Weekly Market Outlook: January 28, 2024

Kyle Prevost, creator of 4 Steps to a Worry-Free Retirement, Canada’s DIY retirement planning course, shares key financial headlines and context for Canadian investors.

With the S&P 500 reaching fresh all-time highs this week and consumer sentiment turning positive, the era of the so-called “vibecession” — where negative headlines clash with improving economic data — may be drawing to a close. Here’s what Canadian and global investors should know from the latest corporate earnings and central bank news.

Tesla tempers expectations

Tesla shares fell nearly 6% after a muted fourth-quarter earnings call and cautious guidance for 2024.

Key takeaways from Tesla’s report:

• Revenues rose only 3% year-over-year, with auto-related revenue up just 1%.
• Operating margin narrowed to 8.2% from 16% a year earlier.
• Management warned vehicle sales growth could be “notably lower” in 2024.
• Energy and services divisions showed strong percentage growth but remain a small portion of total revenue.
• CEO comments continue to emphasize big ambitions for Cybertruck production.

Despite the pullback, Tesla remains an influential company in the auto and clean-energy space. From an investor perspective, the latest results highlight slower growth and thinner margins compared with prior years, which helps explain the recent stock weakness relative to broader market gains.

Netflix bodyslams earnings projections

Netflix delivered better-than-expected subscriber growth and announced a strategic move into live programming by signing on as the new streaming home for WWE’s Monday Night Raw. The shift into live content could redefine streaming monetization and audience engagement.

Financial highlights (U.S. dollars): Netflix (NFLX/NASDAQ) posted EPS of $2.11 versus $2.22 expected, and revenue of $8.83 billion versus $8.72 billion expected. The company added 13.1 million subscribers in Q4 2023, far exceeding Wall Street forecasts, and reached a new record of nearly 261 million paid subscribers. Shares rose in after-hours trading on the news.

3M takes a hit

Amid broadly steady results from non-tech giants, 3M stood out for the wrong reasons. While the company beat fourth-quarter profit estimates, its revised outlook for 2024 sparked concern and drove shares sharply lower.

Although 3M’s quarterly profit beat estimates, management’s guidance for 2024 led investors to worry about the company’s near-term prospects. Shares dropped more than 11% after the announcement. Over the past three years, 3M’s total returns have lagged the S&P 500 by a wide margin, and the upcoming corporate restructuring — including the planned spin-off of its health-care business into a new company named Solventum — has raised questions about the firm’s long-term valuation.

By contrast, Johnson & Johnson and Procter & Gamble turned in reliable, steady results. These companies are known for consistent dividends and predictable cash flow, which helps explain investor confidence in their stocks during mixed economic conditions.

General Electric’s results beat expectations, but the stock remained largely unchanged as investors await the outcome of the company’s planned breakup into separate aerospace and energy businesses.

CNR keeps profits on the right track

Canadian National Railway (CNR/TSX) reported better-than-expected results, with EPS of $2.02 (vs. $1.98 expected) and revenue of $4.47 billion (vs. $4.38 billion expected). The stock moved slightly higher on the news as management expressed confidence about growth prospects later in the year.

Operational metrics improved, with gross ton miles recovering to pre-strike levels and overall volume trends showing momentum. Management forecasted a potential 10% increase in earnings per share for 2024, driven by higher volumes in potash, refined petroleum and propane. The company’s outlook hinges on stronger activity in the second half of the year and continued recovery in international trade flows.

Bank of Canada holds steady at 5%

The Bank of Canada kept its policy interest rate unchanged at 5% for the fourth straight decision. Governor Tiff Macklem emphasized that while the bank is not currently raising rates further, it is also not ruling out future increases if inflation pressures re-emerge. At the same time, officials signaled that rate cuts are likely later this year if inflation continues to moderate.

Key points from the BoC decision:

• Rate outlook: Conversations have shifted from how high rates might go to how long they will remain at current levels before cuts are considered.
• Housing and shelter costs: Shelter costs remain a major driver of above-target inflation, complicating the timing of rate cuts.
• Growth expectations: The Bank expects weak growth in the near term, with a modest full-year GDP outlook.
• Inflation concerns: Core inflation remains elevated, and the BoC wants to give higher rates time to work.
• Labour market: Job vacancies are moving back toward pre-pandemic levels, which affects wage and inflation dynamics.

Markets now price a meaningful chance of a rate reduction later in the year, with options markets and economists estimating possible cuts by mid-year if inflation keeps easing. For Canadians facing upcoming mortgage renewals, central-bank decisions and inflation trends will remain critical to borrowing costs and household budgets.

Read more about investing:

• How might inflation impact your retirement plans?
• What is a cashable GIC?
• Will GIC rates keep going up in 2024?