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 catch up on the past four weeks’ Weekly Update in the link to my Blog.

Read my latest Smart Investor newsletter on my website. The Q1 2024 edition covers Market Review for 2023, a Turning Point on interest rates, and advantages of Bonds. Plus my Book List for 2023.

 

Markets

Market scorecard as of close on Friday May 10, 2023.

Country	Equity Indices	Level	1 week	YTD
Canada	S&P/TSX Composite	22,309	1.6%	6.4%
U.S.	S&P 500	5,223	1.9%	9.5%
U.S.	NASDAQ	16,341	1.1%	8.9%
Europe/Asia	MSCI EAFE	2,346	2.7%	4.9%

Source: FactSet

• TSX closed lower in Friday afternoon trading, near worst levels. Canadian equities recorded a 1.6% weekly gain led by materials.

• US equities were narrowly mixed in very quiet Friday trading, ending off best levels on latest cautious inflation data. However, major indices closed out third-straight week of gains with S&P 500 less than 1% from March record close.

• With 91 percent of S&P 500 companies having reported Q1 results thus far, there have been some notable highlights:

• • S&P 500 earnings per share (EPS) growth of 7.1 percent well exceeds the 3.8 percent Bloomberg consensus forecast when the earnings season began.

• • No surprise, technology-related stocks including the Magnificent 7 are leading with the strongest EPS beat rates. But other sectors, such as Financials, are also contributing, which we view as a positive sign.

• • Profit margins remain high for the S&P 500, technology-related stocks, and cyclical (economically sensitive) stocks. In contrast, EPS growth has declined by more than 20 percent for Health Care, Energy, and Materials.

 

Economy

Canada

• The Canadian dollar has traded in a relatively tight $0.72–$0.76 range for the past year and a half. However, we think near-term risks for the currency are skewed to the downside as the BoC looks set to cut rates soon, while the Fed is expected to delay its first rate cut until later in the year.

• Recent data has provided the BoC with clear evidence that its monetary tightening campaign has been dampening economic momentum and driving disinflation. Slower growth has incited a weakening in labour market conditions, with the unemployment rate rising more than one percentage point to 6.1% over the past 12 months.

U.S.

• Last week’s nonfarm payrolls report added to the positive tone for U.S. bonds, as slowing job growth gave a fillip to the narrative of possible rate cuts. Several Fed officials last week emphasized that high Q1 inflation may lead the central bank to keep rates elevated for an extended period.

• Consumer credit balances rose by $6 billion in March, the smallest increase since Q3 2023. Higher interest rates and tighter lending standards likely contributed to the slower pace. Consumption is the largest component of the U.S. economy, and any pullback by households would likely be a significant headwind to GDP growth.

Further Afield

• The Bank of England (BoE) held interest rates steady at 5.25% at its May meeting, but seems much closer to initiating its rate-cutting cycle. Overall, markets which ascribed a 47% probability of a June cut now ascribe a 60% probability.

• Top Chinese policymakers held their quarterly gathering last week, namely the Politburo meeting. Policymakers mentioned they will study measures to absorb property inventory. The new approach aims to solve the oversupply problem directly. Potential measures include government purchases of housing projects for conversion to social housing, and incentives for homeowners to upgrade their housing through financial benefits.

 

Notes About Companies in Model Portfolio

• Apple (AAPL) unveiled upgraded models for the iPad Pro and iPad Air for the first time in 18 months, which is longer than the product’s typical historical upgrade cadence. The company is equipping the latest Pro with its newest silicon, the M4. The iPad Pro with M4 is likely to position the Pro devices for a full portfolio of AI features to be outlined at World Wide Developers Conference in June.

• • Apple has apologized for posting an ad for its new iPad Pro that shows a stack of cameras, musical instruments, and art materials being crushed in an industrial press. The minute-long video sparked furious backlash from an array of celebrities and commentators. Now, Apple has apologized for the ad, which a spokesperson said "missed the mark," in seeking to promote the company's thinnest iPad ever. Apple said the advert for the iPad Pro will also be pulled from appearing on television.

• Intact Financial Corporation (IFC) reported on Tuesday Q1-2024 results. Net operating income per share up 19% to $3.63, largely on the back of premium growth and strong investment results. EPS up 79% to $3.68 driven by investment gains on equity portfolio as well as the gain on the sale of UK direct Personal Lines operations.

• Pembina Pipeline Corporation (PPL) reports results for the Q1 2024 with quarterly earnings of $438 million representing a $69 million or 19 percent increase over the same period in the prior year. Quarterly adjusted EBITDA of $1,044 million ($947m year prior). Management also announced an increase in the quarterly common share cash dividend of 3.4 percent.

 

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