, who covers the stock at Stifel Canada, says Chamandy’s return is the most “probable” outcome, but doesn’t rate the stock a buy. “In any scenario that may unfold, we believe that there will be lots of explaining to do to restore investor confidence,” Landry wrote in a note to clients.
Start your engines: A shareholder of Parkland Fuel says there is a clear and urgent need for an investor-driven refreshment of the company's board. Engine Capital of New York has sent a letter to Parkland calling for collaboration with shareholders to appoint independent directors, and warning the company not to pursue litigation to block the process. Two board members with ties to Parkland’s biggest shareholder resigned last month. It is interesting to see such activist agitation in the shares considering they are sitting near a four-year high and trading just eight per cent away from an all-time high.
Steel yourself: Shares of Algoma Steel were trading lower in the premarket. This weekend, a structure supporting utilities piping at its plant Sault Ste. Marie collapsed. No injuries have been reported, but the incident led to abnormal air emissions and a leak into a nearby waterway. Some production has been interrupted. Stifel Canada says they expect the stock to significantly underperform, but would be comfortable stepping back into the stock at $10.50 per share – which is 14 per cent below where the stock closed Friday.
Accounting issues: Shares of Archer-Daniels-Midland were getting hammered in the premarket after disclosing they are subject to an accounting probe and that the CFO will be placed on leave. They also cut their earnings outlook as they investigate the agriculture giant’s account practices. The stock is poised to open at three-year low and has been hit with at least three downgrades this morning including one from Goldman Sachs.