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In mid-July, I started to think the markets were turning a corner. At that time, companies were just beginning to report second-quarter earnings. While those earnings were not particularly good—they weren’t terrible, but they certainly didn’t meet analysts’ expectations. But something interesting happened: There were no major sell-offs. This is a big deal, especially given what the markets were already dealing with: increasing interest rates, record-setting inflation, and economic indicators forewarning of a recession (such as inverted bond yields and negative GDP growth).
The markets didn’t ignore the less-than-stellar earnings reports, but companies got off pretty lightly, with only minimal hits to stock prices. For example, on July 14, 2022, one of the world’s largest banks, JP Morgan Chase, reported its earnings had fallen 28%, largely because it set aside more cash to cover bad loans and decided to temporarily suspend share buybacks…
Making sense of the markets this week: August 28
– moneysense.ca
Banking on stability and caution
Canadian investors love their banks. Year in and year out, banks provide dependable dividend growth and solid long-term share price increases as well. They also make up a massive part of any Canadian index fund, as well as the bulk of Canadian pension funds.
So, when the banks pull back the curtains to reveal how business is doing, we take notice.
With a set of mixed results, the main takeaway appears to be that the Big 6 (BMO, CIBC, National Bank, RBC, Scotiabank and TD) looked at the economic storm clouds on the horizon and decided to batten down the hatches.
By provisioning more of their profits for default loans, the news wasn’t as good as recent previous quarters. That said, these conglomerates continue to tick along cautiously, dependably spinning off free cash flow…