A Profit Implosion Is About to Test Canada’s Stock Market
A Profit Implosion Is About to Test Canada’s Stock Market
(Bloomberg) -- The Covid-19 health crisis quickly turned into an economic crisis that roiled stock markets worldwide. Now, a profit crisis is coming for Canadian stocks.
After a wild earnings week in the U.S. where about 10% of companies listed on the S&P 500 Index reported results, Canada’s earnings season is about to get started with 10% of its benchmark due to report the week of April 20, according to BMO Capital Markets.
Bellwethers like Canadian Pacific Railway Ltd., Rogers Communications Inc. and Teck Resources Ltd. are set to provide a glimpse into their first quarter, which was barely half over when the coronavirus pandemic began. Some companies on the Canada’s benchmark S&P/TSX Composite index have already temporarily suspended or cut dividends to shore up cash, providing some inkling of what to expect when financials are released.
Make no mistake, first-quarter profits are expected to slump -- by how much is hard to say as analysts struggle to model results. But with many companies pulling their full-year forecasts, investors will be keen to hear how they are faring during a nationwide lockdown and what they have planned for when things start reopening again.
In the private equity world, some of Canada’s largest pension funds have said they are preparing for the post-pandemic era by forming teams to analyze their portfolio companies or putting stress tests in place.
Volatility will be the name of the game. With some energy companies reporting this week, options traders are pricing in earnings-day share swings that haven’t been seen in years, as a demand slump and oil price war knocked them down.
Here’s what to expect from companies reporting this week:
Company | Reporting date | What to expect |
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CP Rail | April 21 |
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Teck Resources | April 21 |
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Rogers Communications | April 22 |
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Metro Inc. | April 22 |
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Choice Properties REIT | April 22 |
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Big changes to earnings trends have hit Canadian companies hard in recent quarters, said Bank of Montreal’s Brian Belski. The depth in those revisions will be key, the chief investment strategist for BMO’s capital markets division said in a report.
If U.S. earnings are anything to go by, it doesn’t look good. Both the numbers and the tone from the five largest U.S. lenders have underscored a view that Canadian financial services stocks -- which make up almost a third of the stock market north of the border -- will lag any eventual economic recovery, said Scotiabank’s Sumit Malhotra. The Big Six Canadian lenders report in May.
And the uncertainty surrounding global economic growth will weigh on investors’ minds. While Trump has said the shared U.S.-Canada border will be one of the earliest to be released, both countries extended the restrictions for 30 days, Prime Minister Justin Trudeau said over the weekend -- disrupting North American supply chains for an extended period. And China, the world’s second-largest economy, suffered a massive setback after entering its first economic contraction in decades.
One place of solace: President Donald Trump issued guidelines to U.S. states to consider as they decide whether to relax stay-at-home orders and other social-distancing measures, sending stock markets globally soaring Friday. Governors and businesses now have to make those difficult decisions.
Here’s a look at what happened last week.
Markets -- Just The Numbers
Stocks |
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Bonds |
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Loonie |
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Economy & Politics
The Bank of Canada is broadening the range of assets it will purchase in a bid to support an economy that could be heading for a deeper recession than previously expected. Asset purchases will now include as much as C$50 billion ($35 billion) in provincial bonds and C$10 billion in high-grade corporate bonds, two markets where conditions remain strained, the central bank said Wednesday in a statement, while keeping interest rates unchanged.
Prime Minister Justin Trudeau’s administration has has delivered C$16 billion ($11.6 billion) in income support to workers over the past month, according to people familiar with the matter. He also widened the fiscal rescue plan to include commercial landlords and to lend more to small businesses. Trudeau announced Friday C$2.5 billion in new aid to energy workers.
#TrendingInCanada
A plane had to make an emergency landing on a Quebec highway this week. Drivers barely batted an eye.
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