Everything You Need to Know on Monday: Bank of Nova Scotia Advised Strategic Switch Trades Amid Limited Tax-Loss Choices

Good morning mooers! Here are things you need to know about today's market:

● S&P/TSX 60 Index Standard Futures are trading at 1,531.60, up 0.35% from previous close

● TD comments on inflation, economy in Canada

● Strategic switch trades advised by Bank of Nova Scotia amid limited tax-loss choices

● U.S. court dismisses former BlackBerry executive's harassment and wage discrimination claims

Today, the Canadian dollar is trading at 71.7 US cents, an increase from the previous close.

TD Bank highlighted that while the Canadian consumer price index inflation for October was anticipated to be a major topic, it was overshadowed by the federal government's substantial pre-election stimulus aimed at boosting consumer spending. Additionally, September's retail sales data indicated a significant uptick, suggesting a new era of heightened consumer spending. Housing starts also demonstrated strength in October, likely fueled by the resurgence in the resale market. This led financial markets to anticipate a potential 25bps rate cut by the Bank of Canada in December.

The inflation data for October was slightly higher than expected, rebounding to the target level after a dip in September. Notably, it wasn't just rising gasoline prices driving this increase. The Bank of Canada's core inflation measures also climbed to an average of 2.6% year-over-year, surpassing the central bank's comfort zone of 2.5%. This situation served as a reminder that the Bank of Canada still faces challenges in controlling inflation.

TD Bank suggested that the resurgence in consumer demand could be driving the inflationary pressures. After a period of restrained spending, consumers are engaging more robustly, influenced by lower interest rates boosting sentiment. Recent retail sales data supported this view, with a near 1% monthly increase in September and preliminary data for October indicating continued strong performance.

The government's significant stimulus measures, including a GST break and C$250 checks, are expected to sustain this increased consumer spending into the first half of 2025, potentially accelerating overall GDP growth.

In the housing sector, lower interest rates have revitalized the market, with both resale activity and prices gaining momentum since the Bank of Canada's 50bps cut in October. This has led to a surge in builder confidence, reflected in an 8% monthly rise in housing starts for October, suggesting that residential investment might soon positively contribute to Canadian GDP growth after years of lagging.

Reflecting on the Bank of Canada's decision to implement a sizeable 50bps cut in October, TD Bank noted that it had initially advised against such a move, cautioning it could overstimulate the real estate market. With the Bank of Canada likely returning to more moderate 25bps cuts, TD's initial caution appears prudent given the current economic conditions.

Scotiabank's strategy involves tactical switch trades, where investors sell stocks that have underperformed year-to-date and purchase shares in the same sector with potential for appreciation. While some of these recommendations are short-term, the analysts suggest possibly switching back to the underperformers early in 2025.

For example, after facing regulatory fines in the US, Toronto-Dominion Bank's shares have fallen by 8.7% this year. Scotiabank suggests selling TD shares and buying into competitors like Royal Bank of Canada, which has seen a 30% increase, or Canadian Imperial Bank of Commerce, with a 43% rise.

Other proposed switch-trade moves include selling shares of Canadian National Railway, which are down 6.6%, and buying into Cargojet, which has increased by 3.7% in the logistics sector. Additionally, they recommend swapping shares of Nutrien Ltd., down 12%, for West Fraser Timber Co., which has risen by 17%.

These switch-trade recommendations are emerging against a stronger performance in the Canadian market compared to the US this year. The S&P/TSX Composite Index hit 40 new highs, with a ratio of more than three stocks rising for every one that fell. This broad market rally exceeded the performance of the S&P 500, where gains were more heavily concentrated among mega-cap tech stocks, including the so-called Magnificent Seven.

In sectors like renewables and telecommunications, where most constituents have underperformed, Scotiabank advises replacing individual stocks with a sector ETF or a structured note, aiming to capture broader sector movements without the risk of individual stock underperformance.

Judge Kim found that Giamatteo’s behavior, while potentially uncomfortable, did not meet the threshold for severe harassment or wage discrimination. The ruling, dismissing the claims with prejudice, prevents them from being refiled on the same grounds. BlackBerry spokesperson Camilla Scassellati Sforzolini expressed satisfaction with the court's decision, while Sandhu's attorney, Maria Bourn, criticized it and hinted at a possible appeal. Despite the dismissals, BlackBerry still faces wrongful termination claims from Sandhu, which the company contests as "baseless."