Weekly Market Update: Feb 5, 2023

Kyle Prevost, editor of Million Dollar Journey and founder of the Canadian Financial Summit, highlights recent financial headlines and provides context tailored to Canadian investors.

Mixed earnings results for Big Tech

The latest tech earnings season delivered mixed signals. Some companies surprised investors with cost-cutting plans and upbeat guidance, while others missed expectations for the first time in years. Meta (META) rallied after announcing a “year of efficiency,” while Apple (AAPL) reported its first earnings miss in seven years. Overall, tech executives repeatedly cited a strong U.S. dollar, softer advertising spending and an emphasis on cost control as common headwinds.

Executives across these firms repeatedly mentioned currency effects from a strong U.S. dollar and a pullback in ad spending as key challenges. In response, several companies are focusing on efficiency and restructuring: Meta’s announcement of cost reductions and a large share buyback helped its stock rebound, while Amazon disclosed 18,000 layoffs as CEO Andy Jassy emphasized cutting costs without abandoning long-term strategic investments.

Apple pointed to the strong dollar, production disruptions in China, and weaker consumer spending as the primary reasons for its softer quarter. Meta’s quarter showed revenue growth but advertising — its primary revenue source — declined year over year, underscoring that even companies with strong balance sheets face cyclical demand pressures. After last year’s heavy share-price declines, the market is still trying to value these industry leaders amid uneven macroeconomic signals.

“The disinflationary process has started” but also “ongoing increases” expected

Federal Reserve chair Jerome Powell’s recent statements produced volatile market reactions. The Fed raised its benchmark rate by 25 basis points to a target range of 4.5%–4.75%, and Powell acknowledged a welcome slowing in the monthly pace of inflation. Yet he cautioned it is “very premature to declare victory” and signaled that further rate increases could still be needed.

Bond markets, however, are pricing in a softer path — markets expect the possibility of one more small hike before cuts later in the year — while Powell has stated he does not expect rate cuts this year. Historical forward guidance from the Fed has sometimes missed expectations, so investors should weigh such guidance cautiously.

Higher U.S. interest rates have several implications:

• They increase pressure on developing economies that hold U.S.-dollar‑denominated debt while collecting revenue in local currencies.
• They are generally negative for U.S. exporters that rely on overseas demand.
• They can benefit Canadian companies that sell to U.S. consumers by improving relative competitiveness.
• They raise travel costs for Canadians planning vacations to the U.S. as borrowing and spending costs increase.

Canada tech outperforms, while infrastructure stocks keep profits moving on time

In Canada, infrastructure names and select technology firms reported generally solid results. Rail and infrastructure companies continue to deliver dependable earnings, and several Canadian tech firms modestly beat expectations this quarter.

The broader takeaway: Canadian infrastructure and select technology companies continue to be reliable performers. The Canadian rail duopoly, in particular, remains a resilient earnings play for investors seeking stable exposure to domestic economic activity.

Should Canadian investors have 100% of their portfolio in stocks?

Ben Carlson of A Wealth of Common Sense recently asked whether it’s realistic to have a portfolio that’s 100% equities. Carlson argues it can be reasonable, and he personally maintains an all-equity allocation. Over the past century, U.S. stocks have produced large gains more often than deep annual losses, but this historical perspective doesn’t remove personal risk considerations.

As investors age, their human capital — the income they expect to earn through work — typically declines, making financial assets a larger portion of total wealth. That naturally suggests a gradual shift toward lower-risk investments as retirement approaches. Historical averages show that U.S. bear markets have fallen nearly 33% on average from peak to trough and often take about three years to return to prior highs, with some periods taking much longer. For investors who rely on withdrawals to pay living expenses, prolonged downturns can be psychologically and financially stressful.

From a Canadian perspective, bear markets tend to be somewhat shorter and shallower on average. Still, the market doesn’t rise in a straight line; the commonly cited long‑term average returns smooth a lot of volatility that investors will experience in real time. Understanding your time horizon, income needs and risk tolerance matters more than following a rigid allocation prescription.

As context: the U.S. market entered an official bear market (a decline of 20% or more) in mid-2022, while the Canadian S&P/TSX Composite Index did not fall 20% last year and therefore avoided a formal bear market. The TSX did drop about 17% from its highs but has since recovered substantially from those lows.

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, you can find him helping Canadians with their finances at MillionDollarJourney.com and through the Canadian Financial Summit.