Every Sunday, we shine the spotlight on elements of financial and stock market news that may be useful to investors, but which might have slipped under the radar.
For the first six months of the year, the Canadian bank index has not followed the growth of the entire Canadian stock market.
As of July 5, Canadian banks were down 1.4% while the Toronto Stock Exchange’s S&P/TSX Composite Index gained 5.3%. This underperformance by banks is attributable to investor caution in the face of the uncertain macroeconomic environment, points out Sohrab Movahedi, an analyst at BMO Capital Markets. Even more surprising, the performance of Canadian banks has varied greatly from one to another since the beginning of the year. Royal Bank was the best performer with a gain of 10.6%, followed by National Bank, which appreciated by 8.8%. BMO, with a decline of 13.9%, and TD, down 12.1%, are the ones that pulled the bank index down.
Canadian telecom giant BCE’s stock hit a new 52-week low in early July at $42.50. The stock has been down more than 40% in the past two years. And while it has recovered a few points in recent days, analysts are showing little enthusiasm in their recommendations. While the consensus of analysts who follow the company is leaning toward a buy recommendation, a few are cutting their target price again, including RBC, which is lowering it from $54 to $51, and Canaccord Genuity, which is cutting it from $53 to $50. The firm has made significant cuts since last fall, but has so far refrained from reducing its dividend, which currently yields around 9%. Second-quarter results will be released on July 1er August. Will she do it then?
Although the stock price has doubled since March and has just hit a new 52-week high, the enthusiasm for Bombardier shows no signs of fading. The Quebec aircraft manufacturer won’t release its second-quarter results until July 25, but National Bank analyst Cameron Doerksen isn’t waiting around and is immediately raising his target price from $92 to $114. He’s expressing confidence that the company will be able to generate solid cash flows for several years.
Major American firms will begin publishing their second-quarter results in the coming days. The results for the previous two quarters certainly did not disappoint expectations, as the S&P 500 index has gained 15% since January. Eyes will once again turn to NVIDIA, whose chips have been in such demand to meet the needs of artificial intelligence that its stock price has tripled since the beginning of the year. Expectations are once again very high, notes Cimon Plante, portfolio manager at National Bank. We will have to pay attention to the comments of the firm’s executives and examine their forecasts closely, he points out. NVIDIA’s product sales cycle has lasted 10 months, and while the economy is showing some signs of slowing, its customers could start to ease off on their equipment spending. We will have to see, because the craze for artificial intelligence seems to be still very much alive.
The Bank of Canada announced its first rate cut of 0.25% on June 5. A rate-cutting environment is generally favourable to bonds, because the lower rates go, the higher bond prices go. Since the beginning of the year, the return on the DEX Universe index, the index that groups all Canadian bonds, has shown a negative return of 0.38%. But it is reasonable to believe that the Bank of Canada will continue its rate cuts as the Canadian economy shows signs of slowing, explains Mathieu Lachance, manager of the Canadian Sovereign Absolute Return Bond Fund (OSAR). And the faster the rate cut, the faster bonds will appreciate, he points out.