Kyle Prevost, editor of Million Dollar Journey and founder of the Canadian Financial Summit, summarizes key financial headlines and provides context for Canadian investors.
Deflating expectations
Valuations across global markets are increasingly sensitive to inflation readings and the expected path of interest rates, so investors were closely watching the latest U.S. Consumer Price Index (CPI) report this week.
Markets reacted positively when data suggested we may be past “peak inflation.” An annual CPI increase of 8.5%—while historically high—represented a decline from the prior month’s 9.1% and came in below economists’ forecasts. Core CPI, which excludes volatile food and fuel prices, rose by 5.9%, a figure that eased some concerns among policymakers focused on inflation’s persistence.
Key details from the report included:
- Energy prices declined 4.6%, including a 7.7% drop in gasoline.
- Food prices increased by 1.1%.
- Shelter costs rose 0.5% for the month and are up 5.7% year over year.
- Electricity costs increased 1.6%.
- Used vehicle prices fell 0.4%.
- Airline fares dropped 1.8% and are down nearly 8% from a year ago.
- Wages increased 0.5% on a real (inflation-adjusted) basis.
Those disinflationary readings, together with lower inflation expectations reported by the New York Fed’s consumer survey, point to an economy where monetary tightening by central banks is starting to slow price acceleration.
Inflation expectations matter because they can become self-fulfilling: if households and businesses expect higher prices, wage demands and price-setting behavior can accelerate inflation. The survey showing that consumers expect inflation to average about 6.2% over the next year and roughly 3.2% over three years offers hope that the inflationary spiral can be contained.
As inflation pressures ease, most observers expect central banks to moderate the pace of rate hikes. Greater clarity on interest-rate policy should help stabilize company valuations and long-term bond pricing—likely the primary driver behind this week’s broad market moves.
Tough to beat the master and the mouse
Warren Buffett continued to deploy capital. Berkshire Hathaway’s quarterly results showed another round of share purchases while the company also increased buybacks. Still, the most aggressive buying came earlier in the year when Berkshire deployed a much larger portion of its cash on hand to acquire stakes in several companies.
Although Berkshire recorded large unrealized losses driven by market declines in its equity holdings, its operating earnings—reflecting how the underlying businesses performed—rose year over year. That operating strength underscores the resilience of a value-investing approach despite short-term market volatility.
The tempering of Berkshire’s recent purchases is notable because the firm still holds substantial dry powder on its balance sheet. That said, the mixed economic outlook is influencing even the most seasoned investors’ decision-making, and capital allocation tends to be more conservative in uncertain environments.
Disney delivered an upbeat earnings report, beating analyst expectations for earnings per share and subscriber growth for its streaming service. The recovery in travel and leisure helped Disney’s Parks, Experiences and Products segment post strong year-over-year revenue gains, which supported a positive market reaction to the results.
Canadian investors seeking exposure to companies like Disney and Berkshire can access them through Canadian Depositary Receipts listed on Canadian exchanges.
Bausch suffers from IBS—that’s Irritable Balance Sheet
When one of Canada’s larger healthcare companies faces an 80% year-to-date decline, it reverberates through a relatively small domestic healthcare sector.
Bausch Health saw a sharp drop after a court decision opened the door for a generic version of Xifaxan, a drug used to treat irritable bowel syndrome (IBS). The ruling undermined expectations of exclusivity through 2029, eroding profit margins that had been factored into the company’s valuation. Bausch has indicated it will contest the decision.
Recent quarterly results did little to reassure investors: revenues declined from the year prior and the company posted a loss for the quarter. Bausch’s history—formerly operating under the Valeant name—and its sizable debt load remain areas of investor concern.
Also in Canadian corporate earnings, Canadian Tire reported a 30% decline in profit per share year over year, citing the exit from the Russian market as a material headwind. The company nevertheless delivered a double-digit revenue increase, a mixed outcome that disappointed some investors.
Mining investors strike gold
Commodities can be highly volatile and lack conventional valuation metrics, but Canada’s major gold miners have attractive economics when metal prices remain above typical operating thresholds.
Several large Canadian gold producers reported solid results this quarter:
Barrick Gold: Adjusted earnings per share slightly beat expectations, with steady performance across major properties despite cost pressures.
Franco-Nevada: Reported adjusted earnings per share above forecasts and modest revenue gains versus the prior year.
Agnico Eagle Mines: Also beat earnings estimates and posted significant revenue growth year over year.
Canadian investors have multiple ways to gain exposure to gold. Exchange-traded funds track futures or hold physical bullion, while equity ETFs provide diversified exposure to the largest gold producers. Each option carries its own risks and costs, and investors should select the vehicle that best matches their objectives and risk tolerance.
Although not every shiny asset turns into a winner, this week’s corporate results and softer inflation data combined to support a more constructive market tone.
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 Million Dollar Journey and through the Canadian Financial Summit.