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 31, 2023.

Country	Equity Indices	Level	1 week	YTD
Canada	S&P/TSX Composite	22,269	-0.2%	6.3%
U.S.	S&P 500	5,278	-0.5%	10.6%
U.S.	NASDAQ	16,735	-1.1%	11.5%
Europe/Asia	MSCI EAFE	2,340	-0.8%	4.6%

Source: FactSet

• TSX closed higher Friday afternoon trading, near best levels. TSX finished down 0.3% on the week, Friday rally not enough to offset big Wednesday selloff that saw the benchmark post its biggest decline in over three months.

• US equities were mostly higher in Friday trading, ending near session highs as stocks rallied into the close to erase earlier declines. However, S&P and Nasdaq still snapped their five-week winning streaks.

• Despite uncertainties surrounding inflation, borrowing costs, geopolitical tensions, and the economy, global equities have delivered worthwhile gains. Year to date, the MSCI All-Country World Index has risen roughly 8.5% on a total-return basis. Two fundamental drivers have been at play.

• • First, the economy has continued to progress steadily. A growing economy has, in turn, fed into the second driver, which is an improving outlook for corporate earnings. The combination of durable economic growth, expense control, and share buybacks, in our view, can enable profits to advance further, providing a foundation for stocks to move higher in the quarters ahead.

 

Economy

Canada

• The Bank of Canada (BoC) could begin lowering the policy rate at its June 5 meeting. The futures market is currently around two-thirds priced for a rate cut, while analysts surveyed by Bloomberg are leaning 16-10 in favour of a June cut. The prospect of the BoC cutting its policy rate earlier than the Federal Reserve (Fed) has caused U.S.-Canada bond yield spreads to widen year to date while the Canadian dollar has weakened relative to the U.S. dollar.

• Canadian disinflationary pressures are expected by RBC Economics to persist on softer demand conditions. These fading consumer demand conditions have ultimately led to weaker economic growth momentum, softening the domestic inflationary tailwinds that have been driving price growth this cycle.

U.S.

• Homebuying sentiment in the U.S. is at its lowest level in over 45 years. According to a University of Michigan survey, the share of Americans who believe it is a favorable time to buy a house fell to its lowest level in over 45 years in May.

• While sentiment surrounding homebuying activity has remained suppressed, overall consumer confidence improved in May following three consecutive months of declines.

Further Afield

• The stage seems set for the European Central Bank (ECB) to deliver an interest rate cut on June 6. Banque de France Governor François Villeroy de Galhau said, “Barring a surprise, the first rate cut in June is a done deal.” In our view, the real focus will be on the press conference following the central bank’s policy decision and whether ECB President Christine Lagarde will provide guidance on cuts beyond June.

• Shanghai, Shenzhen, and Guangzhou announced plans for a major easing of restrictions for homebuyers—reducing down payment requirements and allowing room for cheaper home loans. Shanghai and Shenzhen lowered down payment requirements by 10 percentage points to a minimum of 20% for first[1]time buyers and 30% for second-home purchasers.

 

Notes About Companies in Model Portfolio

• BMO Financial Group (BMO) For the second quarter ended April 30, 2024, recorded net income of $1,866 million or $2.36 per share on a reported basis, and net income of $2,033 million or $2.59 per share on an adjusted basis. Year-to-date net income was $3,158 million, compared with $1,162 million the year prior. BMO declared a quarterly dividend of $1.55 per share for the third quarter of fiscal year 2024, a $0.04 or 3 per cent, increase from the prior quarter, up 5 per cent from the prior year.

• Costco (COST) Net sales expanded 9% to over $57 billion, underpinned by a 6.5% increase in comparable sales. Comp growth in the United States of 6% amid an impressive 5.5% uptick in traffic. Comp growth in Canada and other international markets landed at 7.4% and 8.5%, respectively. Worldwide membership increased to 74.5 million (up 8% annually), and renewal rates remained solidly ahead of 90%.

• Royal Bank (RY) Net revenue increased 13.7% from last year and 5% from last quarter to CAD 14.15 billion, though this does include CAD 245 million in incremental revenue from the acquisition of HSBC Canada at the end of March. Meanwhile, adjusted diluted earnings per share increased 9% from last year to CAD 2.92, which translates to a return on equity of 15.5%. Credit remains a headwind as Royal Bank of Canada's provisioning expense increased 53% to CAD 920 million from an unusually low level last year. This does include CAD 217 million of provisioning associated with acquired loans. (From Morningstar report; RBC Dominion Securities is restricted on its reporting.)

 

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