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 January 28, 2022.

Equity Indices	Level	1 week	YTD	52-week
S&P/TSX Composite	20,742	0.6%	-2.3%	19.6%
S&P 500	4,432	0.8%	-7.0%	19.3%
NASDAQ	13,771	0.0%	-12.0%	5.4%
Euro Stoxx 50	4,137	-2.2%	-3.8%	21.7%
Hang Seng	23,550	-5.7%	0.7%	-17.6%

Source: Bloomberg, RBC Wealth Management

• TSX closed sharply higher in Friday afternoon trading. Tech and health care the leaders offset the losses in the materials sector. Canadian equities finished the volatile week with a 0.6% gain after a strong Friday finish.

• US equities also sharply higher Friday, reversing earlier declines.

• Equities have fallen in 2022 with the Nasdaq down 12% and the S&P 500 lower by 7%. Almost every S&P 500 sector has traded lower this month due to uncertainties associated with the Fed rate hike cycle and ongoing inflation. Growth stocks have faced the majority of downside pressure, driving the S&P 500 Growth Index down 13.0%, while value stocks have outperformed the broader market, with the S&P 500 Value Index only losing 4.0% for the month. 

• A combination of factors contributed to the selling pressure, including continued concerns about inflation, uncertainty around the potential impact of the Federal Reserve’s shift to less accommodative monetary policy, profit-taking following a very strong nearly two-year appreciation in stocks, and geopolitical tensions.

• One bright spot has been the Energy sector, up 19.2% due to rallying oil prices amid geopolitical risks and potential implications on global energy markets. Financials and Consumer Staples also performed relatively well compared to other sectors, supported by higher Treasury yields and expectations of rate hikes.

 

Economy

Canada

• There are no rate hikes in Canada yet, as the Bank of Canada (BoC) decided to hold its benchmark overnight interest rate unchanged at 25 basis points at this week’s meeting. This was in line with consensus expectations, and likely a result of the short-lived economic drag caused by the omicron variant and its associated public health restrictions.

U.S.

• While the geopolitical picture is still unclear, the Fed reduced some of the uncertainty around the policy framework at its recently concluded January meeting. The Fed’s post-meeting statement—and comments made by Fed Chair Jerome Powell—confirmed our expectations as well as market pricing, by guiding investors to a March rate hike, which would be the first of the tightening cycle.

• We believe the Fed’s primary game plan is to cool monetary policy to the point that it is not further aggravating inflationary pressures, allowing supply-chain issues time to resolve. Since the Fed’s goal is a somewhat limited one, we believe policymakers are unlikely to push on the brakes so hard as to tip the economy into recession.

Further Afield

• Eric Lascelles, chief economist at RBC Global Asset Management Inc., thinks Russia would only stop supplying energy as a strategy of last resort. Cutting supplies would not only be problematic for the continent but would also have negative consequences for Russia. Government revenues would shrink, and such a move would likely trigger sanctions, e.g., losing access to the SWIFT financial network, which would be detrimental to the Russian economy, at least in the short term.

• The situation remains an ongoing risk to European equities, and we could see a further modest pullback should the situation escalate. However, acts of war rarely have a lasting influence on global financial markets, so long as an energy shock is avoided.

• Taiwan’s gross domestic product grew 6.3% y/y in 2021, the fastest rate of expansion since 2010. Investors’ 2022 outlook remains bullish after Taiwan Semiconductor Manufacturing Co. (2330 TT/ TSM) revealed plans earlier this month to spend between US$40 billion and US$44 billion over the coming 12 months, equivalent to around 5% of Taiwan’s economy, on new plants to help ease the shortage of semiconductors.

 

Notes About Companies in Model Portfolio

• Apple (AAPL) announced Thursday financial results for its fiscal 2022 first quarter ended December 25, 2021. The Company posted an all-time revenue record of $123.9 billion, up 11 percent year over year, and quarterly earnings per diluted share of $2.10. The revenue beat in F1Q also demonstrated to investors better supply chain management from Apple, and should increase investor confidence in the company navigating supply challenges in the coming quarters.

• CN Rail (CNR) reported last Tuesday its financial and operating results for the fourth quarter and year ended December 31, 2021. Revenues for the full year was C$14,477 million, an increase of C$658 million or five per cent over 2020. Diluted EPS of C$6.89, an increase of 38 per cent, and record adjusted diluted EPS of C$5.94, an increase of 12 per cent.

  • CNR announced that it has appointed Tracy Robinson as President and Chief Executive Officer and as a member of its Board of Directors, effective February 28, 2022. This appointment follows the previously announced retirement of Jean-Jacques (“JJ”) Ruest, who will depart CN’s Board on February 28, 2022 but remain at CN in an advisory role until March 31, 2022 to ensure a seamless transition.

• Johnson & Johnson (JNJ) announced last Tuesday results for fourth-quarter and full year 2021. Full year revenue was $93.8 billion, a 13.6% improvement over 2020. Full-Year EPS of $7.81 increased 41.7%; adjusted EPS of $9.80 increased 22.0%.

• Microsoft Corp. (MSFT) announced last Tuesday the following results for the quarter ended December 31, 2021, as compared to the corresponding period of last fiscal year: Revenue was $51.7 billion and increased 20%, operating income was $22.2 billion and increased 24%, net income was $18.8 billion and increased 21%, and diluted earnings per share was $2.48 and increased 22%. Server products and cloud services revenue increased 29% driven by Azure and other cloud services revenue growth of 46%.

• Visa (V) reported $7.06B / $1.81 in net revenue/EPS, compared to our (RBC Capital Markets) estimates of $6.79B / $1.74. Payments volume +20% y/y vs +17% last quarter (constant dollar), cross-border volume +40%y/y vs +38% last quarter, and processed transactions +21% y/y vs +21% last quarter. Management highlighting recovery in cross-border travel and e-commerce growth; said US holiday spending was ~40% over 2019 levels.

 

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Shiuman