To my clients:
It was a mixed week for North American stock markets with the Canadian TSX finishing up 1.5%; the U.S. Dow Jones Index down 1.3%; and the U.S. S&P 500 down0.4% .
The good news this week is that as the Q4 2025 earnings season for the S&P 500 draws to a close, the index has achieved its fifth consecutive quarter of double-digit earnings growth and continues a 3-year trend of very positive earnings growth overall. However, in an environment where valuations (i.e. how many dollars an investor is will to pay for each $1 in corporate earnings) remain elevated, investors are – for the time being - becoming increasingly choosy as to how they will allocate those investment dollars.
Case in point – Nvidia. The world’s most valuable company, and maker of the most powerful and widely used processing chips (known as GPUs) for artificial intelligence applications, handily beat expectations on almost every metric and RAISED its expectations for revenue and profit growth in the year ahead. However, in spite of the outstanding results, the shares of the chip maker sold off. My take is that it’s not so much the results of Nvidia itself which led to the share price decline, but rather the results of its largest customers (i.e. the mega-tech names whose names are familiar to all of us). While the results of said customers have also been excellent in the here-and-now, investors are increasingly looking for clear evidence that the massive AI investments made by these mega-tech names will translate into tangible returns in the coming quarters and years. As I’ve previously written, it appears to me that this is indeed beginning to happen (particularly notable in META’s recent earnings report), but some investors are skeptical it can be sustained. For what it’s worth, in the wake of the stellar earnings report and the subsequent decline in share price, I took the opportunity to increase Nvidia to a full weight position in client portfolios.
The other news of note came this morning via a “producer price” inflation report which came in much higher than expectations. Producer prices are often considered a precursor to consumer price inflation (and I have noted the linkage in the past), so this does not bode well for future consumer inflation reports and, by extension, the prospects for the Fed to cut interest rates. Now, the preceding said, the possible silver lining in the report is that the producer price inflation was tied to “service” components whereas the price of producer “goods” actually declined. Its kind of an odd paradigm and bears watching as we move forward. I’d also caution that, from time to time, strange data blips like this sometimes occur. So, to reiterate, it bears watching and watch I will.
That’s it for this week. All the best,
Nick
Nick Scholte, CIM, FCSI
Senior Portfolio Manager
RBC Dominion Securities Inc. │ Tel: 604.257.7569
2950 Glen Drive, 7th Floor │ Coquitlam, BC │ V3B 0J1
Toll Free: 1.844.665.9900 │Email: nick.scholte@rbc.com
Visit Our Website: www.nickscholte.ca
This information is not investment advice and should be used only in conjunction with a discussion with your RBC Dominion Securities Inc. Investment Advisor. will ensure that your own circumstances have been considered properly and that any action is taken based upon the latest available information. The strategies and advice in this report are provided for general guidance. Readers should consult their own Investment Advisor when planning to implement a strategy. Interest rates, market conditions, special offers, tax rulings, and other investment factors are subject to change. The information contained herein has been obtained from sources believed to be reliable at the time obtained but neither RBC Dominion Securities Inc. nor its employees, agents, or information suppliers can guarantee its accuracy or completeness. report is not and under no circumstances is to be construed as an offer to sell or the solicitation of an offer to buy any securities. report is furnished on the basis and understanding that neither RBC Dominion Securities Inc. nor its employees, agents, or information suppliers is to be under any responsibility or liability whatsoever in respect thereof. The inventories of RBC Dominion Securities Inc. may from time to time include securities mentioned herein.