Kyle Prevost, editor of Million Dollar Journey and founder of the Canadian Financial Summit, reviews key financial headlines and explains what they mean for Canadian investors.
U.S. retailers: Consumers are spending differently, but they’re still spending
Readers of “Making sense of the markets” may recall that earnings from Walmart and other big-box retailers helped trigger a market sell-off in May. That made this week’s retail earnings reports closely watched, as investors looked for signs of whether consumers are still spending and how companies are handling inventory and inflation.
The overall picture was more balanced than the fear-driven market reaction in the previous quarter. Bankable takeaways: most major retailers—Target being a notable exception—are managing inventory pressures and containing costs well enough to avoid a widespread earnings collapse.
All earnings figures below are in U.S. dollars unless noted.
Walmart (WMT): Walmart reported earnings per share of $1.77 versus $1.62 expected, and revenue of $152.86 billion compared with $150.81 billion forecast. The company flagged changing spending patterns as shoppers become more selective. The stock rose about 5% on the report.
Target (TGT): Target’s results contrasted with Walmart’s. The company cited steep discounting to clear excess inventory and reported a quarterly profit down roughly 90% year over year. Earnings per share came in at $0.39 versus $0.72 expected, while revenue matched analysts’ $26.04 billion estimate. Shares declined after the results.
Home Depot (HD): Home Depot beat expectations with earnings per share of $5.05 (versus $4.94 predicted) and revenue of $43.79 billion (versus $43.36 billion expected). Shares rose around 4% on the day.
Lowe’s (LOW): Lowe’s posted EPS of $4.67, slightly ahead of $4.58 expected, with revenue marginally below forecasts. The stock moved higher following Walmart’s and Home Depot’s positive numbers and held steady thereafter.
If this modestly positive or neutral trend continues through the remainder of the year, investors and central bankers alike will likely feel relieved that consumer demand is not collapsing and that retailers can manage inventories and pricing amid inflation.
Canada’s headline inflation: signs of disinflation, but work remains
After recent U.S. data showed inflation easing from its peak, Canada’s July annual inflation rate fell to 7.6% from 8.1% in June—the first downward move in a year. While this is welcome, annualized figures reflect year-over-year changes and don’t show month-to-month volatility.
Highlights from the report included:
- Gasoline prices down 9.2%
- Food prices up nearly 10%
- National home prices fell 1.7% (some forecasters expect larger declines by year-end)
- Rent increased 4.1%
- Airfare rose 25.5%
- Hotel prices rose 10%
- Natural gas prices increased 12.4%
- Wages rose 5.2%, which still leaves real purchasing power below prior levels
Markets initially interpreted the slower inflation print as a signal the Bank of Canada might slow its pace of rate hikes. However, Bank of Canada Governor Tiff Macklem emphasized that while inflation may have peaked, it remains far too high and will probably stay elevated for some time. He reiterated the BoC’s goal of returning inflation to the 2% target while avoiding a sharp economic contraction.
“To tame inflation, we need to bring overall demand in the economy into better balance with supply. Our goal is to cool the economy enough to get inflation back to the 2% target. We don’t want to choke off demand—we want to slow its growth. That’s what we call a soft landing. By acting forcefully in raising interest rates now, we are trying to avoid the need for even higher interest rates and a sharper slowing down the road.”
“The best way to protect people from high inflation is to eliminate it. That’s our job, and we are determined to do it. Tuesday’s inflation number offers a bit of relief, but unfortunately, it will take some time before inflation is back to normal. We know our job is not done yet—it won’t be done until inflation gets back to the two per cent target.”
The Canadian dollar strengthened after the release, reflecting trader belief that the BoC will continue to act decisively to bring inflation down. For investors, pockets of the market—such as companies with pricing power—tend to fare better during inflationary periods, consistent with past observations about inflation-hedging stocks.
Oil profits: Saudi Aramco’s massive quarter and implications for Canada
Saudi Aramco reported an eye-catching quarterly profit of $48.4 billion, making it the most profitable publicly traded company over the quarter. The company’s profit surged roughly 90% year over year and beat analyst expectations.
Key points:
- Year-to-date shares are up significantly, contributing to a market capitalization in the trillions.
- Saudi Arabia still owns the majority of the company, and government finances are benefiting from elevated oil revenues.
- Aramco expects global oil demand to remain solid for the rest of the decade and plans to increase capacity toward 13 million barrels per day by 2027.
Canada’s energy sector has also benefited from higher global energy prices. The S&P/TSX Capped Energy Index has gained strongly year to date, and several Canadian producers have returned excess cash to shareholders through special dividends.
Direct access to Saudi Aramco shares is limited for most retail investors because the company trades primarily on the Tadawul exchange. North American investors often use ETFs with Saudi equity exposure as a practical way to gain indirect exposure to Aramco and the broader Saudi market.
Russia: deep contraction and a bleak medium-term outlook
Recent data showed Russia’s economy contracted sharply, and while local officials framed the pullback as modest compared with early projections, the longer-term outlook is troubling. A quarterly GDP decline effectively erased several years of growth, setting the economy back to levels not seen since 2018.
Officials argued the economy will find a new equilibrium, but international institutions and independent analysts warn the downturn could deepen. The IMF and other forecasters expect larger annual contractions, and some consultants suggest the country could lose a substantial share of pre-war GDP over time if sanctions persist and firms continue to exit.
To illustrate the potential scale: major historical recessions in advanced economies have reduced GDP by single-digit percentages, while a sustained multi-year drop of 30% or more would be comparable to the most severe economic collapses in modern history.
Sanctions, corporate departures, and the breakdown of trade and financial links will weigh on Russia’s prospects. While scenarios exist that could improve outcomes—political change or a reversal of corporate exits—those are uncertain. For now, investment risk in Russian assets remains exceptionally high and largely unpredictable.
Kyle Prevost is a financial educator, author and speaker. When he’s not on a basketball court or in a boxing ring, he helps Canadians with personal finance through Million Dollar Journey and the Canadian Financial Summit.