Making sense of the markets this week: January 28, 2024
Tesla slides, Netflix wrestles competitors into submission, CN predicts 10% growth, BoC stands pat.
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Tesla slides, Netflix wrestles competitors into submission, CN predicts 10% growth, BoC stands pat.
Kyle Prevost, creator of 4 Steps to a Worry-Free Retirement, Canada’s DIY retirement planning course, shares financial headlines and offers context for Canadian investors.
With the S&P 500 hitting new all-time highs this week and consumer sentiment finally taking a positive leap, the “vibecession” might officially be dead. (A vibecession is when negative headlines and investor chatter don’t align with economic data and statistics—it’s more of a “vibe” than a “recession.”)
Tesla shares slid nearly 6% on Wednesday after a downbeat Q4 earnings call.
(All Tesla numbers below are in U.S. currency.)
• Tesla (TSLA/NASDAQ): Earnings per share came in at $0.71 (versus $0.74 predicted). Revenue of $25.17 billion (versus $25.60 billion predicted).
Here are a few takeaways from Tesla’s earnings report:
At the risk of jinxing myself, my 2024 prediction of Tesla falling 30% is holding up pretty well, as share prices are already down over 16% so far this year, despite the broader stock market doing pretty well. Tesla is an amazing company—it’s just not as great as the stock price has indicated over the last few years.
Netflix (NFLX/NASDAQ) not only posted a solid earnings report on Tuesday, but it came off the top rope to announce that it will become the new live broadcast partner for WWE’s Monday Night Raw franchise. Raw has been on TV for 31 years and has broadcasted over 1,600 episodes. The move into live sports (and live programming as a whole) could set a massive precedent for Netflix, as well as all streaming companies.
The entertainment giant posted earnings per share of $2.11 (versus $2.22 predicted) on revenue of $8.83 billion (versus $8.72 billion). (All figures in U.S. currency.) Its share price was up nearly 8% in after-hours trading on Tuesday. Perhaps most importantly, Netflix added 13.1 million subscribers in the fourth quarter of 2023, far surpassing the eight to nine million estimate from Wall Street. The streamer now has nearly 261 million paid subscribers—a new record high.
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It was mostly “steady as she goes” this week when it came to the non-tech heavy hitters in the S&P 500. Unfortunately for 3M shareholders, it wasn’t all sunny skies.
All figures here are in U.S. dollars.
Even though 3M outperformed profit expectations for the fourth quarter in 2023, its updated outlook for 2024 set off alarm bells in the market. Shares were down more than 11% on Tuesday after the earnings call, and overall returns have fallen behind the S&P 500 by more than 60% over the past three years. There appears to be some concern about the true value of the company given the health care business spinoff that is to take place later this year. The new company will be called Solventum and will focus on wound care, oral care, and health care technology.
As their shareholders expected, Johnson & Johnson and Procter & Gamble had solid, if unspectacular, earnings reporting days. These companies aren’t strangers to predictable growth, as J&J and P&G have raised their dividend payout for 61 and 67 consecutive years, respectively.
GE shares were more or less flat, despite the earnings beat, as shareholders await the results of the company breakup. The plan is to break away both GE’s aerospace and energy divisions into their own companies.
Canadian National Railway (CNR/TSX) announced earnings per share of $2.02 (versus $1.98 predicted) and revenue of $4.47 billion (versus $4.38 predicted) on Tuesday. Share prices were up slightly on this news. Shareholders appear to largely agree with management’s prediction that increased Canadian economic activity in the second half of the year will lead to a profit boost.
Gross ton miles (GTM) came in at 118,687 million versus 118,272.3 million estimated by analysts.
Management painted a very positive picture when it came to future projections. CNR chief executive officer Tracy Robinson stated, “Through 2023, our team of dedicated railroaders leveraged our scheduled operating model to deliver exceptional service for our customers and remained resilient in the face of numerous external challenges. Looking forward, we are optimistic as CN-specific growth initiatives are producing volumes. While economic uncertainty persists, we have the momentum to deliver sustainable profitable growth in 2024.”
The current guidance for management states that 2024 will see a 10% increase in earnings per share, with record revenues from potash, refund petroleum and propane. International volume is back to pre-pandemic levels, fully recovering from the British Columbia dockworkers’ strike last summer. For more details on CNR, please check my article on Canadian railway stocks at MillionDollarJourney.ca.
As most economy experts predicted, the Bank of Canada (BoC) decided to hold the policy interest rate steady at 5% this week. It was the fourth consecutive time the BoC has decided not to increase or decrease the rate. There appears to be a growing consensus that the Bank will be forced to cut rates in April or March, but BoC governor Tiff Macklem did hedge everyone’s bets by stating that the BoC isn’t taking future rate increases off the table, in case inflation pressures persist. He added that it would be “premature” to discuss interest rate cuts.
Takeaways from the BoC announcement include:
While Canadian borrowers are likely to grimace at the idea of inflation rates “doing their work,” the recent core inflation figures have backed the BoC into a bit of a corner. If a rate-cutting cycle started, only for inflation to once again trend upward, it could have devastating effects on people’s confidence that the BoC will eventually get inflation back in line. Once that confidence goes… it’s very difficult and economically painful to get it back. Options markets now believe there is about a 50% chance of a rate cut in April, with a very low probability of a cut in March, and a high probability of at least one cut by June.
The cuts can’t come soon enough for Canadians staring down the barrel of summer mortgage renewals!
To see what the impact is on current rates, check out the table below. To see variable rates, change the Rate Type from “Fixed” to “Variable.” (Rates are provided by Ratehub.ca, owned by Ratehub Inc., which also owns MoneySense.ca.)
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