The Daily Chase: Microsoft, Alphabet earnings incoming

Here are five things you need to know this morning.

Rip: It was a sleepy session for most of the day yesterday and then markets took off like a shot right at 3 p.m. ET to close at fresh highs for the S&P 500 and the NASDAQ. What happened? The U.S. Treasury reduced its estimate for federal borrowing, sending bond yields lower and stocks higher. Recall, Treasury issuance had been a culprit of selling pressure in the bond market. I know this seems like a yawn, but amidst mega tech earnings and the Fed rate decision tomorrow, the real show could be tomorrow’s “quarterly refunding” details from the U.S. Treasury Department, projecting the amount of Treasury bills and bonds to be issued. The last announcement on Nov. 1 sparked a big rally in bonds and marked the bottom in stocks. If you are still with me, we have 30 S&P 500 companies reporting today including Microsoft and Alphabet after the bell. On the TSX we have three reporting today including CP Rail after the close.

Hyperscale: Shares of Celestica were poised to open at a fresh record high after the company reported earnings that sailed past expectations and an outlook that was also better than expected. The designer and manufacturer of electronic components has been riding a wave of AI enthusiasm. They service the big “hyperscalers” (companies like Amazon Web Services and Microsoft’s Azure that run massive data centres and provide cloud services on a global scale). As those companies make a mad dash for the AI gold rush, Celestica has benefitted by supplying the components they need. It is not the only part of the business, but it is the star performer. On the conference call, they did call out softness in areas associated with EVs and charging stations. They also noted that one these hyperscalers now account for a fairly substantial chunk of their revenue. One analyst raised the concentration risk as a concern, but executives noted that they’ve had very long relationships that span multiple products. With a dearth of AI options in Canada, Celestica has benefitted as the go-to name for exposure. And even with the stock surging 155 per cent over the past year, Celestica trades at just 12-times forward earnings estimates. 

Profit warning: Metro is warning that it expects 2024 will be a tough year for the company. The grocer says there will be significant headwinds associated with the launches of its new distribution center in Quebec, as well the final phase of its automated fresh produce plant in Toronto. While the company beat earnings expectations in the last quarter, Metro warned the added costs are expected to weigh on profits, with adjusted earnings coming in flat or even negative.