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 27, 2023.

Country	Equity Indices	Level	1 week	YTD
Canada	S&P/TSX Composite	20,714	1.0%	6.9%
U.S.	S&P 500	4,071	2.5%	6.0%
U.S.	NASDAQ	11,622	4.3%	11.0%
Europe/Asia	MSCI EAFE	2,109	1.4%	8.5%

Source: Bloomberg, RBC Wealth Management

• TSX ended slightly higher in quiet Friday afternoon trading. Most sectors higher. Canadian equities recorded a 1.0% weekly gain, up for fourth consecutive week.

• US equities mostly higher in a fairly uneventful Friday session. Major indexes ended off best levels for the session, though still big for the week, up 2.5%.

• With uncertainty about the U.S. economy’s fate hanging in the air, market participants are paying close attention to Q4 2022 earnings reports and the prospects for earnings and revenue growth in 2023. With 25 percent of companies having reported thus far, S&P 500 earnings are on pace to decline 2.7 percent year over year.

• There is further downside risk to the S&P 500’s 2023 estimate, which could bring forth more volatility and/or downside for the index. But we think a lot of bad news has already been absorbed by the market. (Global Insight Weekly, RBC Global Portfolio Advisory Committee.)

• The past few weeks have reinforced some of our convictions for the year ahead: inflation and growth are moderating, and central banks are nearing the end of their tightening campaigns. That is a marked difference from the year ago period, and should foster a more normal backdrop for portfolios in which asset allocation delivers the kind of diversification that was sorely lacking last year.

 

Economy

Canada

• The Bank of Canada (BoC) increased its benchmark overnight interest rate by 25 basis points (bps) at last week’s policy meeting, bringing the overnight rate to 4.5%. BoC statement: “we expect to pause rate hikes while we assess the impacts of the substantial monetary tightening already undertaken.” The debate that is now likely to intensify in the months to come is how long of a pause, and whether the bank is likely to reduce rates at some point later this year which is what the bond market is anticipating.

• In early 2022, national home prices were up 30% on a year-over-year basis driven in part by ultralow interest rates and hybrid working conditions, which bolstered housing demand. Fast forward to December 2022, and efforts to curb inflation via aggressive monetary policy led to a 7.5% year-over-year decline in average home prices.

U.S. 

• U.S. economic output, as measured by GDP, expanded in Q4 2022. The economy grew at an annualized rate of 2.9%, after inflation. This was ahead of consensus expectations despite Q4 growth marking a step down from Q3’s growth rate of 3.2%.

• Despite layoff headlines moving beyond Silicon Valley and Wall Street and into harder asset industries such as Industrials and Chemicals companies, weekly initial jobless claims continued to trend lower. The stability in employment should enable the Fed to stay focused on the inflation outlook at the next policy meeting.

• Financial markets are pricing in another 25 bps (or 0.25 percent) hike at this week’s FOMC meeting, bringing the policy rate to 4.75%, yet signalling a moderating pace of rate hikes.

Further Afield 

• Preliminary activity indicators for January suggest the probability of a winter recession in Europe is diminishing. To be fair, the region was fortunate. Unseasonably warm weather meant gas storage was not reduced much. The sharp fall in wholesale natural gas prices—now below their level of a year ago—led consumer and business sentiment to improve for a third month in a row.

• China’s Ministry of Transport expects more than two billion people to travel over the 40-day holiday season, almost twice the total for 2022.

 

Notes About Companies in Model Portfolio

• CN (CNR) reported on Tuesday its financial and operating results for the fourth quarter and year ended December 31, 2022. Diluted earnings per share (EPS) of C$2.10 grew by 23% on an adjusted basis in the fourth quarter, and operating ratio remained flat at 57.9% on an adjusted basis. For the full year CN generated revenues of C$17,107 million, an increase of C$2,630 million or 18%. The Company’s Board of Directors approved an 8% increase to CN’s 2023 quarterly cash dividend, effective for the first quarter of 2023. This is the 27th consecutive year of dividend increases.

• Johnson & Johnson (JNJ) announced on Tuesday results for fourth-quarter and full year 2022. Fourth-Quarter reported sales decline of 4.4% to $23.7 billion primarily driven by unfavorable foreign exchange and reduced COVID-19 vaccine sales vs. prior year. Full-year earnings per share (EPS) of $6.73 decreasing 13.8% and adjusted EPS of $10.15 increasing by 3.6%.

• Microsoft (MSFT) reported fiscal 2023 Q2 results with revenues of $52.7 billion, up 2% year over year. Net income was $16.4 billion down 12%. Server products and cloud services including Azure increased 20%. Xbox revenues decreased 12%.

• • Microsoft has completed the acquisition of 21.2M voting ordinary shares in London Stock Exchange Group (LSEG) from entities owned by certain investment funds. As a result of the acquisition, Microsoft holds a voting interest in LSEG of ~4.2%, based on the total voting rights in LSEG.

• Visa (V) reported Q1 revenues of $7.94 billion, up 12.4% year over year. Net earnings were up 6%. Cross border volume was up 22% YoY.

 

Feel free to contact me with any questions and/or to discuss investment ideas.

I appreciate the opportunity to serve you and look forward to continuing to help you accomplish your long-term financial goals.

 

Regards,

Shiuman