Items that may only interest or educate me ….
Canadian economic news, US economic news, US debt ceiling negotiations, ….
Canadian economic news
Canada’s 2022 – 2023 budget deficit came in at C$ 41.3 billion, less than half of the C$ 95.6 billion it was the previous year. The decrease was due increased revenues of C$ 34.2 billion, or 8.6%, as the country’s economy grew after the Covid-19 pandemic. Expenses were lower by C$ 29.9 billion, or 6.5%, as the Covid-19 programs wound down. Considering the higher interest rates, its good to see the deficit shrinking in order to lower the debt charges. Money saved on debt charges can be used in other more beneficial areas. At the same time, would it not be great if there was a business case for exporting more natural gas? The inflow of cash could really put a dent in the deficit. 😊
US economic news
On Thursday, the Commerce Department reported Gross Domestic Product rose at an annual rate of 1.3% pace in its second estimate of first-quarter GDP growth. A second estimate is based on more complete data. Compared to the fourth quarter 2022, the US economy is slowing down. A slowing economy leads to higher unemployment as is borne out by the latest Labor Department report indicating unemployment benefits increased by 4,000 to a seasonally adjusted 229,000 for the week ended May 20.
The Commerce Department’s April Personal Consumption Expenditures (PCE) price index, a measure of the prices that people in the US pay for goods and services, was up 0.4%, accelerating from the 0.1% increase in March. The core PCE (PCE less food and energy components) was 0.4% for April, up from 0.3% in March. On a yearly basis, the core PCE came in at 4.7% for April, slightly higher than March’s 4.6.
Both the monthly and yearly PCE and core PCE numbers were higher than expected, indicating that inflation is at least sticking around, if not inching higher. Add in the Consumer Price Index from a few weeks ago that indicated inflation accelerated from March to April and this combination is not good news for the US Federal Reserve (Fed). If anything, it puts pressure on them to increase the US benchmark interest rate in their fight to get inflation down to 2%. We shall see what they do in a few weeks time.
US debt ceiling negotiations
In case you missed it, negotiations to lift the US debt ceiling are rapidly running out of time. It is possible the US government could reach the nation’s debt ceiling on June 1. For more on what a US default on its debt payments could mean the world in general and us Canadian investors, check out the post “What if the US Defaults on its Debt?”
Now, let’s see what happened this past week….
Weekly Market Review
Monday: The Canadian markets were closed for Victoria Day; however, the markets were open in the US where the three American indexes had mixed results. The technology heavy Nasdaq Composite Index (Nasdaq) and the S&P 500 Index (S&P) each finished higher while the blue-chip Dow Jones Industrial Average (DJIA) ended lower.
Other than mega cap technology stocks, investors were gun shy as they awaited news on the US debt default negotiations. Cash heavy mega caps have become the new safe haven when market direction is uncertain. As well, a member of the Fed suggested they might need to increase the US benchmark rate to shrink inflation faster. Leading the way in the American sectors were the Financials and Technology sectors. The biggest decliners were Consumer Staples and Basic Materials (miners and fertilizer manufacturers).
Tuesday: Ongoing US debt negotiations knocked all four indexes lower. The confidence that a deal would get done in time is slowly ebbing and as I have said before, the markets do not like uncertainty. The price of oil shot up on forecasts for tighter gas supplies and concerns of additional Organization of Petroleum Exporting Countries and allies (OPEC+) production reductions.
In Canada, the Toronto Stock Exchange Composite Index (TSX) ended at its lowest close in eight weeks as US debt concerns reached across the border. Canada’s big five banks will report their second quarter earnings later this week and analysts are suggesting they may not be as rosy as usual. In trading, Energy was the only Canadian sector to end higher, while Technology and Consumer Staples had the greatest decrease.
In the US, joining the worries about debt ceiling discussions, Fed members are hinting US interest rates may need to go higher to bring down inflation. It was a relatively quiet day in trading with Energy the only American sector to end in positive territory, while Technology and Basic Materials had the largest pullbacks.
Wednesday: Pessimism over US debt-ceiling talks, and concerns of additional interest rate hikes in Canada and the US led all four indexes to end the day sharply lower. Its looking more and more likely a debt deal will come down to the last minute, if its to get done in time to avoid a US default. Meanwhile, the chance of interest rate hikes in both countries mounts. The price of oil was one of the few bright spots for investors as it continued yesterday’s advance.
In Canada, the earnings for the Bank of Nova Scotia (TSX: BNS) and Bank of Montreal (TSX: BMO), two of Canada’s big five bank, came in lower than expected to further rattle jittery investors. Hopefully, these two banks have not set an ominous tone for the remaining banks. Canada’s banks are being required to set aside more cash in event of more consumer and business loan defaults, so their profits are lower. The Financial sector accounts for almost 30% of the TSX’s weighting, so when Financials fall, the entire TSX tends to get dragged down with it. In trading on Bay Street, Consumer Staples and Technology were the only Canadian sectors to end in the green, Basic Materials and Financials led the other sectors downward.
In the US, the debt deadline is one day closer while a deal seems not to be any closer leading to increasing pessimism in the markets. In trading on Wall Street, once again Energy was the only American sector to post a gain while Basic Materials and Financials were the worst performing sectors.
Thursday: Uncertainty around the US debt ceiling continued to weigh on the broader market, except for the mega cap technology companies, especially those on the front lines of artificial intelligence (AI). As a result, the traditional value oriented TSX and the DJIA ended lower, while the growth-oriented Nasdaq and S&P ended higher.
In Canada, the TSX dropped to a two-month low on lower energy prices and disappointing earnings by two more of Canada’s big five banks. Canada’s largest bank, The Royal Bank of Canada (TSX: RY), reported a decline in earnings, while Canada’s second largest bank TD Bank (TSX: TD) missed its earnings growth target. Not a good day for banks. In the Canadian sectors, Industrials was the only one to advance, leading the decliners were Telecommunications Services and Energy.
In the US of A, a mixed day in the market with the Nasdaq and S&P advancing while the DJIA ended slightly lower. A stellar report by Nvidia (NASD: NVDA) jumpstarted the Nasdaq and started a rally in other AI related companies. Holding back the markets is investors belief there will be another intertest rate increase in June. Despite two of the three indexes ending higher, Technology and Industrials were the only American sectors to end in positive territory. Leading the rest of the sectors downward were Telecommunications Services and Energy.
Friday: All four indexes surged higher on reports US debt negotiators were closing in on a deal to raise the US debt ceiling. As well, a wave of AI optimism boosted the Nasdaq and S&P, while the TSX and DJIA were carried higher by the rising tide. 😊 The optimism of a debt deal getting done also lifted oil prices higher.
In Canada, a rebound in the Canadian bank shares helped lift the TSX in positive territory for the day. Leading the Canadian sectors were the Technology and Consumer Cyclicals sectors while Healthcare was the only sector to decline.
In the USA, a continued rally in all things related to artificial intelligence (AI) combined with optimism that a deal to lift the US debt would get done this weekend pushed all three American indexes higher. The Technology and Consumer Cyclicals sectors led the American indexes higher, while Energy and Consumer Staples were the only sectors to end lower.
Weekly Market and Portfolio Review
For the week, the TSX (SPTSX) lost 2.1%, the S&P 500 (SPX) increased 0.3%, the DJIA (INDU) dropped 1.0% and the Nasdaq (CCMP) gained 2.5%.
Another week of mixed results for the four major North American indexes, as you can see in the chart above. The technology-oriented Nasdaq and S&P ended above the bar, in the green, whereas the more traditional TSX and DJIA both ended lower, in the red. The main driver of the markets was the political brinkmanship of the US debt ceiling negotiations, sending the four indexes lower through the first part of the week. The American indexes rebounded on a blow out earnings report from Nvidia, which sparked a run in companies associated with AI. Thanks to investor enthusiasm for AI companies, both the Nasdaq and S&P posted a weekly gain.
The TSX posted its fifth straight weekly loss, its biggest weekly drop in two months, due to lower demand for Canadian resources, primarily from a slowing economy in China, and unimpressive earnings reports from Canada’s big five banks. The TSX finally turned upward on Friday’s overall market optimism that a deal to resolve the US debt ceiling crisis was near, but it too little, too late to break the losing streak.
As for the Portfolios, another good week with all portfolios advancing, led by a strong performance from Portfolio 1, as you can see in the chart below. Portfolio 1 was easily the best performer of the week, led by Nvidia’s big surge, and the AI tailwinds that propelled the other mega cap technology companies higher. The gains by the technology companies were more than enough offset the drag of the Canadian bank stocks. Portfolios 2 and 3 were also led by their respective technology companies to overcome the drag of their Canadian banks, but they do not hold as many big technology companies as Portfolio 1.
Companies on the Radar
No new companies came onto my radar this past week but the Formula One Group (NASD: FWONK) is now part of Portfolio 1. For now, my radar list includes the five companies listed below:
- Intact Financial (TSX: IFC): A Canadian mid size insurance company supplying home, car and business insurance in Canada, the US, and the UK.
- Cameco (TSX: CCO): A Canadian company that mines and sells uranium, and builds components for reactors.
- Amphenol: (NYSE: APH) Producer of a high-tech interconnect, sensor, and antenna solutions for the automotive, aerospace, industrial and various technology industries.
- BWX Technologies (NYSE: BWXT): BWX is an American company that builds and sells nuclear components to the US Navy and other customers throughout the world.
- Smartcentres Real Estate Investment Trust (TSX: SRU.UN): Owns and manages a number of income producing malls and retails spaces throughout Canada.
The Radar Check was last updated May 26, 2023.
Portfolio Update
Portfolio 1
Portfolio 1 for the week ended May 26, 2023: UP 
- PayPal (NASD: PYPL) announced their Venmo unit has launched a new service for teenagers, aged 13- 17. Parents and guardians can open accounts for their teenagers and then monitor transactions and manage their privacy settings. The Teen Account comes with a debit card which allows the kids to send money. Get them when they are young and hopefully, they will be PayPal customers for life. 😊
- Apple (NASD: AAPL) signed a deal with US semiconductor maker Broadcom (NASD: AVGO). The multi billion dollar, multi year deal will see Broadcom manufacture 5G radio frequency chips for Apple’s mobile products.
- Tesla (NASD: TSLA) announced they will sell some of their China made electric vehicles (EV) in Canada. Tesla EVs made in China qualify for Canada’s EV rebates but not for US EV rebates. This will allow Tesla to keep their made in the USA EVs for the American market.
On a separate note, Tesla and Ford (NYSE: F) announced a deal that will allow Ford EVs to use Tesla’s Supercharger charging station. This is good news as it might be the start of a universal standard for charging stations. Its even better news for Tesla shareholders since it will not require any modifications and Tesla may make a bit of money from each charge. - Waymo, a division of Alphabet’s (NASD: GOOGL) Google is partnering with once rival Uber. Waymo’s self driving taxis in Phoenix, AZ will now be available via Uber’s ride hailing app. The Waymo vehicles will also be used for food delivery as part of the Uber Eats service.
- A spectacular earnings report from Nvidia pushed the companies market capitalization closer to US$ 1 trillion. If it does surpass the $1 trillion mark it will be the first semiconductor company to break the trillion-dollar mark, and only the fifth public company to break the trillion-dollar mark. Nvidia saw its sales sore on the tailwinds of AI, causing it to raise its outlook for the remainder of the year. While numerous software companies are busy integrating AI into their existing products, they are all turning to Nvidia for the necessary chips to run AI applications. Nvidia is the dominant chip maker for the burgeoning AI market.
Activity
Bought: Liberty Media’s Formula One Group (NASD: FWONK): As I mentioned previously, FWONK first came on my radar while watch the F1 Miami Grand Prix. I was kicking myself for not buying more Ferrari (NYSE: RACE) when I discovered I could own the entire F1 racing series. The popularity of F1 has been growing since the release of the Netflix series ‘Drive to Survive’ and the addition of more races in America. Liberty Media has done a great job promoting the F1 brand and series. This was reflected in the growing revenue, net income, and cash flows, plus the share price has easily beaten the S&P each of the last few years. I expect F1 popularity to increase which will lead to more revenues. And I can say I am a part owner of the F1 racing series, although I doubt that will get me VIP access to any of the races. 😊
Bought: A 1-year cashable TD Bank GIC paying 3.35%. The GIC can be cashed out after 30 days without any penalties, plus accrued interest. The GIC is a short term (< 1 year) holding area for cash that may be needed within a year. 😊
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 $
Pulse Seismic Inc (TSX: PSD)
US $
No US$ dividends this past week.
Quarterly Reports
ZIM Integrated Shipping Services Ltd.
All currency listed in millions of US dollars, except for per share data.
Selected highlights from their first quarter 2023 financial results on May 22, 2023
- Revenue of $1,374.3 for the three months ended March 31, compared to $3,716.4 for the same period in 2022. A decrease of almost 74%.
- Net loss of $58.1 for the three months ended March 31, compared to net income of $1,711.0 in the same period in 2022.
- Diluted loss per ordinary share of $0.50 for the three months ended March 31, compared to earnings of $14.19 per share for the same period in 2022.
Global-e Online Ltd.
All currency listed in thousands of US dollars, except for per share data.
Selected highlights from their first quarter 2023 financial results on May 22, 2023
- Revenue of $45,876 for the three months ended March 31, compared to $27,183 for the same period in 2022. An increase of almost 69%.
- Net loss of $43,083 for the three months ended March 31, compared to a net loss of $53,586 in the same period in 2022.
- Diluted loss per ordinary share of $0.26 for the three months ended March 31, compared to a loss of $0.35 per share for the same period in 2022.
Nano – X Imaging Ltd
All currency listed in thousands of US dollars, except for per share data.
Selected highlights from their first quarter 2022 financial results on May 25, 2023
- Revenue of $2,447 for the three months ended March 31, compared to $1,808 for the same period in 2022. An increase of almost 35%.
- Net loss of $11,761 for the three months ended March 31, compared to a net loss of $21,666 in the same period in 2022.
- Diluted earnings per ordinary share of $0.21 for the three months ended March 31, compared to earnings of $0.41 per share for the same period in 202.
Nvidia Corporation
All currency listed in millions of US dollars, except for per share data.
Selected highlights from their first quarter 2023 financial results on May 24, 2023
- Revenue of $7,192 for the three months ended April 30, compared to $8,288 for the same period in 2022. A decrease of over 13%.
- Net earnings of $2,043 for the three months ended April 30, compared to net income of $1,618 in the same period in 2022.
- Diluted loss per ordinary share of $0.82 for the three months ended April 30, compared to a loss of $0.64 per share for the same period in 2022.
Bank of Nova Scotia
All currency listed in millions of Canadian dollars, except for per share data.
Selected highlights from their second quarter 2023 financial results on May 24, 2023
- Revenue of $7,220 for the three months ended April 30, compared to $7,723 for the same period in 2022. A decrease of almost 7%.
- Net income of $2,159 for the three months ended April 30, compared to net income of $2,747 in the same period in 2022.
- Diluted earnings per ordinary share of $1.69 for the three months ended April 30, compared to earnings of $2.16 per share for the same period in 2022.
- Revenue of $14,562 for the six months ended April 30, compared to $15,550 for the same period in 2022. An increase of over 6%.
- Net earnings of $3,931 for the six months ended April 30, compared to net earnings of $5,487 in the same period in 2022.
- Diluted earnings per ordinary share of $3.04 for the six months ended April 30, compared to earnings of $4.30 per share for the same period in 2022.
TD Bank Group
All currency listed in millions of Canadian dollars, except for per share data.
Selected highlights from their second quarter 2023 financial results on May 25, 2023
- Revenue of $12,366 for the three months ended April 30, compared to $11,263 for the same period in 2022. An increase of almost 10%.
- Net income of $3,351 for the three months ended April 30, compared to net income of $3,811 in the same period in 2022.
- Diluted earnings per ordinary share of $1.72 for the three months ended April 30, compared to earnings of $2.07 per share for the same period in 2022.
- Revenue of $24,592 for the six months ended April 30, compared to $22,544 for the same period in 2022. An increase of over 9%.
- Net earnings of $4,933 for the six months ended April 30, compared to net earnings of $7,544 in the same period in 2022.
- Diluted earnings per ordinary share of $2.54 for the six months ended April 30, compared to earnings of $4.09 per share for the same period in 2022.
Costco Wholesale Corporation
All currency listed in millions of US dollars, except for per share data.
Selected highlights from their third quarter 2023 financial results on May 25, 2023
- Revenue of $53,648 for the three months ended May 7, compared to $52,596 for the same period in 2022. An increase of over 2%.
- Net income of $1,302 for the three months ended May 7, compared to net income of $1,353 in the same period in 2022.
- Diluted earnings per ordinary share of $2.93 for the three months ended May 7, compared to earnings of $3.04 per share for the same period in 2022.
- Revenue of $163,351 for the nine months ended May 7, compared to $154,863 for the same period in 2022. An increase of over 5%.
- Net earnings of $4,132 for the nine months ended May 7, compared to net earnings of $3,976 in the same period in 2022.
- Diluted earnings per ordinary share of $9.30 for the nine months ended May 7, compared to earnings of $8.94 per share for the same period in 2022.
Portfolio 2
Portfolio 2 for the week ended May 26, 2023: UP
- The Bank of Nova Scotia had a case of silver price fixing dismissed. A group of investors claimed the bank, and two other banks had conspired to manipulate silver prices from 2007 – 2013. The lawsuit was dismissed with prejudice; therefore, it cannot be brought again.
- Guardant Health (NASD: GH) announced it has begun a public offering of 12.5 million common shares at $28 per share for expected gross proceeds of $350 million, upsized from $250 million previously. The underwriters have a 30-day window to purchase an additional 1.9 million shares of its common stock at the public offering price. I am guessing this is to raise money for Guardant, but I do not see how this is good news for existing shareholders as this will dilute the earnings.
- MongoDB (NASD: MDB) announced a four-year extension to their strategic global partnership with Alibaba Cloud. The relationship allows Alibaba Cloud users to quickly build enterprise level applications based on the MongoDB’s non-relational database.
- TC Energy (TSX: TRP) has applied to US regulators to open the taps on part of its natural gas pipeline that runs from Arizona and California to Mexico.
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 $
Dream Industrial Real Estate Investment Trust (TSX: DIR.UN) DRIP
US $
No US$ dividends this past week.
Quarterly Reports
Bank of Nova Scotia
All currency listed in millions of Canadian dollars, except for per share data.
Selected highlights from their second quarter 2023 financial results on May 24, 2023
- Revenue of $7,220 for the three months ended April 30, compared to $7,723 for the same period in 2022. A decrease of almost 7%.
- Net income of $2,159 for the three months ended April 30, compared to net income of $2,747 in the same period in 2022.
- Diluted earnings per ordinary share of $1.69 for the three months ended April 30, compared to earnings of $2.16 per share for the same period in 2022.
- Revenue of $14,562 for the six months ended April 30, compared to $15,550 for the same period in 2022. An increase of over 6%.
- Net earnings of $3,931 for the six months ended April 30, compared to net earnings of $5,487 in the same period in 2022.
- Diluted earnings per ordinary share of $3.04 for the six months ended April 30, compared to earnings of $4.30 per share for the same period in 2022.
Portfolio 3
Portfolio 3 for the week ended May 26, 2023: UP
- Microsoft (NASD: MSFT) announced their ChatGPT infused Bing search engine will no longer be limited to information as recent as 2021. Responses will now feature live search results. Currently this is available only for paid subscribers but Microsoft plans to make it available for all users.
As well, Microsoft is bringing its Bing search engine to OpenAI’s ChatGPT. Initially it will be only available in the paid subscription offering but will eventually be implemented in the free version as well. - Brookfield Corporation (TSX: BN) received permission to purchase about 142 million Class A limited voting shares, or about 10% of the outstanding Class A shares. Assuming they purchase the shares when they are underpriced, this is good news for shareholders.
- Shopify (TSX: SHOP) announced the launch of new point-of-sale hardware in Canada. The company seeks to increase its products for traditional stores during a slowdown in e-commerce growth.
- TD Bank has decided how to spend some of the money it had set aside for its failed acquisition of a US regional bank – they will build out their network of branches. TD plans to grow organically by opening new branches throughout the US and building its wealth management business. TD also plans to buy back up to 30 million of its own shares.
Activity
No significant activity to report this week.
Dividends
Dividends Received this week for the following companies:
No dividends this past week.
Quarterly Reports
Royal Bank of Canada
All currency listed in thousands of Canadian dollars, except for per share data.
Selected highlights from their second quarter 2023 financial results on May 25, 2023
- Revenue of $13,520 for the three months ended April 30, compared to $11,220 for the same period in 2022. An increase of over 20%.
- Net income of $3,649 for the three months ended April 30, compared to net income of $4,253 in the same period in 2022.
- Diluted earnings per ordinary share of $2.58 for the three months ended April 30, compared to earnings of $2.96 per share for the same period in 2022.
- Revenue of $28,614 for the six months ended April 30, compared to $24,286 for the same period in 2022. An increase of almost 18%.
- Net earnings of $6,863 for the six months ended April 30, compared to net earnings of $8,348 in the same period in 2022.
- Diluted earnings per ordinary share of $4.86 for the six months ended April 30, compared to earnings of $5.80 per share for the same period in 2022.
TD Bank Group
All currency listed in millions of Canadian dollars, except for per share data.
Selected highlights from their second quarter 2023 financial results on May 25, 2023
- Revenue of $12,366 for the three months ended April 30, compared to $11,263 for the same period in 2022. An increase of almost 10%.
- Net income of $3,351 for the three months ended April 30, compared to net income of $3,811 in the same period in 2022.
- Diluted earnings per ordinary share of $1.72 for the three months ended April 30, compared to earnings of $2.07 per share for the same period in 2022.
- Revenue of $24,592 for the six months ended April 30, compared to $22,544 for the same period in 2022. An increase of over 9%.
- Net earnings of $4,933 for the six months ended April 30, compared to net earnings of $7,544 in the same period in 2022.
- Diluted earnings per ordinary share of $2.54 for the six months ended April 30, compared to earnings of $4.09 per share for the same period in 2022.