Key Takeaways
- The Bank of Canada and the Federal Reserve will make interest-rate decisions on Wednesday, with no changes expected, but the BoC’s threshold for cutting rates on trade fears is uncertain.
- Earnings season will take center stage, with 102 companies on the S&P 500 and 12 on the Toronto Stock Exchange reporting, including major tech firms such as Meta, Microsoft, and Apple.
- The tech sector, particularly the "Magnificent 7" stocks, has underperformed the S&P 500 and small caps, and investors will be watching their earnings reports closely.
- Apple’s woes are centered around the soaring price of memory chips, which could hurt margins, while Meta’s focus will be on its artificial-intelligence spending plans.
- Other notable earnings reports include Canadian Pacific Kansas City Ltd., Canadian National Railway Co., and Rogers Communications Inc.
Introduction to the Market
The past few weekends have been marked by significant events, including a raid on Venezuela, a subpoena of the U.S. Federal Reserve chair, and threats to Greenland, which have sent emergency flares through the market. However, these events have fizzled out by the end of the week, and the market is now focused on earnings season. With 102 companies on the S&P 500 and 12 on the Toronto Stock Exchange reporting, including major tech firms, this week is expected to be significant. The Bank of Canada and the Federal Reserve will also make interest-rate decisions on Wednesday, which could have an impact on the market.
Interest-Rate Decisions
The Bank of Canada and the Federal Reserve will make interest-rate decisions on Wednesday, with no changes expected. However, the BoC’s threshold for cutting rates on trade fears is uncertain, particularly in light of U.S. President Donald Trump’s threats of 100-per-cent tariffs if Canada signs a deal with China. The market will be watching the press conference closely for specific questions and answers on this topic. In contrast, the U.S. rate decision is expected to be a non-event, with the market pricing out the chance of any rate cuts at all this year. The U.S. job market has been strong, inflation remains sticky, and U.S. GDP for the third quarter was revised to a stunning 4.4 per cent, which has reduced the need for rate cuts.
Tech Earnings
The tech sector, particularly the "Magnificent 7" stocks, has underperformed the S&P 500 and small caps. Meta, Microsoft, Tesla, and Apple are all reporting earnings this week, and investors will be watching their reports closely. Meta’s focus will be on its artificial-intelligence spending plans, while Apple’s woes are centered around the soaring price of memory chips, which could hurt margins. The tech sector’s performance will have a significant impact on the market, given its weight in the S&P 500.
Apple’s Challenges
Apple’s earnings report will be closely watched, particularly given its struggles with the soaring price of memory chips. The company’s valuation is also a concern, with a 28-per-cent premium to the S&P 500. Investors will be looking for guidance on how the company plans to mitigate the impact of rising memory prices on its margins. The company’s ability to maintain its profitability will be key to its stock performance.
Railway Earnings
Canadian Pacific Kansas City Ltd. and Canadian National Railway Co. will report earnings this week, and the stocks have been slowly chugging along for months. CP Rail has been promising to grow earnings 15 per cent since its merger with Kansas City, but it has yet to hit that target. Meanwhile, CN Rail has cut its forecast three years in a row. The railway sector faces risks, including the renegotiation of the USMCA and mergers and acquisitions south of the border.
Rogers Communications
Rogers Communications Inc. will report quarterly results on Thursday morning, and the stock has outperformed its peers. The company’s dividend was never in question, and its integration of its 2023 acquisition of Shaw and its deal to buy BCE Inc.’s stake in Maple Leaf Sports & Entertainment Ltd. have added to its performance. However, the telco sector faces slower growth due to reduced immigration. Despite this, RBC Capital Markets analyst Drew McReynolds believes there is more room to run for Rogers, citing its ability to pay down debt, repair its balance sheet, and optionality from selling a minority stake in MLSE.
Conclusion
In conclusion, this week is expected to be significant for the market, with earnings season taking center stage and interest-rate decisions from the Bank of Canada and the Federal Reserve. The tech sector, particularly the "Magnificent 7" stocks, will be closely watched, and Apple’s earnings report will be particularly significant given its struggles with memory chip prices. The railway sector and Rogers Communications will also report earnings, and investors will be looking for guidance on their future performance. Overall, the market is expected to be volatile, and investors will need to stay informed to make informed decisions.
