Today
Stocks are looking to extend Friday’s rebound, although Nvidia may put a damper on the recovery, with shares down about -5% in premarket trading. The company’s board has launched an investigation into CEO Jensen Huang following reports that he had a romantic relationship with an executive suspected of working for Chinese intelligence. Huang has acknowledged the affair, while Nvidia says it has no reason to believe company secrets were compromised and that he will remain CEO during the investigation. The selloff could erase $200 billion from Nvidia’s market value, adding to last week’s tech losses. The allegations draw attention to Huang’s ties with China, given his efforts to ease U.S. restrictions on chip exports to the country. China and Hong Kong accounted for $7.9 billion, or ~8% of Nvidia’s revenue last quarter. Huang also has close ties to Trump, who has defended him since the affair was revealed. Nvidia was already facing scrutiny over its role in financing the AI boom, providing guarantees that help customers secure funding to purchase its chips. These circular arrangements support demand but could expose the company to losses if AI spending slows. Investors now have another risk to consider, this time involving Nvidia’s leadership. Beyond the Nvidia headlines, attention will turn to tomorrow’s U.S. inflation report, which could influence expectations for the Fed’s December interest rate decision. October CPI is expected to accelerate to 3.9% from 3.7% in September, with the Iran war, elevated energy costs and tariffs continuing to put pressure on prices. Friday’s PPI report will provide another look at the inflation pressures facing businesses.
S&P 500 earnings growth continues to impress, although the size of earnings beats is less convincing. With 88% of companies having reported Q3 results, 84% exceeded earnings expectations, above the five-year average of 78%. However, earnings have beaten estimates by just 2.7% in aggregate, well below the five-year average of 7.5% and potentially the smallest surprise since Q4 2022. Despite this, blended earnings growth has climbed to 31.4% year over year, up from 29.1% at the end of September, putting the index on track for its third consecutive quarter of growth above 25%. All 11 sectors are reporting earnings growth, led by Energy, Info Tech and Materials. Revenue growth is also strong at 14.3%, with 74% of companies exceeding sales expectations. Looking ahead, analysts expect earnings growth of 28.4% in Q4 and 33.3% for 2026. Meanwhile, the S&P 500 trades at 17.7 times forward earnings, below its five-year average of 19.8 times. While earnings growth is broadening across sectors, the smaller surprises suggest companies are delivering less upside than investors have become accustomed to. The challenge now is sustaining this strong pace of earnings growth, especially with expectations already running high.
The federal government’s $45 bln housing strategy over the next decade aims to build affordable housing, accelerate construction, and reduce homelessness. The plan, however, introduces updates to restrictions on foreign homebuyers. To encourage new construction without adding demand to the existing housing stock, Ottawa will extend its foreign buyer ban on existing homes for another two years while allowing foreign purchasers to acquire newly built properties, potentially attracting additional investment into residential development. The government will also provide an additional $13 bln to Build Canada Homes, to help support the Crown corporation’s goal of constructing 200,000 homes over the next decade while tripling annual non-market housing starts to approximately 24,000 units. Separately, the government will maintain its immigration targets through 2029 at 380,000 permanent residents and 370,000 temporary residents annually, while proposing reforms to the temporary foreign worker program to better align labour supply with regional employment conditions.
The Canadian dollar notched its biggest weekly decline in over a month last week, falling -1.1% against the U.S. dollar, including a 0.8% drop on Friday, as weaker-than-expected Canadian employment data and stronger U.S. economic figures reinforced concerns about diverging economic conditions and monetary policy expectations. Canada’s unemployment rate rose to 6.7% in October, while employment declined by 4,700 positions for a third consecutive month of job losses, highlighting continued labour market weakness as U.S. tariffs weigh on domestic economic activity. Meanwhile stronger-than-expected U.S. job growth reinforced expectations that the Fed could raise interest rates in December, widening the interest-rate differential between the two countries and potentially putting more downward pressure on the loonie. Despite Canada’s weakening employment outlook, traders continued to price in a slightly less than 40% probability of another BoC rate increase in December, following the central bank’s first hike in more than three years last month.
Taking a closer look at last week’s Canadian jobs numbers, private-sector employment fell by 52,500 positions, largely offset by an increase of 49,600 public-sector jobs, while wholesale and retail trade lost 28,800 positions, extending the sector’s decline to 113,100 jobs over the past year, with Ontario, Quebec, and BC hit the hardest. Employment has now fallen by 46,000 positions since the beginning of the year, marking the largest year-to-date contraction since the 2009 financial crisis outside the pandemic, while long-term unemployment has worsened, with 23.7% of unemployed Canadians searching for work for at least 27 weeks compared with 21.5% a year earlier. The weakness in the labour market was most noticeable among younger workers, as the unemployment rate for those aged 15 to 24 increased to 13.7%. Data also found that the proportion of Canadians reporting difficulty meeting household financial obligations rose to 29.7% from 27.7% last year.
AI has become a key driver for global financial markets and the U.S. economy in recent years, creating concentration risks. Since ChatGPT’s launch, the S&P 500 has gained $32 tln in market cap, with more than half of those gains concentrated in 10 AI-related companies, while tech now represents nearly half of the index and 44% of U.S. pension funds’ publicly traded equity holdings. The AI boom has also changed corporate financing, with tech companies issuing $296 bln in investment-grade bonds through mid-October, while the six largest hyperscalers are expected to spend more than $850 bln on AI-related projects this year. Reliance on debt financing has added to risks in high-yield credit markets, where technology’s share of issuance has nearly tripled to 19.7%, leaving investors exposed to widening credit spreads and excessive leverage if AI revenues fall short of expectations. Circular financing arrangements between chip suppliers and their customers, elevated equity valuations and potential political restrictions on data centre development add to uncertainty over the sustainability of the investment cycle.
A race against the cube. For anyone who finds solving a Rubik’s Cube challenging, try solving four while running a mile (or 1.6 km). British runner George Scholey did just that, setting a Guinness World Record with a time of 5 minutes and 9.25 seconds at a track at Central Tech high school in Toronto. The challenge required him to solve a cube before running each of four laps, with each puzzle taking between 8.5 and 10.5 seconds. Scholey is no stranger to unusual records. In 2022, he solved 500 cubes while riding a skateboard and has since solved 520 during the London Marathon and nearly 7,000 in 24 hours. Looking for his next challenge, he came across the puzzle cube mile and spent seven weeks training, managing to solve a cube in just 3.86 seconds. For comparison, the world record is 2.51 seconds. Apparently, running a sub-five-minute mile wasn’t challenging enough.
Diversion: Now that’s fast
