Making sense of the markets this week: February 5, 2023


Former Goldman Sachs president Gary Cohn speculated the Fed was primarily influenced by job data. It appears that in the quest to quell the drivers of core inflation such as wages, Powell is willing to do substantial short-term damage to the economy. At this point, I’m joining the chorus of folks who are more worried about over-tightening interest rates than the effects of 3% to 4% inflation.

In addition to the obvious negative considerations for those who hold U.S. debt, higher U.S. interest rates are likely:

  • Really bad news for developing economies (which hold USD-denominated debt, but take in taxes in local currency).
  • Mostly bad news for American businesses that depend on sales in other countries for export revenue.
  • Great news for Canadian companies looking to sell to U.S. consumers.
  • Sad news for folks wanting to take a vacation down south in 2023.

Canada tech outperforms, while infrastructure stocks keep profits moving on time

On the Canadian earnings scene, infrastructure darlings CP Rail (CP/TSX) and Brookfield Infrastructure Partners (BIP-UN/TSX) met expectations. Canadian tech companies don’t get nearly the press of their larger U.S. counterparts, but they did slightly outperform predicted earnings results this quarter.

Here are the Canadian earning highlights:

  • Canadian Pacific Railway (CP/TSX): Earnings per share of $1.14 (versus $1.08 predicted) and revenues of $2.46 billion (versus $2.45 billion predicted).
  • Brookfield Infrastructure Partners (BIP-UN/TSX): Earnings per share of $0.03 (versus $0.17 predicted) and revenues of $3.71 billion (versus $2.27 billion predicted).
  • Open Text (OTEX/TSX): Earnings per share of $0.96 (versus $0.78 predicted) and revenues of $897.4 million (versus $875.87 million predicted).
  • Lightspeed Commerce (LSPD/TSX): Earnings per share of $0 (versus a predicted loss of -$0.06) and revenues of $188.7 million (versus $188.42 million predicted).

While Brookfield Infrastructure did miss earnings expectations, the company pointed to its funds from operations (judged the more relevant valuation metric by some in the REIT and utility industries) as evidence of a solid quarter.

The real takeaway is that it continues to be tough to go wrong betting on the Canadian rail duopoly.

Should Canadian investors have 100% of their portfolio in stocks?

Ben Carlson, of, posed an interesting question to his readers last week: Is it realistic to have your portfolio 100% in stocks?

Carlson believes it isn’t irrational at all. In fact, his personal investment portfolio is 100% stocks. He writes that, over the last 100 years, an investor in the U.S. stock market was more likely to experience a yearly gain of 20% or more, than they would encounter a yearly loss.

There’s more. Carlson notes, as you get older, your human capital (generally referred to as the ability to earn money as a result of experience and skills) naturally decreases with age. And, he adds that your portfolio increasingly makes up a larger share of your overall capital. Consequently, it makes sense for investors to get a bit more risk-averse as we approach the end of our careers.

Source: A Wealth of Common Sense

The average bear market in the U.S. has seen the market decline just under 33%, and the average time it took to sink from the top to the bottom was about a year. Perhaps, the more relevant number is that it takes about three years to get back to previous market highs—or to “breakeven” from the previous market top. The worst-case scenario (which would have been in 2000) saw the market take nearly seven years to get back to previous highs.

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