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 July 29, 2022.

Equity Indices	Level	1 week	YTD
S&P/TSX Composite	19,693	3.7%	-7.2%
S&P 500	4,130	4.3%	-13.3%
NASDAQ	12,391	4.7%	-20.8%
Euro Stoxx 50	3,708	3.1%	-13.7%
Hang Seng	20,157	-2.2%	-13.9%

Source: Bloomberg, RBC Wealth Management

• TSX closed higher in Friday afternoon trading, near best levels. Most sectors higher led by energy and materials, with staples the lone decliner. Canadian equities finished with a 3.7% weekly gain. WTI crude settled up 2.3%, though off best levels after earlier cresting $100/barrel.

• US equities finished higher in Friday trading, ending near best levels. S&P logged its third-straight weekly gain and is now up nearly 13% since the June YTD low. Index also capped its strongest monthly performance since late 2020.

• Several factors behind equities' recent strength, though seems to be an outsized focus on the potential for an earlier Fed pivot with the central bank last week scrapping forward guidance and emphasizing data dependence as negative macro surprise momentum (and recession fear) picks up.

• In addition, a handful of big tech earnings cleared a lower bar and offered some pushback against the broader macro slowdown narrative. Elsewhere on the earnings front, 2022 consensus estimates have held up fairly well amid a ramp in concerns about the need for a meaningful reset to reflect growth and inflation headwinds.

 

Economy

Canada

• StatCan noted GDP was unchanged in May beating the advance estimate of a slight 0.2% drop but lower than the 0.3% expansion in April. The agency added growth in services was offset by decline in good producing industrials.

• Canada's economy grew 5.6% year-over-year in May with market now looking to employment figures to be released this week on signs the Bank of Canada (BoC) will stay on aggressive rate hike path.

• Prime Minister Justin Trudeau announced a plan to invest in infrastructure projects that would help accelerate Canada’s transatlantic energy exports. Five liquefied natural gas (LNG) terminals across Nova Scotia, Quebec, and Ontario are slated to receive the bulk of the investment. It could further provide a lift to the Canadian economy as both infrastructure investment and the opportunity to bring resources to the international market.

U.S. 

• Are we in a recession? Are we in a technical recession? Wait, what even is a technical recession? Those are the questions many are asking following the first estimate of Q2 U.S. GDP last week, which came in at -0.90 percent. That marked the second consecutive decline, following the 1.60 percent drop in Q1. Well that’s easy. The rule of thumb is two quarters of economic contraction is a recession. We’re in a recession.

• We’re coming off of 2021 where we had three quarters of more than six percent growth, so in terms of “depth” the contraction doesn’t look that deep. The “diffusion” of weakness still isn’t broad-based, and the “duration” of the true economic weakness may only be a couple of months at this point.

• Since the Fed started with a 75 bps hike in June, followed by another last week, along with two quarters of economic contraction, the S&P 500 is up by more than 11 percent over that stretch.

Further Afield

• The number of new COVID-19 cases in China rebounded last week in the southern region, a key manufacturing hub. According to a Bloomberg report, the Shenzhen city government has asked its 100 biggest companies to restrict operations to employees living within a closed loop with little to no contact with people beyond their plants or offices over a period of seven days. We think risks to the easing global supply chain pressures are skewed to the downside given the near-term overhang on China manufacturing.

• On a more positive note, Beijing will be welcoming direct inbound passenger flights from overseas for the first time in more than two years as China eases parts of its pandemic border regime.

 

Notes About Companies in Model Portfolio

• Apple (AAPL) announced on Thursday financial results for its fiscal 2022 third quarter ended June 25, 2022. The Company posted a June quarter revenue record of $83.0 billion, up 2 percent year over year, and quarterly earnings per diluted share of $1.20.

• CN (CNR) on Tuesday reported its financial and operating results for the second quarter ended June 30, 2022. Financial performance improved year-over-year with record adjusted diluted earnings per share (EPS) of C$1.93, up 30%. CN recorded revenues of C$4,344 million, an increase of C$746 million or 21% compared with the same period in 2021.

• Fortis Inc. (FTS), a well-diversified leader in the North American regulated electric and gas utility industry, released its second quarter results and 2022 Sustainability Report on Wednesday. FTS reported net earnings of $284 million for the second quarter, compared to $253 million in the second quarter of 2021. Growth in earnings was driven by rate base growth as well as higher earnings from the energy infrastructure segment.

• Intact Financial Corporation (IFC) reported Q2-2022 results with EPS of $6.64 in the quarter reflecting strong operating results (up from $3.59 Q2 2021), significant gains on investments and the sale of Codan Denmark. Personal auto premiums grew by 28%, driven by RSA and 1% organic growth. Personal property premiums grew by 28%.

• Magna International Inc. (MG) reported Friday financial results for the second quarter ended June 30, 2022. Sales of $9.4 billion increased 4%, compared to global light vehicle production increase of 2%. Diluted loss per share of $0.54 includes $1.24 of non-cash impairment charges related to investment in Russia. The Board of Directors declared a second quarter dividend of $0.45 per Common Share.

• Microsoft (MSFT) reported on Tuesday 2022 Q4 (ending June 30) earnings per share of $2.23 (+3%). Revenues for the quarter was $51.87 billion (+12%). Commercial bookings grew 25% year-over-year. Microsoft Cloud revenue was $25 billion, up 28%.

• The Procter & Gamble Company (PG) reported fourth quarter and fiscal year 2022 results on Friday. Fiscal year 2022 net sales of $80.2 billion, an increase of five percent versus the prior year. Diluted net earnings per share were $5.81, an increase of six percent versus the prior year GAAP EPS.

• TC Energy Corporation (TRP) released its second quarter results on Wednesday. The continued need for energy security has placed renewed focus on the long-term role TRP’s infrastructure will play in responsibly fulfilling North America's energy demands. Net income attributable to common shares of $0.9 billion or $0.90 per common share compared to a net income of $1.0 billion or $1.00 per common share in 2021. Comparable earnings of $1.0 billion or $1.00 per common share compared to $1.0 billion or $1.06 per common share in 2021.

• TD Bank Group (TD) announced today a definitive agreement for to acquire Cowen in an all-cash transaction valued at US$1.3 billion. Through this transaction, TD Securities will accelerate its long-term growth strategy in the United States by acquiring a high-quality and rapidly growing investment bank. The transaction is expected to be modestly accretive to TD's 2023E adjusted EPS and generate approximately 14% adjusted return on invested capital on a fully-synergized run rate basis.

• Visa Inc. (V) announced on Tuesday its fiscal third quarter 2022 financial results. Net revenues of $7.3 billion was up 19% compared with same period last year. Net income of $4.2 billion was up 29%. Results were largely driven by cross-border travel volumes surpassing the 2019 levels for the first time since the pandemic began. Visa emphasized a general shift in spending toward services & experiences and away from goods, with travel, restaurants and entertainment seeing strength.

 

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Shiuman