Kyle Prevost, editor of Million Dollar Journey and founder of the Canadian Financial Summit, reviews recent financial headlines and puts them into context for Canadian investors.
Bad news can be good news for Canadian investors
Talk of central bank moves has dominated markets this week. In the strange world investors have created, weak economic data can paradoxically be positive for stock prices. Here’s why.
Intuitively, weaker economic news should mean companies earn less. But markets are driven by investor expectations, and a prevailing belief has emerged: softer data increases the chance central banks will pause or reverse rate hikes, which can lift equity valuations. As a result, many stocks now move in near lockstep with inflation readings and interest-rate expectations rather than company-specific fundamentals.
Even strong corporate reports can be overshadowed by macro signals. Investors are focused on the U.S. Federal Reserve and whether higher rates are cooling inflation. In recent days market participants scrutinized manufacturing PMI readings and the JOLTs job openings report ahead of a key U.S. employment release. A deterioration in those indicators is interpreted as evidence that tighter monetary policy is working—reducing the likelihood of further rate increases.
That explains why headlines about job losses or slowing growth can be welcomed by equity markets: they raise the odds of a policy pivot that supports stocks. Conversely, robust jobs and rising incomes can reinforce expectations of continued rate hikes, which tend to dampen equity prices and make fixed-income returns more attractive relative to stocks.
For investors trying to set expectations, recent PMI and preliminary jobs data suggested an economic slowdown was underway, which helped stock prices. But this momentum can shift quickly with comments from central bankers. For most long-term portfolios, the best move is usually to tune out the short-term noise and stick to a disciplined plan.
Note: I expand on these themes in sessions at the Canadian Financial Summit (virtual event) alongside several MoneySense contributors and other Canadian financial experts. The summit offers educational sessions tailored to long-term investors.
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Booze proved a safer bet than breeches
Recent earnings from Constellation Brands and Levi Strauss highlighted the mixed backdrop for consumer companies. Constellation, a major beer, wine and spirits producer that also holds a stake in a cannabis company, reported a strong quarter with earnings above expectations and rising net sales driven by its beer business. Yet its shares dipped modestly the day of the release, reflecting the market’s current sensitivity to macro headlines rather than firm-level wins.
Levi Strauss delivered an earnings beat but warned of inventory pressures, rising costs and a strong U.S. dollar—headwinds that have been common across apparel retailers. The company lowered its longer-term profit and revenue outlook, and the stock fell sharply in after-hours trading.
These reports show how even positive results can be punished when broader economic concerns and currency effects dominate investor sentiment.
Monstrous returns for index investors
Looking at long-term winners in the S&P 500 shows how powerful compounding can be and why owning broad indexes pays off. Tech giants like Netflix, Tesla, Apple and Amazon have produced staggering multi-year gains, but an unexpected top performer steals the spotlight: Monster Beverage. Over roughly two decades, Monster’s stock returned multiples that dwarf many familiar names. An early $1,000 investment in Monster would have grown into a very large sum.
Beyond Monster, other less glamorous companies—Old Dominion Freight, Domino’s Pizza, Tractor Supply and Extra Space Storage—also delivered outsized returns, outperforming some household names. Those examples underline how hard it is to predict future growth winners early on.
For most investors, that uncertainty reinforces Jack Bogle’s classic advice: diversified, low-cost index ownership generally beats the odds of stock-picking. Index funds capture the market’s few big winners while spreading risk across many companies, making it easier to participate in long-term wealth creation despite the occasional failure.
Will the recession claim the pound sterling and Credit Suisse?
While Canadian and U.S. markets have faced challenges, recent events in the U.K. and Switzerland drew global attention. The sharp fall and subsequent volatility in the pound highlighted how quickly currency markets can react to fiscal and political decisions. When a government announces large fiscal changes that increase borrowing, currency markets may punish that nation’s currency until policy clarity is restored. Central banks can step in with interventions and emergency measures to stabilize markets, but those actions often produce friction between monetary and fiscal policymakers.
Currency volatility can create opportunities—buyers with U.S. or Canadian dollars may find attractive valuations for U.K. assets—but it also carries risks tied to mortgage markets, banking stress and structural balance-of-payments issues. The U.K.’s situation demonstrated how a free-floating currency, even one backed by an established central bank, can experience extreme swings under certain policy choices.
Credit Suisse also grabbed headlines as its stock fell sharply amid investor concerns. The bank sought to calm markets by pointing to its capital position, but its corporate bond prices declined and the cost of insuring its debt rose, signaling heightened market anxiety. While a Lehman-style collapse seemed unlikely to many analysts, the episode illustrated how quickly confidence can erode in a financial institution and why shareholders often bear the brunt of such turmoil.
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 improve their finances through MillionDollarJourney.com and the Canadian Financial Summit.