Below is a summary of some of the relevant news items from the Capital Markets and the Economy from the past week extracted from RBC Global Insights and FactSet Research.

 

Markets

Market scorecard as of close on Friday October 29, 2021.

Equity Indices	Level	1 week	YTD	52-week
S&P/TSX Composite	21,037	-0.8%	20.7%	34.2%
S&P 500	4,605	1.3%	22.6%	39.1%
NASDAQ	15,498	2.7%	20.3%	38.6%
Euro Stoxx 50	4,251	1.5%	19.6%	43.6%
Hang Seng	25,377	-2.9%	-6.8%	3.2%

Source: Bloomberg, RBC Wealth Management

• With two months left in CY2021, the S&P/TSX Composite is on pace for a solid year of gains. The key Canadian equities benchmark has returned approximately 23% YTD, underperforming the S&P 500 by approximately 156 basis points in local-currency terms.

• Furthermore, the S&P/TSX Composite trades at a discount to the S&P 500 based on consensus forward earnings estimates although we acknowledge that the Canadian economy tends to be more resource-driven and, therefore, should be more sensitive to changes in commodity prices (i.e., greater volatility in earnings). Fortunately, most commodity markets have sharply rebounded in 2021 with a few pointing towards sustained momentum heading into 2022.

• Specifically, RBC Capital Markets believes we’re still in the early days of a multiyear energy bull market and is calling for a constructive outlook on the back of strengthening demand and tight supply conditions. Energy has been the best-performing sector on the S&P/TSX Composite thus far in 2021 and represents about 13% of the index.

• Microsoft has reclaimed its title as the most valuable public company after its shares rose on Friday after a positive Q3 earnings report. This places Microsoft ahead of Apple, who saw weaker-than-expected quarterly earnings on chip shortages and factory slowdowns which hit production (Financial Times).

 

Economy

Canada

• In August, Canadian retailers saw sales growth across all provinces, with Ontario and Quebec posting the largest increases. Provincial governments have continued to ease their public health restrictions across the country, which StatCan sees as an influential driver of in-person retail sales growth.

U.S. 

• The U.S. economy grew at a tepid 2.0% pace during Q3 2021, according to preliminary data released during the week, missing consensus estimates of 2.6% growth. The result marked a sharp deceleration from the 6.7% growth posted in Q2. RBC Economics blamed the slowdown on depressed consumer spending growth of 1.6%, even as aggregate household wages grew 10% in the quarter. This in turn reflected a shortage of things to buy, particularly motor vehicles, as supply-chain issues restricted availability.

Further Afield 

• As expected, no major policy changes were announced at the October meeting of the European Central Bank (ECB). The December meeting is likely to see guidance on the path forward after the scheduled expiration of the Pandemic Emergency Purchase Programme (PEPP) in March 2022. President Christine Lagarde kept the ECB in the “transitory” camp when it comes to inflation, stating, “While the current phase of higher inflation will last longer than originally expected, we expect it to decline in the course of next year.”

• The Hong Kong government’s decision to tighten COVID-19 travel restrictions in order to bring the international hub more in line with mainland China. The announcement came despite concerns from Hong Kong’s business community that business travel remains challenging under a strict quarantine regime.

• China’s state media agency, Xinhua, commented that the spillover effect of Chinese real estate companies’ debt default risks on the financial industry is generally controllable, stating “there will be clues if a property is likely to default on its debts, so the risk of spillover to the financial industry can be predicted.” China Evergrande Group averted default last week with a last-minute bond coupon payment. On Sunday, the company said it had resumed work on more than 10 projects in six cities, including Shenzhen.

 

Notes About Companies in Model Portfolio

• Apple (AAPL) Apple reported fiscal fourth-quarter results that came in below FactSet consensus estimates for revenue, as the firm faced supply chain constraints that weighed on sales by about $6 billion. However, we expect Apple to recover in the long term and still foresee solid demand for the company’s products and services as these supply issues subside (Morningstar). Apple’s iPhone revenue grew 47% year over year to $38.9 billion, though we note this was off a lower base due to the delayed launch of the iPhone 12 in 2020. Management expects Apple to set a new revenue record for the December quarter, with growth in all segments but the iPad, though supply constraints are expected to reduce sales by more than $6 billion.

• Fortis (FTS) released its third quarter results1 and 2022-2026 capital investment plan on Friday – Third quarter net earnings of $295 million, or $0.63 per common share. The company increased common share dividend ~6%, marking 48 years of consecutive increases, and reaffirmed 6% average annual dividend growth guidance through 2025. The Corporation announced its new five-year capital investment plan of C$20B

• Microsoft (MSFT) The company reported revenue growth ~3 points ahead of consensus and continued strength within its cloud offering, although with slightly less vigor in larger long-term bookings. Key takeaways. 1) Microsoft Cloud revenue surpasses $20B for the first time, supported by robust Azure growth. Azure grew 50% y/y.

• Visa (V) Visa’s fiscal fourth-quarter results largely maintained the path the company has been on this year, with volume showing ongoing recovery from the impact of the pandemic. Reported revenue in the quarter was up 29% year over year. Visa reports a portion of its revenue with a one-quarter lag, but adjusting for this, revenue growth would have been a still-healthy 22%. Gross dollar volume in the quarter increased 14% year over year.

 

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Shiuman