The Daily Chase: Foreign homebuyer ban extended

Here are five things you need to know this morning.

This hour has 60 minutes: Futures and bond markets are in a sour mood this Monday morning after U.S. Federal Reserve Chair Jerome Powell’s interview on 60 Minutes yesterday. Honestly, there wasn’t much new there from Powell, other than reiterating that rates are unlikely to go down in March. As the odds of a rate cut in March plunge, markets are on shaky ground this morning even as earnings come in better than expected (more on that below). China isn’t helping things this morning, with a wild trading session overnight, particularly in small caps. A lot of ink is also being spilled about the quality of the rally for the S&P 500, lamenting about the narrow concentration and noting how the equal-weight version of the S&P 500 hasn’t kept pace. Two points to counter those anxieties. First, the equal-weight version of the S&P 500 is less than four per cent away from an all-time high, so it’s not like there is a dramatic divergence. Second, we are 478 days into a bull market for the index. Bull markets for the S&P 500 tend to last more than 1,000 days on average with gains of 114 per cent according to Bespoke Investment Group. While it can make for great headlines obsessing about the next bear market, keep in mind they are shorter (286 days on average) and the losses are smaller (negative 35 per cent).

Butterfly: Shares of Caterpillar are poised to open at a fresh record high this morning. The maker of construction equipment beat profit expectations while sales growth was a little lighter. Investors are looking past the lighter sales and decreased volumes because Caterpillar was able to make up for that by charging more for the equipment it does sell. Profit margins expanded and the company forecasted that can continue for 2024. The gains were driven entirely by business in North America and by strength in the company’s energy and transportation business. I think it is curious to see a company that has big exposure to China surge to a record high. Why isn’t China’s weakness hampering the company? Something to dig into with Robert Wertheimer at Melius Research who is the most bullish analyst on the street with a price target of US$432 per share. He’ll join me on Trading Day this afternoon.

Lost appetite: Sales growth at McDonald’s slowed and that is crimping shares this morning. Sales increased just 3.4 per cent which is the slowest pace of growth since 2020. McDonald’s says war in the Middle East is the reason for the slowdown. The region makes up about 10 per cent of total sales, and the fast-food chain has become a boycott target for some consumers in Muslim nations amid the Israel-Hamas war in Gaza. That wasn’t the only source of weakness. Growth in the U.S. was cut in half from the previous quarter, even with the help of price increases.