Kyle Prevost, editor of Million Dollar Journey and founder of the Canadian Financial Summit, summarizes the week’s financial headlines and explains what they mean for Canadian investors.
Cooling inflation leads to a red-hot day for the markets
News from the United States often dominates North American markets, and this week was no exception. October’s U.S. consumer price index (CPI) came in below expectations at 7.7% year-over-year, down from 8.2% in September. The unexpectedly cooler inflation print triggered a sharp rally: the S&P 500 climbed roughly 5.5% in a single session, one of its largest daily gains in decades. Canada’s TSX also rallied, gaining about 3.3% that day.
Markets quickly re-priced the outlook for U.S. interest rate moves. Traders scaled back the probability of a 0.75% Federal Reserve rate hike, instead leaning toward a 0.5% rise at the next meeting. That reaction underscores the outsized influence U.S. monetary policy expectations have on global markets today.
Many investors and strategists are relieved to see signs of decelerating inflation, because it may give the Fed the room to pause and assess before tightening further. However, some market veterans worry the Fed could overtighten if it pursues aggressive hikes for too long. Notable investment thinkers have discussed this risk at length, pointing out that a policy error that pushes the economy into a deep slowdown would be costly for stocks and other assets.
The U.S. midterm elections added another layer of market sentiment. Historically, investors often prefer a “split government,” which tends to limit sweeping legislative changes and therefore increases policy predictability. This expectation likely contributed to the market’s positive tone. Still, uncertainty around the final composition of Congress created short-term volatility: the S&P 500 fell about 2% one day before rebounding sharply the following session.
Disney’s returns aren’t magical
Earnings season in the U.S. continued to produce mixed results. A few notable reports this week included Disney, BioNTech and Mosaic. Disney missed analyst expectations on both earnings and revenue, reporting earnings per share of $0.30 versus a consensus near $0.55, and revenues below forecasts. While Disney+ added more subscribers than anticipated, the streaming business remains unprofitable, and the company’s broader businesses fell short of investor hopes—shares dropped sharply after the release.
BioNTech reported stronger-than-expected results in a difficult environment for COVID-related vaccine revenues. Earnings per share were significantly above analyst estimates, and revenue performance beat forecasts, which helped the stock rise despite year-over-year declines in pandemic-related sales.
Mosaic, the U.S. fertilizer and potash producer, posted slightly below consensus numbers for the quarter. Shares have fallen from spring highs but remain up on the year. Mosaic’s performance mirrored recent weakness at Canadian peers such as Nutrien, highlighting how fertilizer markets and commodity cycles are affecting the sector globally.
Canadian pipelines continue to pump profits
For investors who want exposure to Canada’s energy economy without direct commodity price risk, pipeline companies remain an attractive option. Midstream operators earn fees for transporting oil and gas, providing relatively predictable cash flows while paying dividends. This week’s Canadian midstream results included solid quarterly numbers for several large pipeline names (all figures in Canadian dollars):
- Enbridge: earnings per share around $0.67, close to expectations, and robust revenue generation from pipeline operations.
- Keyera: reported earnings per share above analyst estimates, driven by strong fee-based results in midstream services.
- TC Energy: delivered slightly better-than-expected earnings per share and revenues, supported by contracted pipeline volumes.
- Pembina Pipeline: reported a notable beat on earnings per share and decent revenue growth versus expectations.
Demand for pipeline capacity remains strong while additions to system capacity are limited, supporting margins for these midstream operators. With dividend yields near the mid-single-digit to high-single-digit range for some names, many investors view these companies as reliable income generators as long as energy flows continue.
Insurance company investors need coverage for their portfolios
Several Canadian insurers and financial companies reported results that reflected mixed conditions across underwriting and investment performance. Highlights included:
- Franco-Nevada: reported quarterly results in U.S. dollars with slightly softer-than-expected earnings per share.
- Intact Financial: produced near-consensus earnings with moderate revenue performance, noting higher claim activity in the quarter.
- Manulife: reported a small miss on earnings per share, citing market-related impacts across its investment portfolios.
- Power Corporation: delivered results below some analysts’ expectations, with further details on revenue timing to come.
- Canadian Tire: missed on earnings per share while revenue held roughly in line, reflecting ongoing retail margin and inventory pressures.
- Saputo: beat earnings expectations and grew revenue, benefiting from pricing and operational execution in many regions.
Insurers cited elevated payouts tied to severe weather events and volatile investment markets as headwinds this quarter. Retailers like Canadian Tire continue to contend with supply chain disruptions and higher inventory costs. Overall, market reactions were contained, suggesting investors had priced some of these challenges into share prices ahead of the reports.
Investors should focus on differentiating short-term noise from long-term fundamentals. Companies with stable cash flows, durable competitive advantages and disciplined capital allocation tend to weather cyclical headwinds better than those dependent on volatile spot prices.
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 through Million Dollar Journey and the Canadian Financial Summit.