Shopify's Ottawa headquarters. The company has outperformed over the last three months, and it will face a test when it reports Wednesday morning.Justin Tang/The Associated Press
When kids throw a tantrum, the go-to move is to give them time out. You just tell them: “Sit over there and think about what you’ve done.” After Friday’s stock market tantrum, investors could use the same treatment this weekend: Cool off, breathe and decide just how upset to be about 133,000 U.S. jobs erased in a June revision.
That surprise was enough to trigger the worst weekly sell-off for the S&P 500 since May. Is it benign like getting the blue plate instead of the pink plate? Or is it cataclysmic like having your sandwich cut in half instead of diagonal?
Anyway, maybe earnings will give us faith again. We’ve got 83 companies on the TSX and the 124 on the S&P 500 reporting this week. Here is a preview of some of the big ones:
Shopify: Shopify Inc. SHOP-T has outperformed over the last three months, and it will face a test when it reports Wednesday morning. The reaction to Amazon’s results last week may have spooked investors, but their retail growth was actually higher than expected, and the sell-off was related to lower than expected growth in their cloud business.
Shopify’s retail results may be very strong, according to channel checks by Citi analyst Tyler Radke. He noted in a preview note to clients that web traffic to the main Shopify.com landing page accelerated, achieving 100 per cent year-over-year growth in the second quarter versus 89 per cent in the first.
Hold the phone: Telcos have started to perk up in the last few months, led by Rogers Communications Inc. BCE Inc. BCE-T will have a chance to nab the spotlight, with earnings due out Thursday morning. The last time BCE reported results, it slashed its dividend 56 per cent. This time, sales are expected to decline for a sixth quarter in a row, and analysts are expecting a 10-per-cent drop in earnings per share. However, since BCE cut its dividend, the stock is up (an ominous 6.66 per cent).
It still sports a decent dividend of 5.3 per cent, and investors will be looking for signs that price competition between the carriers is abating, big investments in infrastructure are behind them, and for insight into the strategy around their recent foray into U.S. fibre, with BCE’s acquisition of Ziply.
Lifeline: The big three insurers will report quarterly results this week including Great West Lifeco Inc. GWO-T, Sun Life Financial Inc. SLF-T and Manulife Financial Corp. MFC-T After years of outperforming the banks, insurance stocks are now lagging.
“Recent outperformance from Canada’s banks has the insurers trading at a 14 per cent discount to the banks on a forward profit-to-earnings basis,” wrote TD Cowen’s Mario Mendonca in a preview note. He notes that earnings growth is poised to be a healthy 7 per cent, but that that is slower than the double-digit growth we’ve seen the past two years.
Sun Life has been the underperformer of the group recently, and in the coming Tuesday episode of In the Money with Amber Kanwar, we have the first in our CEO Summer Series with Sun Life Financial chief executive officer Kevin Strain. Investors are nervous about what results from U.S. health insurers mean for Sun Life’s U.S. stop-loss business. Mr. Strain was confident that any higher usage or medical costs could be made back by repricing the insurance later.
“One of the beauties of [group benefits and stop-loss] is that they’re re-priceable. You might think of it like a property and casualty business, where property and casualty gets hit by a hurricane or by flooding. They have to pay out a lot of costs, and then they reprice for that the next year,” Mr. Strain said.
House of Mouse: Walt Disney Co. DIS-N has been anything but the happiest place on earth for investors. It is still well off its pandemic highs and keeps running into a wall at around US$120 per share. While the stock has had a nice pop from the April low, investors are nervous about cord cutting, streaming profitability and parks attendance. You see that in how the stock is trading into earnings: It has been down every day for the last seven days, which is the longest losing streak since last year.
Seth Allen of Cadence Financial Group at Raymond James said Disney is a name to own on my podcast last week: “The parks, despite that term ‘woke is broke,’ frankly, are doing very well. In fact, they’re having record numbers there,” he said, adding that he “wouldn’t be surprised seeing the stock break out to new highs.”
Throwing darts: I hesitate to mention a coming jobs report in Canada given the revision fiasco in the United States. The good news for Canada is that our jobs numbers are notoriously difficult to predict, have a margin of error of plus or minus 30,000, and are typically ignored by the TSX.
Having said that, Canada is expected to add 10,000 jobs in July, which would be a significant drop from the whopping 83,000 added in June (recall consensus expected zero job growth, proving my point about how difficult this number is to predict). The unemployment rate is expected to go back up to 7 per cent after unexpectedly dipping to 6.9 per cent at the last reading.
Trouble in the labour market is unlikely to sway the Bank of Canada, which made it clear last week core inflation is still too high: “With the shorter-term metrics pointing to ongoing stickiness in core inflation, there’s little scope for the Bank to cut rates further for now,” wrote Bank of Montreal’s Benjamin Reitzes in a note to clients.