Kyle Prevost, editor of Million Dollar Journey and founder of the Canadian Financial Summit, outlines this week’s financial headlines and provides context for Canadian investors.
Are we nearing the end of BoC interest rate increases?
The dominant story for Canadian markets this week was the Bank of Canada’s decision to raise its policy rate by 0.5% to 3.75%. After hotter-than-expected inflation readings the prior week, many economists anticipated a larger 0.75% increase. Instead, Bank of Canada Governor Tiff Macklem adopted a more balanced tone, emphasizing the need to weigh the risks of under- and over-tightening monetary policy.
Most analysts now expect one or two additional smaller 0.25% hikes in coming months before the Bank moves into a more cautious, wait-and-see phase. For homeowners and mortgage holders this policy path has mixed implications.
On the positive side, ongoing inflation reduces the real value of outstanding mortgage debt. On the downside, prevailing mortgage rates have risen sharply from historic lows. For example, a five-year fixed-rate mortgage that cost roughly 3% in 2017 now commonly posts around 5.6% at major banks, with competitive offers nearer to 5% for diligent shoppers.
Using a mortgage-payment example: a $500,000 mortgage taken on a $650,000 house in 2017 would have carried monthly payments near $2,370. After five years, roughly $73,000 of principal might be repaid while about $69,000 went toward interest. Renewing the balance at a five-year fixed rate of 5% would increase monthly payments to about $2,800. If the renewal reflects a posted 5.6% rate, payments could rise to around $2,950. Extending the remaining balance across a new 25-year amortization could reduce payments to approximately $2,600, but at the cost of significantly higher lifetime interest.
While these increases are painful for many households, they are not necessarily catastrophic for the broader economy. Wages have generally risen since 2017, and Canada’s tight labour market improves the odds that many mortgage holders can absorb higher payments. That said, rising mortgage costs will constrain household budgets, reducing disposable income and discretionary spending in other areas.
Conversely, savers finally benefit from higher fixed-income yields. Guaranteed Investment Certificate (GIC) rates and other conservative savings products are offering far more attractive returns than the sub-2% levels common in recent years, making safer cash and term options more appealing for risk-averse investors.
Railway returns arrive on time
On the corporate earnings front, Canada’s railway operators reported another strong quarter. Both Canadian Pacific and Canadian National controlled costs while growing revenues year over year, and their stock performances remain among the few bright spots so far this year.
Notable Canadian earnings this week (figures in CAD) included:
Canadian Pacific Railway (CP): Earnings per share of $1.01 against $1 expected, with revenue near $2.31 billion versus $2.27 billion forecast.
Canadian National Railway (CN): Earnings per share of $2.13 versus $2 expected, with robust freight revenue trends.
West Fraser Timber: Earnings per share of $2.50 versus $1.89 expected and revenue around $2.09 billion versus $1.88 billion expected.
Canadian Utilities: Earnings per share of $0.45 versus $0.36 anticipated, and revenue near $898 million versus about $797 million expected.
Cameco: Earnings of $0.03 per share compared to a modest loss expected and revenue around $388.6 million versus roughly $370 million anticipated. The uranium producer also completed a significant strategic acquisition this quarter, reflecting renewed strength in commodity markets.
Does big tech equal big problems?
Major U.S. technology companies reported mixed results this week. Ad revenue softness and moderation in cloud growth dented investor enthusiasm, and markets have grown increasingly sensitive to any sign of deceleration after the pandemic tech rally. Even companies that beat earnings expectations were punished if specific business lines showed weakness.
Industry commentary noted money moving out of the high-valuation tech segment into other areas of the market. Selected U.S. tech results (figures in USD) included:
Microsoft: Earnings per share of $2.35 versus about $2.30 expected, with revenues just over $50 billion.
Alphabet: Earnings per share of $1.06 below forecasts and revenue slightly under projections, reflecting softer ad demand.
Amazon: Earnings of $0.28 per share, modestly above estimates, with revenue roughly in line; the stock fell sharply on investor reaction.
Apple: Earnings per share of $1.29 with revenue above expectations, yet iPhone sales softened, limiting upside in the share price.
Meta Platforms: Earnings per share of $1.64 missed estimates, though revenue was roughly in line; the stock experienced a large decline following the report.
Despite broader tech weakness, Canada’s Shopify bucked the trend with a strong result that lifted its shares significantly.
Old names, new profits
Meanwhile, several established “old economy” companies reported better-than-expected results, demonstrating resilient fundamentals outside the tech sector. Examples (figures in USD) included 3M, UPS, Coca-Cola, Texas Instruments, Norfolk Southern, and McDonald’s — most of which reported earnings modestly above expectations, signaling steady demand in industrials, consumer staples, and logistics.
Overall, markets are balancing between deep pessimism about the next six to 12 months and pockets of genuine strength across sectors. Key questions remain: How high will interest rates go, and how will higher rates affect consumer spending and employment? Much of that risk appears priced into current valuations, and the Bank of Canada’s more measured rhetoric provides some reassurance that extreme tightening may not be the likely path.
Absent a major unforeseen event, the combination of solid earnings in commodity and industrial sectors and a balanced central bank stance suggests the downside from here may be limited. That said, investors should remain vigilant and diversified as the outlook continues to evolve.
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.