Weekly Market Update: April 28, 2024

Kyle Prevost, creator of 4 Steps to a Worry-Free Retirement, Canada’s DIY retirement planning course, summarizes this week’s financial headlines and explains what they mean for Canadian investors.

Google starts paying out

Big technology companies dominated headlines this week, but for very different reasons. Several major firms reported quarterly results that moved markets and highlighted the growing focus on shareholder returns and cloud services.

Alphabet’s results beat expectations and drove a sharp after-hours rally, with shares rising roughly 14%. The company not only announced a $70-billion stock buyback program, but also unveiled its first-ever quarterly dividend of $0.20 per share. For investors, this marks a notable shift toward returning cash to shareholders alongside capital allocation through buybacks.

Microsoft also delivered a strong quarter, with shares up about 5% after hours. Revenue growth of 17% year over year was led by a 31% increase in cloud services, underscoring the continuing importance of Azure and enterprise cloud offerings to the company’s growth story.

Meta’s quarterly figures—while beating on the headline EPS and revenue numbers—triggered a steep share drop in after-hours trading. Investors focused on the company’s reduced revenue guidance for the rest of the year and the continued losses from Reality Labs, which reported a $3.5-billion loss. The combination of a softer outlook and ongoing investment in the metaverse weighed heavily on sentiment.

IBM’s results were viewed as underwhelming by the market, and shares fell after the company reported a modest miss on revenue despite announcing a $6.4-billion acquisition of HashiCorp. That acquisition is intended to strengthen IBM’s cloud and automation capabilities, but investors reacted to the near-term execution questions reflected in the quarterly report.

Canadian railway investors get bumpy ride

Canada’s two largest railways reported a challenging first quarter, with shares falling roughly 5% after earnings were released. Both firms posted results largely in line with expectations, but operational headwinds and supply-chain disruptions dented revenues.

The modest revenue declines were largely driven by port congestion and reduced cargo volumes after disruptions in the Red Sea shipping lanes. Since mid-December, many vessels have been rerouted around the Cape of Good Hope, creating significant delays at eastern ports such as Halifax.

Port operations on the west coast were also affected. One major carrier reported ongoing heavy congestion at Vancouver marine terminals and noted an inadequate supply of rail cars from Class 1 railways, which amplified delays.

CNR said rising labour costs contributed to lower profitability and warned that potential labour disputes could add further pressure. Despite the slow quarter, CNR’s management expressed confidence that easing supply-chain constraints and stronger commodity demand would support a recovery later in the year. The company also increased its dividend by 7% to 84.5 cents from 79 cents, signaling confidence in future cash flow.

Driving up share prices

The three major U.S. automakers reported earnings that generally exceeded expectations, lifting shares as investors rewarded strong truck sales and improving margins in some segments.

Ford’s shares rose after the company offset electric-vehicle losses with strong truck sales. The automaker expects EV-related losses of $5 billion to $5.5 billion this year but emphasized quality controls that delayed some deliveries. CEO Jim Farley said the company avoided roughly a dozen recalls by fixing issues before vehicles shipped.

GM reported a notable earnings and revenue beat, lifting its share price. Revenue rose 7.6% year over year, driven largely by trucks and SUVs. CEO Mary Barra emphasized capital efficiency, profitability and free cash flow as priorities as GM balances combustion-engine products with EV investments.

Tesla’s stock swung dramatically in recent weeks amid reports of large workforce reductions and weaker EV demand in some markets. The company announced job cuts of approximately 14,000 employees, and shares had fallen significantly before recovering on the back of an upbeat earnings call. Tesla slightly beat estimates, but investor enthusiasm was fueled more by CEO Elon Musk’s statements about cheaper models expected in late 2024 or early 2025, potential AI licensing opportunities, and long-term plans like a robo-taxi service. While these announcements boosted sentiment, the timing and execution of such initiatives remain uncertain.

Please hold for more profits

Major U.S. telecommunications companies reported largely in-line results, with earnings and revenue close to expectations. The steady performance eased some investor concerns even as year-over-year comparisons showed modest declines.

Both companies saw shares trade modestly higher as declines in earnings were smaller than analysts had feared. In Canada, BCE Inc. (BCE/TSX) has faced steeper challenges: the stock is down nearly 16% year-to-date and yields approaching 9% have prompted questions about dividend sustainability. With scrutiny on free cash flow and accounting practices, many investors are watching closely for any signs that the dividend might be adjusted if revenue or expenses don’t improve.

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• GM reports strong first-quarter profits
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