The Smart Investor | What if inflation was the key?

Every Sunday we put the spotlight on financial and stock market news that may be useful to the investor but may have stayed under the radar.

Posted at 8:00 am

John Gagnon
special cooperation

When asked what will allow stock markets to return to a sustained uptrend, inflation seems to be one of the inevitable factors. With the release of the latest consumer price index (CPI) data in the United States on Wednesday, futures contracts on the Dow Jones index immediately jumped more than 500 points. After a 1.3% gain in June, the index’s change was virtually zero in July. The year-on-year variation declined to 8.5% from 9.1%, a fall that was slightly larger than experts’ expectations, which had predicted 8.7%.

But be careful, because the game is not won yet. “Not only is there still a long way to go to return inflation to satisfactory levels, but upside risks remain,” warns Benoit P. Durocher, Senior Economist at Desjardins. It should therefore come as no surprise that stock market volatility will persist for some time to come.

The share price of nuvei However, it appeared to be in recovery mode, falling from $40 to $54 since July 26th. But half-hearted comments by the company’s management during the release of its second-quarter financial results last Wednesday shook investor confidence again in the payments solutions provider, whose shares hit $170 less than a year ago. Among other things, management mentions that higher inflation, rising interest rates and a more severe slowdown in activity related to digital assets and cryptocurrencies will affect the results of the coming quarters. Several analysts took the opportunity to butcher their price target, including National Bank Financial’s Richard Tse, who reduced his price target to $75 from $100.

The leaders of CAE painted a rather optimistic picture at the Investor Day in early June. But the latest quarterly results, released last week, surprised investors when they included an unfavorable adjustment of about $28.9 million in earnings on two of its defense contracts. Since then, the stock price has fallen over 23%. Midway through Friday’s session, the stock tried to regain some composure. Furthermore, according to Fadi Chamoun, analyst at BMO Capital Markets, this decline puts the stock in a favorable position from a risk-reward perspective. Despite this, he reduced his price target from $42 to $36.

Even though BRP The victim of a cyberattack that has paralyzed operations for the past few days, the situation at the Quebec recreational vehicle maker doesn’t seem too worrying for investors, with its share price actually rising this week. On August 7th and 8th, the company hosted its Club BRP 2023 in Salt Lake City, Utah, where it showcased its new products. The response from attendees to the event was enthusiastic, showing that management has certainly not been idle during the pandemic, notes Benoit Poirier, an analyst at Desjardins. He sees significant growth opportunities in the short, medium and long term.

Savaria released quarterly results last Wednesday that showed solid performance and good earnings before interest, taxes, depreciation and amortization, according to Desjardins analyst Frederic Tremblay. The stock of this accessibility industry leader responded well to the earnings release as it seeks to continue a recovery that started last month from a 52-week low.

Strong words from central bankers and the resulting decisions, coupled with a perception that inflation had peaked, allowed stock markets to close higher for the fourth straight week. These issues are sure to be on the agenda when the Federal Reserve of Kansas City hosts its prestigious annual symposium, bringing together a diverse array of business and finance figures, August 25-27 in Jackson Hole, Wyoming. Be continued.

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