Items that may only interest or educate me ….
US interest rates, European interest rates, Huge job growth int the US, Slowing Canadian GDP, Big tech earnings’ misses …
As expected, in a unanimous decision by members of the US Federal Reserve System’s (Fed) Federal Open Market Committee (FOMC), they increased the US benchmark interest rate of 0.25%, bringing it to 4.75%. The FOMC started slowing the pace of increases beginning with a 0.5% increase in December following four consecutive increases of 0.75% from June through November.
In its statement announcing the latest hike, the Fed acknowledged for first time disinflation had started. Recent data has shown inflation in the America is dropping while the US economy is still growing with a strong labour market and slowing wage growth. It is this same data that caused the Fed to say there would likely be “ongoing increases” in to get inflation back to their target 2%. Future increases would likely be more traditional 0.25% increases. The number of those increases would depend on economic data and the cumulative effect of the fastest pace of interest rate growth in forty years.
The markets responded to the less aggressive sounding Fed with a rally. In a sense, investors said we don’t believe you won’t pause or start lowering rates soon. However, in a touch of irony, investor belief that inflation is beaten could lead to a rally that may actually drive inflation higher by increasing asset prices. Apparently too much of a good thing isn’t good for the markets. 😊
On the other side of the Atlantic, the Bank of England (BoE) raised the interest rate 0.5% bringing the British benchmark interest rate to 4.0%, the highest since 2008. That was the tenth consecutive increase since the BoE started hiking the rate in December 2021. The good news was the BoE suggested British inflation had probably peaked, and dropped their commitment to ‘forcefully’ continue increasing the interest rate.
Across the English Channel, after inflation in the 20 member European Union (EU) had fallen for the third straight month, the European Central Bank (ECB) raised its interest rate by 0.5%, bringing the EU benchmark rate to 2.5%. They also indicated an additional increase of a similar amount next month was likely. Once again investors interpreted the latest moves as a sign an end to the increases was near. However, the ECB threw cold water on those thoughts, stating they knew more work had to be done and they would ‘stay the course’ to get inflation back to their 2% target.
After the recent hikes from the US, the EU and the United Kingdom, the respective central banks all suggested there would be future increases to their respective benchmark interest rates. The Bank of Canada (BoC) was the first and only major central bank to signal it would pause interest rate hikes. Only time will tell if the BoC got it right.
The January US jobs report showed a remarkable growth in jobs, up 517,000, the most in six months, exceeding analysts’ expectations of 185,000 new jobs. Unemployment also fell to 3.4%, the lowest since 1969. That news will strengthen the case for the Fed to bump the US interest rate another notch or two down the road, lifting it above 5%, where it will probably have to remain longer than anticipated. One bit of good news for the Fed was wage growth continued to slow. Average hourly wages grew by 0.3%, down from December’s 0.4% growth.
While this latest data means its likely the Fed will increase the US borrowing rate, a lot can happen between now and their next meeting in late March. A continuing robust jobs market will only make it harder for the Fed to pause increases.
Statistics Canada reported the Canadian economy, or Gross Domestic Product (GDP), grew 0.1% in November, matching the BoC expectations. Data also indicated the economy was likely to be flat for December and is expected to remain flat, or stall, for the first half of 2023. The BoC had predicted the this and this latest data confirms the economy is slowing. Statistics Canada estimated GDP grew 1.6% for the fourth quarter, and 3.8% for 2022. If correct, both exceed BoC’s forecast of 1.6% and 3.6%, respectively.
If the Canadian economy does tread water for the next few months, let’s hope it can keep its head above water and if it does dip below the surface, its not for long.
Many of the A list mega cap technology companies reported this week, and none posted an ‘A’ on their earnings reports. Alphabet (NASD:GOOGL), Amazon (NASD:AMZN) and Apple (NASD:AAPL), three of the market’s largest companies all posted unimpressive quarterly results.
Alphabet missed analysts’ estimates for fourth quarter revenue and net income. Alphabet said revenues from advertising and YouTube declined year-over-year, as well as a deceleration in cloud business led to lower revenues while over hiring the last few years increased expenses. Recent staffing cuts should help reduce expenses.
Apple also missed revenue and earnings estimates thanks to Covid-19 lockdowns in China and worker protests at the Foxconn’s facility, Apple’s main manufacturer. Supply chain issues plagued the latest, greatest iPhone and led to problems getting phones into the hands of eager consumers. The company said the production problems have been resolved and are back to normal volumes. They are also seeking to improve gross margins.
Amazon reported better-than-expected sales growth estimates but missed earnings estimates. Revenues through their Prime program, third-party marketplace, logistics network, and Amazon Web Services (though growth was slowing) all increased. Much of the earnings problems can be attributed to losses on paper from its investment in electric vehicle maker Rivian Automotive (NASD:RIVN). Amazon is in the process of letting go 18,000 employees, closing a number of its physical storefronts and slowing the expansion of their fulfillment operations to reduce costs and expenses.
Definitely not the upbeat earnings reports these companies regularly produced the last few years.
It was a week driven by investor optimism and earnings announcement. Let’s see how they affected the markets this past week ….
Weekly Market Review
Monday: All four major North American indexes fell as investors awaited the US Federal Reserve’s (Fed) latest change to the US benchmark interest rate. After last week’s runup in the markets, investors are probably taking some money off the table to hedge against adverse announcements from the Fed and other major central banks.
In Canada, the Toronto Stock Exchange Composite Index (TSX) fell as oil prices dropped and interest sensitive technology companies saw their share prices sink ahead of expected interest rate hikes by the Fed.
In the US, it was similar story as the S&P 500 Index (S&P), the Dow Jones Industrial Average (DJIA), and the Nasdaq Composite Index (Nasdaq) all slumped ahead of the upcoming interest rate announcement and a big week for earnings announcements from many of the mega cap technology companies.
Tuesday: January ended with a bang as all indexes surged upwards to close out a strong January, getting 2023 off to a good start. Economic data out of the US showed fourth quarter labour cost growth slowed to its lowest level in a year, another sign inflation was falling. This news opened the door wider for the Fed to deliver a smaller increase tomorrow.
In Canada, the TSX closed out its strongest month in two years. Investors counting on the Fed raising the US interest rate by 0.25% moved back into the growth-oriented technology companies. Leading the Canadian sectors were the Technology and Basic Materials (miners and fertilizer manufacturers). The only sector not to end higher was the Utilities sector.
In the US, as well as the good economic news, many of the big, well-known companies released better than expected fourth quarter earnings. In trading, it was another broad-based advance for the American S&P sectors, with all sectors ending higher. The best sectors were Consumer Cyclicals and Industrials, while Telecommunications Services brought up the rear (but higher).
Wednesday: All four major North American indexes dropped during morning trading before reversing course upon the Fed’s interest rate announcement. As expected, the US interest rate increased by 0.25%, sending the three American indexes into the green. Oil prices fell as data showed US inventories had grown much higher than forecast.
In Canada, the TSX was lifted by the news out of the US but fell short of ending the green as a decline in global oil prices was too much to overcome. Responding to the news from the Fed, investors dove into the interest sensitive Consumer Cyclical and Technology sectors making them the top performers amongst the Canadian sectors. Weighing on the TSX were the Energy and Consumer Staples sectors which fell the most.
In the US, it wasn’t so much the amount of the interest rate hike but rather the acknowledgement inflation had started to fall that caused the three indexes to rally. In trading, the American S&P Technology and Consumer Cyclical sectors the best of the eleven sectors, while Energy was the only sector to end lower.
Thursday: It was a mixed day for the indexes as investors digested yesterday’s announcement from the Fed. The technology biased Nasdaq and S&P surged higher while the resource heavy TSX and blue chip DJIA ended lower. The Technology sector was powered by three surging heavyweight technology companies – Amazon, Apple and Alphabet – ahead of their earnings reports due once the market closed. Technology companies have started to reclaim the attention of investors after being shunned most of 2022.
In Canada, falling commodity prices dragged the TSX lower despite a surge in technology companies. On the TSX, the technology tailwind helped Technology sector gain the most with the Industrials sector a distant second. On the losing side, the Basic Materials and Energy sectors declined the most.
In the US, investors were willing to take on a bit more risk and moved backed into the higher risk Technology and Consumer Cyclical sectors. Accordingly, they were the two best performers of the eleven S&P sectors, while falling gold and oil prices knocked the Basic Materials and Energy sectors down the farthest.
Friday: The markets were bouncing up and down today with the TSX the only index to end the day in the green. Investors hopes of the Fed pausing the next interest rate hike suffered a major blow when the latest US jobs report came in three times higher than expected.
In Canada, the TSX ended higher on gains in Energy companies (despite oil prices dropping) but the jobs news out of the US limited the TSX’s advance. It was generally a good day on the TSX with the majority of sectors advancing, led by the Energy and Consumer Cyclical sectors. The Basic Materials, Utilities and Healthcare sectors were the only ones to end lower.
In the US, the jobs data and uninspiring earnings reports and forecasts from some of the larger American companies combined to drag all three American indexes lower today. All of the American S&P sectors ended the day lower. The Energy and Healthcare sectors dropped the least, while the Consumer Cyclical and Utilities sectors had the biggest drops.
Weekly Portfolio Review
For the week, the TSX gained ground for the fifth straight week, advancing 0.2%, the S&P 500 increased 1.6%, the Dow fell 0.2% and the Nasdaq also had a fifth consecutive weekly increase, this time growing 3.3%.
A good week once again in the North American stocks markets with three of the four major indexes advancing. Investors betting that the Fed will follow Canada’s lead and pause interest rates moved back into interest sensitive sectors like Technology and Consumer Cyclicals. As a result, the Nasdaq and S&P were the best performing sectors. The TSX also benefitted from a rise in Canadian technology companies but was constrained by falls in the natural resources sectors, Energy and Basic Materials. Bringing up the rear was the DJIA which lost ground thanks to mixed earning from some of the biggest American companies that are part of the DJIA.
Another good week for the portfolios. I’ve said it before, when the Nasdaq rises, it lifts all Portfolios. Portfolios 2 and 3 extended their respective winning streaks to five.
Monthly Portfolio Review
For January, the TSX grew 7.1%, the S&P had its best January in four years gaining 6.2%, the Dow rose 2.8% and the Nasdaq had its best month since July, jumping 10.7%.
Thankfully, January started 2023 off with a bang! After watching the markets get beaten down throughout 2022, January feels good.
A strong performance from all four indexes as investor optimism rose on economic data showing inflation was slowing without sending either country’s economy into a recession. Mind you, its too early to state a recession has been avoided, especially in Canada where growth is expected to be flat at best for much of 2023.
Investors were confident both central banks would increase lending rates by ‘only’ 0.25% and started getting back into the growthier oriented companies, especially the technology companies. The Nasdaq benefitted greatly from the rise in technology companies, while the S&P rode the coattails of the big technology companies that trade on the Nasdaq exchange and are part of both the Nasdaq and S&P indexes. The DJIA was lifted by overall market optimism, while the TSX was lifted by investors moving back into the market and rising oil and commodity prices.
The portfolios had a great month! All three portfolios are technology oriented, to one degree or another, and they benefited from a surging Nasdaq and a strong TSX. A very loose guideline is to match or beat the S&P, this month all three portfolios easily surpassed the S&P.
Portfolio 3 is the most technology heavy so I wasn’t surprised it was the best performer. Portfolio 1 has many of the big technology companies but also has a number swing for the fences companies that seem to be missing rather than hitting and are holding back the portfolio. Portfolio 2 continues to surprise me as it is more ‘balanced’ so I do not expect to see double digit gains, but I’m happy to get them. 😊 Hopefully 2023 will have more months like this!
A quick note. I’m sure if a licensed financial advisor looked at Portfolio 2 they would not consider it ‘balanced’ as it is 100% invested in stocks. I am OK with that. By balanced, I mean less high growth, riskier companies (technology and consumer cyclicals) and more diversified with dividend baying companies across a number of sectors.
Companies on the Radar
No new companies to run through the Radar Check this past week. That is probably a good thing since there are currently six companies already on the radar, listed below. I need to take a closer look at Supremex (TSX:SXP), Intact Financial (TSX:IFC), and DoubleVerify (NYSE:DV) to see if an initial position is warranted or if I should add to existing winners.
- Crew Energy (TSX:CR): A Canadian oil and gas company with interests in British Columbia.
- Supremex: a small cap company selling packing solutions throughout Canada and the USA.
- International Petroleum (TSX:IPCO): A Canadian company with oil and gas assets in Canada, Malaysia, and France.
- Alphabet (NASD:GOOGL): The leading online search engine and advertising company, dominant mobile operating system.
- Intact Financial: a mid size insurance company supplying home, car and business insurance in Canada, the US, and the UK.
- DoubleVerify: part of the digital advertising industry. Helps the world’s largest brands maximize and optimize the effectiveness of their online advertising.
The Radar Check was last updated February 3, 2022.
Portfolio Update
Portfolio 1
Portfolio 1 for the week ended February 3, 2023: UP 
- Rogers Communications (TSX:RCI.B) and Shaw Communications (TSX:SJR.B) extended their merger closing date deadline to February 17 as they wait for the Canadian Industry Minister to sign off on the deal. Upon signoff, the deal will see Shaw’s Freedom Mobile spectrum licenses transferred to Quebecor’s (TSX:QBR.B) Videotron unit. The transfer of the licenses was one of the conditions to allow the merger to proceed.
- General Motors (NYSE:GM) posted higher than expected net income for the fourth quarter, providing the share price with a nice boost. GM said it plans to trim US$ 2 billion from its automotive operations over the next two years, without any layoffs. They indicated they will be dependent on the sales of combustion engine trucks and SUVs, while they ramp up electric vehicle sales. Despite price cuts by Tesla (NASD:TSLA), GM is confident in their pricing strategy and do not plan to lower prices.
In other GM news, the company plans to invest US$ 650 million in Canada’s lithium miner Lithium Americas (TSX:LAC) to secure a reliable source of lithium. The money will go towards developing Lithium America’s Nevada mine which would provide enough lithium to build 1 million electric vehicles annually. The deal is dependent on Lithium Americas winning a court case to keep its Nevada mining permits to obtain the first half of the investment. The second half of the investment is contingent on the company splitting its North and South American operations. - Tesla and Tesla’s CEO, Elon Musk, was found not liable for a misleading tweet that caused investors to claim they lost billions. This saves Tesla billions of dollars that can be used to grow the business.
- Roku (NASD:ROKU) signed a deal with Warner Bros Discovery (NASD:WBD) to stream 2,000 hours of WBD content on a soon to be launched Warner Bros’s Free, Ad-Supported TV (FAST) channels. More content for Roku can’t hurt, as long as it is popular programs and not fodder.
- Rivian (NASD:RIVN) announced they would reduce their workforce by 6% to slow the bleeding of cash. Rivian will focus its resources on increasing production and becoming profitable. The price cuts by Tesla and a potential price war did not do them any favours.
- Ferrari (NYSE:RACE) announced four new models for 2023, including its first ever 4 door, 4 wheel drive Purosangue SUV. Ferrari plans to release its first fully electric vehicle (EV) in 2025, complete with an acoustic system that will make the EVs sound like Ferrari’s conventional powered cars.
- The US Treasury Department announced an update to its vehicle classification definitions, allowing more Tesla and GM vehicles, among others, to be eligible for US tax credits. This should boost sales for both companies.
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 $
Toronto-Dominion Bank (TSX:TD) DRIP
Shaw Communications Inc (TSX:SJR.B)
US $
No US$ dividends this past week.
Quarterly Reports
General Motors Co.
All currency listed in millions of US dollars, except earnings per share.
Selected highlights from their fourth quarter 2022 financial results on January 31, 2023
- Revenue of $43,108 for the three months ended December 31, compared to $33,584 for the same period in 2021. An increase of over 28%.
- Net income of $1,999 for the three months ended December 31, compared to net income of $1,741 in the same period in 2021.
- Diluted earnings per ordinary share of $1.39 for the three months ended December 31, compared to $1.16 for the same period in 2021.
- Revenue of $156,735 for the year ended December 31, compared to $127,004 for the same period in 2021. An increase of over 23%.
- Net earnings of $9,934 for the year ended December 31, compared to net earnings of $10,019 in the same period in 2021.
- Diluted earnings per ordinary share of $6.13 for the year ended December 31, compared to $6.70 for the same period in 2021.
Apple Inc.
All currency listed in millions of US dollars, except earnings per share.
Selected highlights from their first quarter 2023 financial results on February 2, 2023
- Revenue of $117,154 for the three months ended December 31, compared to $123,945 for the same period in 2021. A decrease of over 5%.
- Net income of $29,998 for the three months ended December 31, compared to net income of $34,630 in the same period in 2021.
- Diluted earnings per ordinary share of $1.88 for the three months ended December 31, compared to $2.10 for the same period in 2021.
BCE Inc.
All currency listed in millions of Canadian dollars, except earnings per share.
Selected highlights from their fourth quarter 2022 financial results on February 2, 2023
- Revenue of $6,439 for the three months ended December 31, compared to $6,209 for the same period in 2021. An increase of almost 4%.
- Net income of $567 for the three months ended December 31, compared to net income of $658 in the same period in 2021.
- Diluted earnings per ordinary share of $0.58 for the three months ended December 31, compared to $0.69 for the same period in 2021.
- Revenue of $24,174 for the year ended December 31, compared to $23,449 for the same period in 2021. An increase of over 3%.
- Net earnings of $2,926 for the year ended December 31, compared to net earnings of $2,892 in the same period in 2021.
- Diluted earnings per ordinary share of $2.98 for the year ended December 31, compared to $2.99 for the same period in 2021.
Lightspeed Commerce Inc.
All currency listed in thousands of US dollars, except earnings per share.
Selected highlights from their third quarter 2022 financial results on February 2, 2023
- Revenue of $188,697 for the three months ended December 31, compared to $152,676 for the same period in 2021. An increase of almost 24%.
- Net loss of $814,802 for the three months ended December 31, compared to a net loss of $65,492 in the same period in 2021.
- Diluted loss per ordinary share of $5.39 for the three months ended December 31, compared to a loss per share of $0.44 for the same period in 2021.
- Revenue of $24,174 for the year ended December 31, compared to $23,449 for the same period in 2021. An increase of over 3%.
- Net loss of $995,541 for the year ended December 31, compared to a net loss of $173,916 in the same period in 2021.
- Diluted loss per ordinary share of $6.64 for the year ended December 31, compared to a loos per share of $1.25 for the same period in 2021.
Amazon.com, Inc.
All currency listed in millions of US dollars, except earnings per share.
Selected highlights from their fourth quarter 2022 financial results on February 2, 2023
- Revenue of $149,204 for the three months ended December 31, compared to $137,412 for the same period in 2021. An increase of almost 9%.
- Net income of $278 for the three months ended December 31, compared to net income of $14,323 in the same period in 2021.
- Diluted earnings per ordinary share of $0.03 for the three months ended December 31, compared to $1.39 for the same period in 2021.
- Revenue of $513,983 for the year ended December 31, compared to $469,822 for the same period in 2021. An increase of over 9%.
- Net loss of $2,722 for the year ended December 31, compared to net earnings of $33,364 in the same period in 2021.
- Diluted loss per ordinary share of $0.27 for the year ended December 31, compared to earnings of $3.24 for the same period in 2021.
Alphabet Inc.
All currency listed in millions of US dollars, except earnings per share.
Selected highlights from their fourth quarter 2022 financial results on February 2, 2023
- Revenue of $76,048 for the three months ended December 31, compared to $75,325 for the same period in 2021. An increase of almost 1%.
- Net income of $13,624 for the three months ended December 31, compared to net income of $20,642 in the same period in 2021.
- Diluted earnings per ordinary share of $1.05 for the three months ended December 31, compared to $1.53 for the same period in 2021.
- Revenue of $282,836 for the year ended December 31, compared to $257,637 for the same period in 2021. An increase of almost 10%.
- Net earnings of $59,972 for the year ended December 31, compared to net earnings of $73,033 in the same period in 2021.
- Diluted earnings per ordinary share of $4.56 for the year ended December 31, compared to $5.61 for the same period in 2021.
Portfolio 2
Portfolio 2 for the week ended February 3, 2023: UP
- A busy week of announcements for Guardant Health. First, the US Food and Drug Administration approved Guardant Health’s (NASD:GH) liquid biopsy test as a companion diagnostic for Menarini Group’s Orserdu drug for treatment of patients with certain advanced variations of breast cancer.
They also announced their latest product, Guardant Galaxy, a set of analytical tools to increase the performance of their cancer tests. Guardant has incorporated artificial intelligence capabilities to better interpret biomarkers, and better predict patient response to immunotherapy.
Finally, Guardant announced a partnership with AnHeart Therapeutics to use Guardant products as companion diagnostic tools for AnHeart’s non-small cell lung cancer drug. The Guardant products will be used to identify patients who may benefit from using AnHeart’s medications. - Walt Disney’s (NYSE:DIS) ‘Avatar: The Way of Water’ became the highest grossing film globally at the box office. It currently sits eleventh all time in the US market.
In an effort to reduce losses, Disney is considering selling more of its media properties to other media outlets. That would be quite a change from their practice of keeping Disney content on Disney+ streaming services only. Both moves should improve the top line revenue numbers. - Telus (TSX:T) was ranked the top North American telecommunications company, 37th globally, by Corporate Knights in their Global 100 Most Sustainable Corporations. The award is for leadership and commitment to creating a better, more sustainable future. Corporate Knights evaluated nearly 7,000 companies with over US$ 1 billion in revenues so that is an impressive result.
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 $
TC Energy (TSX:TRP)
US $
No US$ dividends this past week.
Quarterly Reports
Brookfield Renewable Partners L.P.
All currency listed in millions of US dollars, except earnings per share.
Selected highlights from their fourth quarter 2022 financial results on February 3, 2023
- Revenue of $1,196 for the three months ended December 31, compared to $1,091 for the same period in 2021. An increase of over 9%.
- Net income of $60 for the three months ended December 31, compared to net income of $33 in the same period in 2021.
- Diluted loss per ordinary share of $0.16 for the three months ended December 31, compared to a loss per share of $0.12 for the same period in 2021.
- Revenue of $4,711 for the year ended December 31, compared to $4,096 for the same period in 2021. An increase of over 15%.
- Net earnings of $138 for the year ended December 31, compared to net loss of $66 in the same period in 2021.
- Diluted loss per ordinary share of $0.60 for the year ended December 31, compared to a loss per share of $0.69 for the same period in 2021.
Portfolio 3
Portfolio 3 for the week ended February 3, 2023: UP
- Microsoft (NASD:MSFT) introduced a version of Teams that incorporated OpenAI’s artificial intelligence ChatGPT. The premium service will see ChatGPT create meeting notes, suggest tasks, and assist in the creation of meeting templates for Teams users. Teams is the first of many Microsoft applications to feature ChatGPT.
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 $
Toronto-Dominion Bank (TSX:TD)
US $
No US$ dividends this past week.
Quarterly Reports
Brookfield Renewable Partners L.P.
All currency listed in millions of US dollars, except earnings per share.
Selected highlights from their fourth quarter 2022 financial results on February 3, 2023
- Revenue of $1,196 for the three months ended December 31, compared to $1,091 for the same period in 2021. An increase of over 9%.
- Net income of $60 for the three months ended December 31, compared to net income of $33 in the same period in 2021.
- Diluted loss per ordinary share of $0.16 for the three months ended December 31, compared to a loss per share of $0.12 for the same period in 2021.
- Revenue of $4,711 for the year ended December 31, compared to $4,096 for the same period in 2021. An increase of over 15%.
- Net earnings of $138 for the year ended December 31, compared to net loss of $66 in the same period in 2021.
- Diluted loss per ordinary share of $0.60 for the year ended December 31, compared to a loss per share of $0.69 for the same period in 2021.