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.

You can view the past four weeks’ Weekly Update in the link to my Blog.

Read my latest Smart Investor newsletter on my website. The Q2 2023 edition covers Market Review, Recession Scorecard and Focus on Bonds.

 

Markets

Market scorecard as of close on Friday May 26, 2023.

Country	Equity Indices	Level	1 week	YTD
Canada	S&P/TSX Composite	19,920	-2.1%	2.8%
U.S.	S&P 500	4,205	0.3%	9.5%
U.S.	NASDAQ	12,976	2.5%	24.0%
Europe/Asia	MSCI EAFE	2,081	-2.4%	7.0%

Source: FactSet

• TSX finished higher Friday, just off best levels. Most sectors higher. Health care the lone decliner. Canadian equities posted fifth straight weekly decline with the TSX down 2.1% for the week (its worst weekly performance since 10-Mar).

• US equities rallied Friday. S&P ended above key 4,200 level after failing earlier in the week. Semis extended their massive, AI-driven outperformance.

• President Joe Biden and House Speaker Kevin McCarthy reached a tentative deal on Sunday to raise the country’s debt limit until 2025, heading off the risk that the U.S. will default on its debt. Treasury Secretary Janet Yellen has warned that the U.S. could default as soon as June 1st if the debt ceiling is not raised.

• Global equities are mostly higher in overseas markets. U.S. markets are closed today (May 29) for the memorial holiday.

 

Economy

Canada

• Canadian corporations are feeling the effects of higher interest rates, inflationary pressures, and sustained tightness in the labour market. This challenging environment has continued to pressure corporate profitability, underscored by weakness in aggregate earnings before taxes (EBT), a commonly used measure of profitability.

• Canadian households are showing signs of pulling back their spending as higher interest rates and still-elevated prices continue to challenge consumer purchasing power. Headline retail sales fell 1.4% m/m in March, in line with consensus expectations. The pullback was widespread on both a geographical and sector level.

U.S.

• New home sales in the U.S. unexpectedly advanced in April to the highest level since March 2022 as signs of softening housing prices are luring more buyers to the market. Purchases of new single-family homes rose 4.1% to a seasonally adjusted annual rate of 686,000.

• The latest Producer Price Index report showed U.S. business activity surprisingly increasing in May by the largest margin in over a year after services demand boomed, fueled by accelerating new business growth.

Further Afield

• Germany is technically in a recession following two consecutive negative quarterly GDP readings. Europe’s largest economy saw its GDP contract by 0.3% q/q in Q1 as weak private and public consumption were strong drags on growth, albeit less than initially feared.

• The Singapore chip industry is benefiting from the U.S.-China trade dispute. China imported 27% less in chipmaking gear during April than in the prior year, while the country imported US$407 million of chipmaking machinery from Singapore, up 9.6% m/m.

 

Notes About Companies in Model Portfolio

• Costco Wholesale Corporation (COST) announced its operating results for the third quarter (twelve weeks) and the first 36 weeks of fiscal 2023, ended May 7, 2023. Q3 revenues of $52.6 billion was up 0.3% from 12 months ago. Analysts note that COST top-line weakness was largely driven by softer big-ticket discretionary sales, but highlight the company's ability to sustain margins despite mix shifts; forward looking commentary continues to skew positive, seeing Costco's model as a resilient share gainer in the current environment given its strong value offering, healthy traffic trends, high membership renewal rates, increased private-label penetration, momentum in food/fresh categories, and club expansion plans.

• Royal Bank of Canada (RY) reported Thursday net income of $3.6 billion for the quarter ended April 30, 2023, down $604 million or 14% from the prior year. Compared to last quarter, net income was up 14% reflecting the impact of the Canada Recovery Dividend (CRD) and other tax related adjustments in the prior quarter.

• TD Bank Group (TD) announced Thursday its financial results for the second quarter ended April 30, 2023. Reported earnings were $3.4 billion, down 12% compared with the second quarter last year, and adjusted earnings were $3.8 billion, up 1%. The U.S. Retail Bank continued to deliver strong loan growth of 10% year-over-year, supported by personal loan growth of 12% and business loan growth of 9%.

 

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