Items that may only interest or educate me ….
Entering a volatile month for trading, Canadian Economic news, US Economic news …
First, lets start by wishing everyone a happy, relaxing Labour Day long weekend!
September Can Be a Volatile Month for Investors
This past week, investors received several key economic reports from both Canada and the United States as they prepare for a potentially volatile September. Historically, the S&P 500 (S&P) has lost an average of 0.6% in September since 1945, making it the worst performing month of the year for that index. The Nasdaq Composite Index (Nasdaq) has lost an average of 0.7% in September since 1971, and the Dow Jones Industrial Average (DJIA) has lost an average of 0.4% in September since 1928. On the other hand, the TSX has risen an average of 0.2% in September since 1960.
Before piling into TSX stocks, it is important to note that past performance is not a guarantee of future results. The markets could perform differently in September 2023 than they have in previous years. However, the historical data does suggest that investors should be prepared for some volatility in September.
There are a few factors that could contribute to volatility in September. One factor is the return of the big financial institutions to the market after the summer months. These institutions often sell stocks in September to raise cash so their balance sheets look good at the end of the third quarter (July through September). This selling pressure can lead to lower prices in the markets.
On top of historical monthly averages, the past few weeks have been volatile. All the indexes were up considerably at the end of July before retreating in August. Investors reacted to a weaker than expected Chinese economy, a surge in government bond yields that provide a less risky, yet viable return, and concerns of higher interest rates that will likely stick around longer than originally forecast.
Finally, the Bank of Canada (BoC) and the US Federal Reserve (Fed) are both meeting in September. These meetings will be closely watched by investors, as they will provide updates on their respective monetary policies (interest rates). Any changes in monetary policy could have a significant impact on the markets. The data this past week could go a long way to influencing their actions. Let us look at some of that information.
Canadian Economic news
The latest measure of the Canadian economy, as measured by the Gross Domestic Product (GDP) report, showed the Canadian economy unexpectedly declined in the second quarter, down 0.2% on a yearly basis. GDP is a measure of the total value of goods and services produced in a country in a given period. It is a key measure of economic health, and a decline in GDP can be a sign of a recession. The BoC had forecast growth of 1.5%, while analysts had expected a growth rate of 1.2%. Statistics Canada also revised its number for the first quarter, showing the economy grew by 2.6%, rather than the 3.1% it initially reported.
The slowdown was attributed to a drop 2.1% in housing investment caused by the higher borrowing costs brought on by the higher interest rates. Slower buildup of inventories by businesses, down by 0.5%, as well as slower growth in exports, down 0.4%, all contributed to the decline in GDP. The only components that contributed to growth were increased business investment in engineering structures and higher government spending (your tax dollars at work).
For the month of June, the Canadian economy, declined by 0.2%, after gaining 0.2% in May. On an annual basis, GDP grew by 1.1%. Statistics Canada initial estimate for July shows GDP was essentially flat.
With this sharp slowdown in economic growth, this could lead the BoC to pause its interest rate hikes. Many analysts are expecting the BoC to do just that, hold the benchmark rate at 5.0% at their upcoming meeting on September 6. Analysts are also predicting the rate will remain at that level until April 2024.
US Economic news
Personal Consumption Expenditures
The latest Personal Consumption Expenditures (PCE) price index for July revealed a 0.2% increase on a monthly basis, mirroring a similar 0.2% upturn observed in June. While the price of goods fell 0.3%, it was offset by a 0.4% rise in service costs. On an annual basis, the PCE price index advanced 3.3%, with a 0.5% dip in goods prices that was overcome by a 5.2% increase in services prices.
The Fed preferred measure of inflation, core PCE, PCE less the volatile food and energy components, gained 0.2% in July, following a 0.2% gain in June. On an annual basis, core PCE rose 4.2%, slightly higher than June’s 4.1%.
Gross Domestic Product
The Department of Commerce revised its second estimate of second-quarter GDP to an increase of 2.1% in the second quarter, on an annual basis. This growth rate is below the governments initial estimates and below analysts 2.4% estimate but slightly higher than the 2.0% increase in the first quarter.
The main drivers of growth in the second quarter were consumer spending and business investment. Consumer spending rose by 2.7%, while business investment rose by 2.3%. However, exports fell by 1.2%, and imports rose by 1.7%, which weighed on growth.
Jobs
The Labor Department’s Job Openings and Labor Turnover Survey (JOLTS) report for July showed the number of job openings for dropped to 8.8 million. That was well down from June’s 9.16 million openings and below analysts’ expectations of 9.5 million openings. The number of people quitting their jobs was also down to 2.3%, the lowest since January 2021. A cooling job market will be viewed as a good sign by the Fed who want to see more softness in the labour market as a sign inflation is dropping.
The Labor Department’s Employment Situation Summary for August showed nonfarm payrolls rose by 187,000 jobs, compared to an increase of 157,000 jobs reported in July, and beating expectations of a gain of 170,000 new jobs. The unemployment rate came in higher than expected at 3.8%, surpassing expectations it would remain unchanged at August’s 3.5%. The report also showed that average hourly earnings rose 0.2% in August, compared with an increase of 0.4% in July, and has grown 4.3% on an annual basis.
The August ADP National Employment report revealed US private employers added 177,000 jobs in August, compared to an increase of 371,000 jobs in July. As well, annual pay was up 5.9% on a yearly basis, the slowest since October 2021. These numbers suggest the job market is softening and wage increases are slowing.
Fitting all these pieces together, these reports indicate that the economy is cooling without breaking. The economy remains strong and continues to create employment opportunities. Nevertheless, the rate of job creation has decelerated somewhat. Additionally, the unemployment rate remains at a low level, and wage growth, while still positive, is slowing down. These trends are favorable for the Fed as they continue their efforts to combat inflation and bring it back towards their 2% target through interest rate adjustments.
On the whole, the economic data presents a mixed picture. Inflation remains elevated, but there has been a deceleration in GDP growth, and the job market is showing signs of softening. These factors seem to align with the Fed’s pragmatic approach to gradually raise interest rates based on the data. With this in mind, hopefully the data will be enough to convince them to maintain the benchmark rate at 5.5%.
Consumer Confidence Index
The Conference Board reported the Consumer Confidence Index (CCI) fell more than expected to 106.1 in August, compared with 114 in July. Analysts had expected a reading of 116 for August. The lower-than-expected reading indicates consumers are becoming more pessimistic about the economy. This is likely due to softening employment conditions, and rising prices, especially for food and gas. When consumers are pessimistic, they are less likely to spend money, which can slow down economic growth. Exactly what the Fed wants!
As you read, lots of economic data this past week. Let’s see how the markets reacted to this information overload ….
Weekly Market Review
Monday: The last week of summer got off to a good start after all four major North American indexes posted gains. In what is normally a quiet week, several economic reports from Canada and the US are due later this week. These reports should provide clues as to whether the BoC and the Fed will raise rates at their respective upcoming meetings.
To further stimulate their economy, China announced they cut in half the stamp duty on stock trading. Stamp duty on stock trading is a tax that is applied to the purchase of shares or securities in certain countries. It is usually paid by the buyer and is intended to generate revenue for the government. Oil prices were flat as concerns of higher interest rates were offset by concerns about disruption to supplies from storm season in the Caribbean.
In Canada, the Toronto Stock Exchange Composite Index (TSX) rose on higher commodity and oil prices. In trading, all sectors ended higher, led by Telecommunications Services and Basic Materials (miners and fertilizer manufacturers) posted the biggest gains. Bringing up the rear were Consumer Staples and Industrials.
In the US of A, higher oil prices and investor optimism that upcoming reports will be favourable to the Fed maintaining the current interest rate lifted the S&P, the DJIA, and the Nasdaq. In trading, all American sectors ended in the green, led by Telecommunications Services and Consumer Cyclicals. Trailing the pack were Utilities and Healthcare.
Tuesday: Another good day in the markets as all four indexes finished in the green thanks to US economic data that showed signs the US labour market cooled in August. The economic data caused investors to gain confidence the Fed will maintain the current 5.5% benchmark interest rate.
In Canada, the momentum caused by the news out of the US lifted the Canadian markets to their best finish in a few weeks. It was a day of broad-based gain in trading, with the interest sensitive Technology and Consumer Cyclicals sector leading all Canadian sectors. Utilities and Healthcare once again trailed the other sectors.
In the US, growing optimism of a pause in rate hikes caused investors to re-enter the stock markets, pushing all three indexes higher. The Nasdaq even had its best day since June thanks to gains in the big technology companies. Once again, all sectors ended higher, led by Telecommunications Services and Technology, with the defensive sectors Utilities and Consumer Staples posting the smallest gains.
Wednesday: Each of the indexes posted there fourth consecutive positive day. The catalyst this time was the latest US GDP report showing the US economy grew slower than forecast and the US labour market continued to weaken. Both are good reasons for the Fed to maintain the current interest rate.
In Canada, The TSX was lifted by the good news out of the US. It was a mixed day in trading on Bay Street, the Technology and Healthcare sectors were the best of the five sectors that posted gains, while the Utilities and Consumer Cyclicals sector fell the farthest of the five sectors that posted losses.
In the US, a slowing economy and softer labour market reinforced investor’s expectations the Fed will not raise the interest rate at their next meeting. In trading on Wall Street, technology and Industrials posted the biggest gains, while Utilities and Healthcare were the only American sectors to post losses.
Thursday: A mixed day for the indexes, as they moved between small gains and losses throughout the day with the Nasdaq the only index able to finish the day in the green.
In Canada, the last of Canada’s big six banks, Canadian Imperial Bank of Commerce (TSX: CM) missed analysts’ estimates for the second quarter, sending the heavily weighted Financials sector lower and dragging the TSX down with it. In trading in the Canadian sectors, the Technology, Healthcare and Consumer Cyclicals were the only sectors to advance. On the losing side, Utilities and Consumer Staples suffered the biggest losses.
In the US, the latest US inflation data, the PCE, came in as analysts expected, further raising expectations the Fed will pause its interest rate hikes. In trading in the American sectors, the interest sensitive Technology and Consumer Cyclicals were the only sectors to advance. Among the sectors that fell, Healthcare and Utilities had the largest declines.
Friday: Overall a good day in the markets with the Nasdaq ending barely below the bar while the other three indexes ended solidly in positive territory. The big news was the US job market continued to cool off. Oil prices hit their highest point in over six months as supplies grew tighter. American crude oil inventories have declined in five of the last six weeks, according to the US Energy Information Administration.
In Canada, the Canadian GDP shrank, providing hope for investors that the BoC will leave the Canadian benchmark rate alone at next week’s meeting. It was a day of broad-based gains in the Canadian sectors, led by Energy and Industrials. Telecommunications Services was the only sector to end in the red.
In the USA, after this week’s economic news suggested the Fed was winning its battle with inflation, investors are expecting the Fed to hold off on a rate hike at their meeting at the end of September. The Energy and Basic Materials sectors led the winners in the American sectors, while Consumer Staples and Telecommunications Services experienced the biggest losses.
Weekly Market and Portfolio Review
For the week, the TSX (SPTSX) jumped 3.6%, the S&P 500 (SPX) gained 2.5%, the DJIA (INDU) rose 1.4% and the Nasdaq (CCMP) advanced 3.2%.
All four major indexes had a strong week, with the TSX leading the way thanks to the Friday rally. This boost was fueled by favorable economic reports from both Canada and the US.
In the US, despite a mid-week dip, the American indexes performed well overall. They all received a lift from the US GDP report, which indicated that the American economy remained robust, even though employment numbers softened slightly.
The Nasdaq and S&P indexes particularly benefited from a strong week for growth-oriented companies. Meanwhile, the DJIA trailed the other indexes but still managed to have its best week since July. Investors welcomed these promising economic reports with enthusiasm as evidenced by the gains across all four indexes.
It was a great way to wrap up August and start September for all three Portfolios, as shown below. Each portfolio benefited from a rebound in its respective Canadian financial companies. Portfolio 3 had the best performance of the week, thanks to an impressive 18% gain from Shopify (TSX: SHOP) and a rebound in the financial sector. Portfolio 1 also had a strong showing, propelled higher by its growth-oriented companies. While a 3.1% gain would typically be considered good, this week it left Portfolio 2 trailing behind due to the strong performances of the other two portfolios. Portfolio 2 was lifted by MongoDB (NASD: MDB) and the financial companies.
Monthly Market and Portfolio Review
For August, the TSX (SPTSX) dropped 1.6%, the S&P 500 (SPX) fell 1.8%, the DJIA (INDU) lost 2.4% and the Nasdaq (CCMP) declined 2.2%.
After months of steady gains, August brought about a downdraft in the market. The graph above shows a volatile market that witnessed declines across all four major indexes during the initial three weeks of the month. However, a late-month rally helped mitigate some of the losses, although it was not sufficient to push any of the indexes back into positive territory.
This downturn marked the S&P’s first monthly loss since February, the DJIA’s worst performance since May, and the Nasdaq experienced its most challenging month since November of 2022. Both the S&P and Nasdaq saw the end of their five-month winning streaks, while in Canada, the TSX recorded its first losing month since May.
Several factors contributed to this market downturn. Mixed commodity prices, persistent concerns surrounding the Chinese economy, and higher interest rates collectively dampened consumer confidence and investor sentiment. Moreover, the surge in government bond rates, a result of those higher interest rates, prompted a shift among many investors away from stocks toward less risky government bonds.
August proved to be a challenging month for the portfolios, especially for Portfolios 2 and 3. A glance at the chart below reveals Portfolio 1’s was able to buck the trend, managing to make gains even though all four major indexes were in the red. Although more than half of the companies in Portfolio 1 ended the month with lower share prices, these losses were not overly significant. On the bright side, substantial gains from companies like Nvidia (NASD: NVDA), Celsius Holdings (NASD: CELH), and a few others more than compensated for the losses.
However, Portfolio 2 and Portfolio 3 faced a different story. They lacked significant winners to offset the losses incurred by their respective bank holdings and the general market downturn, resulting in significant monthly declines.
As we bid farewell to August and usher in September, it is worth noting that September has traditionally posed challenges for North American stock markets, as I mentioned in the opening. Investors will also be closely monitoring the upcoming interest rate updates from both the BoC and the Fed, as these events carry considerable significance in the current economic landscape. Hopefully, the American indexes will not repeat historical performance and post at least modest gains for September. We shall see.
Companies on the Radar
Nothing new was added to the Radar List this past week, so it is the same six companies as last week:
- Dollarama (TSX: DOL), a large Canadian company that operates dollar stores across Canada.
- Deere & Company (NYSE: DE), a large American company that manufactures and sells agricultural equipment worldwide.
- Walmart (NYSE: WMT), a big American retail and wholesale company that operates globally.
- Restaurant Brands International Inc. (TSE: QSR): A large cap Canadian consumer cyclical company that operates in the North American quick serve restaurant industry. The company owns Tim Horton’s, Burger King, and Popeye’s Louisiana Kitchen among others.
- MTY Food Group Inc. (TSE: MTY): A small cap Canadian consumer cyclical company that operates and franchises quick service and casual dining restaurants throughout North America and internationally.
- Crown Castle Inc. (NYSE: CCI), a large cap American company that owns and operates cell towers throughout America. The company is currently at its lowest price in five years and offers a 6+% dividend.
The Radar Check was last updated September 1, 2023.
Portfolio Update
Portfolio 1
Portfolio 1 for the week ended September 1, 2023: UP 
- A big test for Tesla (NASD: TSLA) is coming up as the company faces two separate claims its Autopilot driver assistant/self driving software caused the death of the driver in each case. If Tesla wins both trials, it will likely set a precedent for future cases. If it loses, it will set back their self driving capabilities claims, likely lead to more claims, and cost the company a lot of money.
In other Tesla news, the company announced a new look for China made Model 3 electric vehicles (EV). These Chinese made EVs are destined for the growing Chinese market as well as other Asian, Middel East and European markets. The price for these restyled EVs will be 12% higher than the current base model. Tesla also cut prices on its other premium EVs and their self driving software. - Alphabet’s (NASD: GOOGL) announced several new products and services at their Google Next conference this past week. Among the new products was its own custom-built chips that are optimized for artificial intelligence (AI). They also announced AI updates to its office and security tools, as well as a tool capable of leaving an invisible watermark on AI generated images.
Google also announced it would be offering its AI infused office productivity software to enterprise customers for US$ 30 per user, per month. - Visa (NYSE: V) is planning to boost the rates that many retailers pay when accepting customers’ credit and debit cards. The additional charges will be for online transactions and commercial credit, debit, and prepaid cards.
- The Trade Desk (NASD: TTD) announced their Chief Technology Officer Dave Pickles will step down on September 29. He will also be leaving the company’s board of directors but will remain a long-term advisor.
- Lattice Semiconductor (NASD: LSCC), received Hewlett Packard Enterprise’s (NYSE: HPE) 2023 Cyber Security Supplier of the Year Award. The award goes to companies that provide exceptional performance and leadership in implementing cybersecurity controls that align with HPE’s cybersecurity strategies.
Activity
Sold Docusign Inc. (NASD: DOCU) These shares were bought during the Covid-19 pandemic when businesses were closed, and a lot of paperwork had to be signed electronically. I even experienced their software firsthand when I had to insure my vehicle. It was fast and easy to use. I still think its very efficient. However, when the world started to get back to normal the share price sank, and it became a ‘pandemic stock’. One that rode the tailwinds of remote work and fell back to earth when those tailwinds stopped. I suspect the company will do fine in the long run, but there are currently better opportunities available. In hindsight, I should have sold these shares when the pandemic restrictions began to lift.
Sold Enwave Corporation (TSXV: ENW) In an attempt to capitalize on the then upcoming legalization of marijuana in Canada, investments were made in a number of marijuana related companies. As with many of the marijuana related companies, this was a case of “buy on hype, sell on news” and I should have sold once marijuana was legalized and the hype disappeared. Its share price was clobbered in 2022 but I hoped it might get lifted higher with the rising markets of 2023. Unfortunately, that was not the case and I got tired of being an owner of a company that did not seem to be going anywhere.
Note to self, identify overly hyped companies, and be prepared to sell once the hype dies.
Dividends
Dividends Received this week for the following companies:
Companies followed by DRIP (Dividend Re-Investment Plan) indicate additional shares were purchased with the dividend. Any cash leftover was added to the cash balance.
Canadian $
No C$ dividends this past week.
US $
Visa Inc (NYSE: V)
Quarterly Reports
Bank of Nova Scotia
All currency listed in millions of Canadian dollars, except for per share data.
Selected highlights from their third quarter 2023 financial results on August 29, 2023
- Revenue of $8,090 for the three months ended July 31, compared to $7,799 for the same period in 2022. An increase of almost 4%.
- Net income of $2,212 for the three months ended July 31, compared to net income of $2,594 in the same period in 2022.
- Diluted earnings per ordinary share of $1.72 for the three months ended July 31, compared to earnings of $2.09 per share for the same period in 2022.
- Revenue of $23,999 for the nine months ended July 31, compared to $23,790 for the same period in 2022. An increase of almost 1%.
- Net earnings of $6,143 for the nine months ended July 31, compared to net earnings of $7,861 in the same period in 2022.
- Diluted earnings per ordinary share of $4.76 for the nine months ended July 31, compared to earnings of $6.39 per share for the same period in 2022.
CrowdStrike Holdings, Inc.
All currency listed in thousands of US dollars, except for per share data.
Selected highlights from their second quarter 2024 financial results on August 30, 2023
- Revenue of $731,626 for the three months ended July 31, compared to $535,153 for the same period in 2022. An increase of almost 37%.
- Net income of $8,476 for the three months ended July 31, compared to a net loss of $49,285 in the same period in 2022.
- Diluted earnings per ordinary share of $0.03 for the three months ended July 31, compared to a loss of $0.21 per share for the same period in 2022.
- Revenue of $1,424,206 for the six months ended July 31, compared to $1,022,987 for the same period in 2022. An increase of over 39%.
- Net income of $8,963 for the six months ended July 31, compared to a net loss of $80,808 in the same period in 2022.
- Diluted earnings per ordinary share of $0.04 for the six months ended July 31, compared to a loss of $0.35 per share for the same period in 2022.
Portfolio 2
Portfolio 2 for the week ended September 1, 2023: UP
- The Bank of Nova Scotia, also known as Scotiabank, (TSX: BNS) missed earnings estimates for third quarter profits. The main cause was due to setting aside more cash to cover bad loans, which almost doubled compared to a year ago.
Separately, BNS made a few changes to its senior executives. In February they hired a new Chief Executive Officer and this week he made two notable changes: a new head of digital transformation, Tangerine, marketing and analytics; and a new Chief Human Resources Officer. - In an attempt to avoid a fine from the European Union’s European Commission anti trust regulator, Microsoft (NASD: MSFT) announced it would unbundle its Teams workplace collaboration tool from its Office productivity suite. This would make it easier for Teams’ competitors to work with Microsoft’s Office products.
- Once again, Telus (TSX: T) was chosen by New York based PC Magazine as Canada’s fastest major Internet Service Provider (ISP). This is the fourth consecutive year Telus has won the award.
- The Mouse went dark for a number of US viewers when Disney (NYSE: DIS) pulled several of its cable channels from Charter Communications’ (NASD: CHTR) cable packages. Disney and Charter are currently at loggerheads over a new distribution agreement.
Activity
No significant activity to report this week.
Dividends
Dividends Received this week for the following companies:
Companies followed by DRIP (Dividend Re-Investment Plan) indicate additional shares were purchased with the dividend. Any cash leftover was added to the cash balance.
Canadian $
Fortis Inc (TSX: FTS)
US $
No US$ dividends this past week.
Quarterly Reports
Bank of Nova Scotia
See report under Portfolio 1.
MongoDB, Inc.
All currency listed in thousands of US dollars, except for per share data.
Selected highlights from their second quarter 2024 financial results on August 31, 2023
- Revenue of $423,791 for the three months ended July 31, compared to $303,660 for the same period in 2022. An increase of almost 40%.
- Net loss of $37,597 for the three months ended July 31, compared to a net loss of $118,865 in the same period in 2022.
- Diluted loss per ordinary share of $0.53 for the three months ended July 31, compared to a loss of $1.74 per share for the same period in 2022.
- Revenue of $792,071 for the six months ended July 31, compared to $589,107 for the same period in 2022. An increase of over 34%.
- Net loss of $91,843 for the six months ended July 31, compared to a net loss of $196,159 in the same period in 2022.
- Diluted loss per ordinary share of $1.30 for the six months ended July 31, compared to a loss of $2.88 per share for the same period in 2022.
Portfolio 3
Portfolio 3 for the week ended September 1, 2023: UP
- TD Bank (TSX: TD) announced they plan to buyback up to 90 million common shares between August 31, 2023 and August 30, 2024, which would reduce the float by roughly 4.95%.
- Magnite (NASD: MGNI) announced they were chosen to provide advertising technology to support Virgin Media’s free ad-supported streaming television channels.
Separately, Magnite partnered with omnichannel advertising platform Mediaocean to provide direct access to streaming and connected TV ad inventory for local ad buyers. - Shopify announced Amazon will release an app in Shopify’s network that will allow US-based merchants to use Amazon’s “Buy with Prime” option. This new app would allow Shopify merchants to give Amazon Prime members access to Prime benefits such as fast, free delivery outside of Amazon.com platform.
Shopify has started rolling out integration of TikTok Shop into the Shopify platform. - The Canadian Competition Bureau gave the thumbs up to the Royal Bank’s (TSX: RY) acquisition of HSBC’s Canadian banking business unit. The deal will consolidate the Royal Bank’s position as the top dog of Canada’s big six banks.
Activity
No significant activity to report this week.
Dividends
Dividends Received this week for the following companies:
Companies followed by DRIP (Dividend Re-Investment Plan) indicate additional shares were purchased with the dividend. Any cash leftover was added to the cash balance.
Canadian $
Enghouse Systems Ltd (TSX: ENGH)
Royal Bank of Canada (TSX: RY)
US $
No US$ dividends this past week.
Quarterly Reports
No quarterly reports this past week.