Kyle Prevost, editor of Million Dollar Journey and founder of the Canadian Financial Summit, highlights the week’s key financial headlines and explains what they mean for Canadian investors.
Bank profits benefit from higher interest rates
U.S. corporate earnings season is underway and the major banks were among the first to report results. While not every bank dazzled, the sector generally exceeded expectations as rising interest-rate margins boosted profitability. All figures below are in U.S. dollars unless otherwise noted.
- Bank of America (BAC/NYSE): Earnings per share of $0.81 versus $0.77 expected; revenue $24.61 billion versus $23.57 billion expected. Shares jumped more than 17% over the past five trading days.
- Goldman Sachs (GS/NYSE): Earnings per share of $8.25 versus $7.69 expected; revenue $11.98 billion versus $11.41 billion expected. Shares rose over 6% in the last five trading days.
- JPMorgan (JPM/NYSE): Earnings per share of $3.12 versus $2.88 expected; revenue $33.49 billion versus $32.10 billion estimated. Shares climbed about 16.5% in the past five trading days.
- Wells Fargo (WFC/NYSE): Earnings per share of $1.30 versus $1.09 expected; revenue $19.51 billion versus $18.78 billion predicted. Shares increased roughly 11% over the last five trading days.
- Morgan Stanley (MS/NYSE): Earnings per share of $1.47 versus $1.49 expected; revenue $12.99 billion versus $13.30 billion estimated. Shares were up about 3% in the most recent five trading days.
- Citigroup (C): Earnings per share of $1.50 versus $1.42 expected; revenue $18.51 billion versus $18.25 billion predicted. Shares gained over 9% in the past five trading days.
The common thread is that banks are using wider net interest margins—the gap between what they pay depositors and what they charge borrowers—to offset weakness in areas like investment banking and trading. Bank of America’s stronger-than-expected result reflects its larger retail-banking footprint, while Morgan Stanley’s smaller surprise is tied to a slowdown in IPOs and capital markets activity that hit its advisory and underwriting income.
Canadian banks look structurally similar to Bank of America, with a greater tilt toward retail and commercial lending than toward investment banking. As a result, many Canadian lenders should see comparable benefits from higher interest rates. TD Bank, which has the largest U.S. exposure among Canada’s big banks, is particularly positioned to mirror the positive earnings trends observed at U.S. peers.
Canadians seeking U.S. bank exposure can access diversified options through exchange-traded funds listed on Canadian exchanges that focus on U.S. banks, or through available depository receipts offering individual U.S. bank exposure in Canadian dollars.
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Food prices keep Canadian inflation elevated
Policymakers, investors and households are watching monthly inflation reports for signs that aggressive monetary tightening is cooling price growth. Statistics Canada recently reported that headline inflation eased for a third consecutive month, slipping from 7.0% to 6.9% year over year after peaking at 8.1% in June.
Although the decline is welcome, it was smaller than many economists expected, and core inflation remained stuck at 5.3%. Food costs continue to be a major driver: groceries are up more than 11% year over year, the fastest rise in decades, and that persistent pressure is keeping the cost of living front and center for Canadian households.
Given the still-elevated readings, market watchers broadly expect the Bank of Canada to consider another sizable rate increase to bring inflation back toward target, meaning consumers should prepare for higher borrowing costs to remain in place for some time.
Staples and essentials: defensive winners in uncertain times
When markets wobble, companies that sell everyday essentials—medicine, personal care, household goods—tend to hold up better than high-growth names. Recent results from consumer staples makers confirm this defensive strength.
- Johnson & Johnson (JNJ/NYSE): EPS $2.55 versus $2.48 expected; revenue $23.8 billion versus $23.4 billion expected.
- Procter & Gamble (PG/NYSE): EPS $1.57 versus $1.54 expected; revenue $20.61 billion versus $20.28 billion expected.
- Philip Morris International (PM/NYSE): EPS $1.53 versus $1.36 expected; revenue $8.03 billion versus $7.26 billion expected.
These stable, cash-generating companies often pay reliable dividends and can provide portfolio ballast during economic slowdowns, making them attractive to investors seeking lower volatility and steady income.
Tech winners and lessons: Netflix, IBM and Tesla
Several high-profile tech and media companies also reported quarterly results, delivering varied outcomes that underscore a recurring market theme: strong earnings can still be overshadowed by lofty growth expectations.
- Netflix (NFLX/NASDAQ): EPS $3.10 versus $2.13 expected; revenue $7.93 billion versus $7.84 billion predicted. The company added more subscribers than anticipated—helped by new content—and announced measures to curb password sharing, sending shares up sharply.
- IBM (IBM/NYSE): EPS $1.81 versus $1.77 expected; revenue $14.11 billion versus $13.51 billion estimated. IBM cited currency headwinds but noted customers are generally accepting price increases, and the shares reacted positively.
- Tesla (TSLA/NASDAQ): EPS $1.05 versus $0.99 expected; revenue $21.45 billion versus $21.96 billion expected. Despite a year-over-year doubling of net income, Tesla’s missed revenue target led to a pullback in after-hours trading. For companies priced for extreme growth, even modest misses can trigger outsized reactions.
Tesla’s CEO emphasized strong demand for the coming quarter and expressed ambitious long-term market-capitalization views. Whether those long-term visions pan out, the market’s short-term sensitivity to revenue and growth trends remains clear.
What this means for investors
Recent earnings and macro data have produced a familiar pattern: interest-rate decisions and inflation reports move markets in one direction, while resilient corporate profits tug them back the other way. For long-term investors, the most important factor is company quality. Firms with durable competitive advantages, strong balance sheets and consistent cash flow are likely to weather near-term economic weakness.
Valuation multiples have compressed this year, reflecting higher rates and slower growth expectations. That compression has removed some downside risk for many stocks because prices have already adjusted downward while earnings have remained relatively steady. Although short-term market volatility is likely to continue, the current environment presents opportunities to buy high-quality businesses at more attractive prices than before.
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 helps Canadians with their finances at Million Dollar Journey and through the Canadian Financial Summit.