To my clients:
Reminder: I will be away on holiday (Europe) beginning next Friday and will be returning to the office on August 25th. I had thought our flight was later in the evening, but it turns out we will need to leave for the airport around noon – so there will be no update next Friday. Depending upon events, I might perhaps write one on Thursday. Next scheduled update August 29th.
It was a down week for North American stock markets with the Canadian TSX finishing down 1.7%; the U.S. Dow Jones Index down 1.9%; and the U.S. S&P 500 down 2.4%.
On the docket this week: corporate earnings; tariffs; and, importantly, economic news…
On corporate earnings, clients will know I don’t often dip into individual corporate earning results as that’s a trip too deep into the weeds for most. That said, I will reiterate that so far Q2 earnings and revenues for S&P 500 companies are coming in well ahead of expectations and at a better “beat” rate than the historical average. Of particular note, earnings of the Magnificent 7 [Apple, Amazon, Alphabet (aka “Google”], Meta (aka “Facebook”], Microsoft, Nvidia, and Tesla) have, so far, been especially impressive. All but Nvidia have now reported results. Of the six that have reported, all but Tesla have reported especially impressive beats on both revenue and earnings growth (even better than the broader S&P 500 which, as I noted, is also tracking ahead of expectations). Discretionary clients own 4 of the Mag 7 names and, happily, all are among those which have handily beat expectations.
On tariffs, this week saw deals struck with South Korea, the Philippines, Indonesia and Pakistan. Talks were also held with China and were said to have advanced the prospects of a more comprehensive deal in place of the partial agreements previously announced. August 1st has arrived and, with it (beginning next week), higher tariff rates for most countries that have not yet struck deals. Mexico, presumably because it has been engaged in advanced talks with the U.S, received a 90 day reprieve from higher tariffs. However, Canada received no such favorable treatment, likely indicating a deal framework is not particularly far along. That said, Chairman of the Council of Economic Advisors, Stephen Miran, said this morning that “it’s only a matter of time” before a deal is reached with Canada. In the meantime, Canadian tariff rates were increased to 35% (from 25%) on goods not covered by the US, Canada, Mexico free trade agreement. Thankfully, most Canadian goods shipped to the U.S. are covered by this tri-lateral agreement.
Lastly, economic news this morning was not good. The U.S. reported only 73,000 new jobs created for the month of July, below the 100,000 expectation and a significant slowdown from what had appeared to be more robust levels reported in prior months. Unfortunately, those “more robust levels” were themselves lowered by the most significant amounts I can remember in my career outside of truly extraordinary times like the covid lockdowns or the 2008 financial crisis: 258,000 jobs were subtracted from the May and June totals previously reported! This leaves the 3-month average at just 35,000 jobs per month. This is an anemic level and bears especially close watching. However, it should be pointed out that these paltry employment numbers coincide with peak tariff uncertainty, in addition to uncertainty surrounding President Trump’s Big Beautiful Bill (BBB). Trade deals are beginning to fall into place (see above) and the BBB has been passed. So uncertainty is beginning to recede. But it must also be pointed out that the flip side of this greater clarity is the concomitant “certainty” of higher tariff rates which now average about 18% vs the 2% level which was in place at the start of the year. Can businesses plan around these higher rates and get hiring back on track? This is the crucial question which, again, requires especially close monitoring. I’ll be monitoring (even from Europe!).
That’s it for this week. Next scheduled update August 29th. All the best,
Nick
Nick Scholte, CIM, FCSI
Senior Portfolio Manager
RBC Dominion Securities Inc. │ Tel: 604.257.7569 │ Fax: 604.235.9950
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