Kyle Prevost, editor of Million Dollar Journey and founder of the Canadian Financial Summit, presents this week’s financial headlines and context for Canadian investors.
Banking on stability and caution
Canadian investors have long relied on the country’s major banks for steady dividend growth and long-term capital appreciation. These institutions account for a significant portion of Canadian index funds and pension portfolios, so their quarterly results matter to a wide range of investors.
Recent quarterly reports from the Big Six—BMO, CIBC, National Bank, RBC, Scotiabank and TD—were mixed. The dominant theme was caution: banks increased provisions for potential loan losses in anticipation of a tougher economic environment. That conservative stance weighed on reported profits compared with some prior quarters, but overall the organizations continue to generate predictable free cash flow from their core businesses.
Big bank earnings for Q3 2022
All figures below are in Canadian dollars.
Bank of Nova Scotia (BNS/TSX): Scotiabank slightly missed expectations, with adjusted earnings rising 4% year-over-year but coming in at $2.10 per share versus an expected $2.11. The bank increased its loan-loss provisions to $412 million from $219 million the prior quarter, and the stock fell more than 5% after the announcement.
Royal Bank of Canada (RY/TSX): RBC cautioned that “the end of an economic cycle is near” and increased loan reserves, resulting in third-quarter profit down about 17% year-over-year. Adjusted earnings were $2.55 per share versus $2.66 estimated, and shares declined roughly 2.6% after results were released.
National Bank of Canada (NA/TSX): National Bank posted a slight beat on adjusted EPS, reporting $2.35 versus an expected $2.34. Its Canadian operations performed well, although international units modestly weighed on results. Despite the beat, the stock traded slightly lower amid wider weakness in the financial sector.
Toronto-Dominion Bank (TD/TSX): TD exceeded expectations with adjusted earnings of $2.09 per share versus $2.04 forecast. Strong growth in its U.S. retail banking segment—about 11%—helped the quarter, and the shares moved modestly higher after the results.
Canadian Imperial Bank of Commerce (CM/TSX): CIBC reported a narrow beat, posting EPS of $1.85 against $1.82 expected. Like its peers, the bank emphasized increased loan loss provisions in its outlook. Despite the positive surprise, the stock was essentially flat on the day.
The Bank of Montreal (BMO/TSX) was scheduled to report its quarterly results the following week.
While the banks’ increased provisioning points to mounting recessionary concerns, there was reassuring news beneath the headlines: on a pre-tax, pre-provision basis most of the banks continued to perform well and earned resilient retail banking results. Given current valuations, these institutions remain attractive to many investors seeking income and relative stability in uncertain markets. If the economy avoids a deep downturn, some of the reserves could be released, boosting earnings. If a sharper slowdown hits, the provisions should help absorb losses and preserve franchise value.
For more commentary on Canadian bank stocks, visit Million Dollar Journey and the Canadian Financial Summit for additional analysis and resources.
Interest rates continue to attract… interest
The old market adage “don’t fight the Fed” reflected the expectation that central banks would ease policy to support markets. In the current cycle that dynamic has reversed: as inflation rose, the Federal Reserve and other central banks have moved to tighten monetary policy to slow demand and cool price pressures.
Market participants spent the week parsing Federal Reserve commentary for clues about how aggressively rates will rise. Forecasters debated rate hikes in the range of 50 to 75 basis points, and bond markets priced in the possibility of a more aggressive stance in the near term. Even relatively modest hikes can meaningfully affect asset valuations and borrowing costs.
Abroad, policymakers are facing different pressures. China cut lending rates again after a prior cut just weeks earlier, signaling growing concern about the property sector and slowing growth. Many forecasters have lowered growth expectations for China this year, and the currency has come under pressure amid those moves.
In the U.K., traders priced in the possibility that Bank of England policy rates could rise sharply to counter mounting inflation expectations, adding to the global picture of tightening monetary conditions.
American consumers aren’t tapped out yet
Recent retail results from a range of U.S. and international retailers painted a nuanced picture: consumers are still spending, but margins are under pressure from higher costs and inventory challenges. Figures below are in U.S. dollars unless noted.
Dick’s Sporting Goods (DKS/NYSE): Reported EPS of $3.68 versus $3.58 expected, and revenue of $3.11 billion versus $3.07 billion estimated.
JD.com (JD/NASDAQ): The Chinese e-commerce company reported EPS of $4.06 versus $2.78 estimated, and revenue of $267.6 billion versus $263 billion forecast. JD.com is traded as an ADR on U.S. exchanges.
Nordstrom (JWN/NYSE): Reported EPS of $0.81 versus $0.80 expected, and revenue of $4.1 billion versus $3.97 billion estimated.
Macy’s (M/NYSE): Posted a beat with EPS of $1.00 versus $0.85 expected, and revenue of $5.6 billion versus $5.49 billion forecast.
Urban Outfitters (URBN/NYSE): Missed EPS expectations with $0.64 versus $0.67 anticipated, but reported revenue of $1.18 billion compared with $1.16 billion estimated.
Across these retailers, inventory buildups and inflation-driven cost pressures are compressing margins, yet sales volumes suggest consumers are still buying. The environment is challenging but not collapse-level for discretionary spending.
GM investment pays dividends, literally
General Motors (GM/NYSE) reinstated a quarterly dividend and announced a $5 billion share buyback program. The dividend was set at $0.09 per share per quarter, representing a modest yield and a sign of confidence in the company’s free cash-flow outlook.
While the new dividend is well below GM’s pre-2020 payout level, the announcement signals a return to shareholder distributions alongside a continued focus on reinvesting capital into electric vehicle development. Management emphasized that while returning capital is a priority when appropriate, most investment will support the transition to EVs and related technologies. The stock rose on the news but remains below prior peaks for the year.
The broader auto industry is in a multi-front competition with EV leaders such as Tesla: traditional manufacturers must scale battery production and improve EV performance, while new incumbents work to refine manufacturing and distribution. Market pricing reflects differing expectations for execution across these players.
Nvidia’s not playing games
Nvidia (NVDA/NASDAQ) remains a major player in silicon and accelerated computing, but its latest results disappointed relative to subdued expectations. The company reported EPS of $0.51 versus $1.26 expected and revenue of $6.7 billion versus $8.10 billion forecast. Weakness in the gaming segment—sales fell roughly 33%—and softer demand for graphics cards were key drivers of the shortfall. Some analysts also pointed to lower demand from cryptocurrency miners as a contributing factor.
The sizeable miss pushed Nvidia’s shares lower, and the company’s year-to-date performance reflected a sharp correction from pandemic-era demand peaks. The drop underscores how quickly hardware demand can normalize after an extended spending surge.
Kyle Prevost is a financial educator, author and speaker. When he’s not on a basketball court or in a boxing ring trying to recapture his youth, he writes about personal finance and investing at Million Dollar Journey and organizes the Canadian Financial Summit.