Will the U.S. government shutdown shake the foundations of the stock market? Are stock market bubble fears justified? And was the selloff in Constellation Software’s stocks justified? The Financial Post explores those stories and more in The Week in Stocks.

Stock of the week: Lithium Americas Corp.

Shares of Vancouver-based Lithium Americas Corp. (TSX: LAC) spiked on Oct. 1 after the miner announced an agreement for the U.S. Department of Energy (DOE) to acquire a five per cent equity stake in the company, plus a five per cent stake in its Thacker Pass

lithium

joint venture with General Motors Co. in Nevada. This allows LAC to get an advance of about US$435 million and delay US$182 million of debt service on a US$2.26 billion DOE loan. But several analysts were skeptical about the deal, with Bank of Montreal (BMO) analysts characterizing it as “the DOE is receiving essentially free stakes in Thacker Pass and LAC in return for loan repayment deferrals,” in a note. “It’s hard to spin this transaction as anything other than what it is: dilutive” for shareholders, Bank of Nova Scotia analyst Ben Isaacson wrote in a note. “We believe that the recent run-up in the stock price is overdone,” Canaccord Genuity Corp. Canada analysts wrote in a note to clients. Still, analysts maintained or raised their price targets. BMO raised its target price from US$3.50 to US$5. Canaccord Genuity maintained its price target at C$6.50. Stifel Nicolaus maintained its price target at C$7. Scotiabank maintained its price target at US$2.75. Wedbush Securities raised its price target from US$5 to US$8. On Friday, the company’s Toronto-listed stock closed at $12.64 and is up nearly 195 per cent this year.

Is an S&P 500 ‘bubble’ ready to burst?

Talk of a

stock market bubble

is surfacing again as the

S&P 500

hit a fresh high above 6,700 this week, but some economists think there’s still room to grow. In a Sept. 29 note, Capital Economics chief markets economist John Higgins said the index could blow past an end of year forecast of 6,750 and rise further in 2026 as AI-related hype continues to build. “That’s partly because growth in S&P 500 forward twelve-month (FTM) earnings per share (EPS) is proving to be even more rapid than we’d envisaged, and partly because the valuation of the index remains below the peak it reached in the dot-com bubble,” Higgins wrote. S&P 500 FTM EPS are at $292, well above the $280 Capital Economics had forecast for the end of 2025. And data analysis firm FactSet Research Systems Inc. said analysts increased their earnings per share estimates for S&P companies for the first time since the fourth quarter of 2021, despite concerns in the market about inflation and tariffs. Higgins wrote, “We are sticking to our view that there will be a big correction in the S&P 500 at some point — potentially starting well below 8,275 — once enthusiasm for AI in the market has peaked. But we suspect that point may not come before 2027.” On Friday, the S&P 500 was up 14 per cent year-to-date and closed at 6,715.

Was the selloff in Constellation Software justified?

Shares of

Constellation Software Inc.

(TSX: CSU) dropped more than five per cent after the company announced on Sept. 25 that founder and chief executive Mark Leonard resigned from his position for health reasons after 30 years on the job. After an Oct. 1 conference call with new president and chief executive Mark Miller to discuss the leadership transition, BMO Capital Markets analyst Thanos Moschopoulos said in a note that while Leonard is “irreplaceable,” the selloff was “overdone” and that Constellation’s “well established playbook, bench strength and decentralized structure should allow it to sustain strong growth and exceptional returns on capital.” As the company’s chief operating officer since 2001, Miller is “extremely capable” of taking on his new role, National Bank of Canada analyst Richard Tse said in a note. “That said, we also believe part of Constellation’s historical premium valuation was due to Mark Leonard. And in our view, we think the market will need to see continued execution before re-rewarding the stock with that historical premium,” Tse wrote. Analyst David Kwan from TD Cowen said in a note that Constellation has an earnings premium compared with its peer group average. Combined with the company’s valuation nearing a 10-year low, “the risk/reward looks compelling,” Kwan wrote. Several analysts maintained their target prices for Constellation after the Oct. 1 call, including National Bank ($4,500), TD ($5,700) and BMO ($5,400). The company’s stock has rebounded since the Sept. 25 drop and closed at $4,029 on Friday, though shares are down more than nine per cent year-to-date.

What does the government shutdown mean for markets?

Will the latest

U.S. government shutdown

shake the foundations of the stock market? It’s unlikely, LPL Financial chief technical strategist Adam Turnquist said in a report. “Government shutdowns introduce a new layer of uncertainty for markets, but fortunately, they tend to be short-lived and, as a result, have had minimal impact on the economy” as investors prioritize corporate earnings, broader economic trends and other macroeconomic factors over short-term budget-related disruptions, Turnquist wrote. An analysis by LPL Financial Holdings Inc. found that during government shutdowns over the past 50 years, the S&P 500 declined by an average of 1.6 per cent. During the most recent shutdown in 2018-19, the longest in U.S. history at 35 days, the S&P 500 rose more than 10 per cent. While sectors such as defence and life sciences that rely heavily on government contracts experience short-term pullbacks, Turnquist said they tend to outperform once spending resumes. “Moreover, during the one- and three-month periods following the passage of a budget, the average one- and three-month returns for the S&P 500 were 1.2 per cent and 2.9 per cent, respectively,” Turnquist wrote.

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• Email: jswitzer@postmedia.com

Every week, the Financial Post breaks down the most interesting developments in the week’s world of investing, from top performers to surprising analyst calls and stocks to have on your radar. 

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