Launch Pad

Daily market commentary

Thursday, May 26, 2022
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Markets seem to have somewhat regained their footing this week with equities looking to start today in the green. First-quarter earnings for the market as a whole have been largely in line with historical trends although there have been some large pullbacks for stocks as investors look for the impact of inflation and slowing economic growth. Investors took some comfort yesterday after the minutes from the Fed’s latest policy meeting provided no signals that officials could turn more hawkish to fight inflation. Most policy makers saw half-point rate increases as appropriate at the next two meetings which was consistent with Fed Chair Powell’s comments. The S&P 500 rebounded from earlier losses, while the tech-heavy Nasdaq outperformed. Year-to-date, tech is still down nearly –27%.  

The SEC is taking its biggest step yet to stop money managers from misleading investors when they claim their funds are focused on ESG issues. The agency proposed a slate of new restrictions yesterday aimed at ensuring ESG funds accurately describe their investments. Some would also need to disclose the aggregated greenhouse gas emissions of companies they are invested in. In one proposed change, the SEC would expand an existing rule to mandate funds labeled ESG invest at least 80% of their assets in a way that lines up with that strategy. This comes as concerns mount over a lack of consistent standards for investments claiming to be sustainable. 

Chinese officials held a rare nationwide meeting held via teleconference and admitted that China’s economy is at a critical point and faring worse now than in 2020 when the pandemic first emerged. Premier Li Keqiang urged for efforts to reduce a soaring unemployment rate and said that China’s priority on pandemic control is raising the prospect that it will miss its GDP target by a large margin for the first time ever this year. China has never admitted to missing its annual growth target by a large margin since it began setting goals more than three decades ago, but it appears they may do so this year. The Chinese economy has come under enormous pressure as president Xi Jinping’s commits to his zero-Covid policy. Li however did indicate that China will try to reduce the impact of its strict lockdown policies on the economy but did not give details on how that would be achieved. 

The International Air Transport Association is urging the Canadian government to take immediate action, including removing vaccine mandates, to deal with the delays impacting airports across the country. The airline lobby group released a statement this week calling on the federal government to reduce the massive delays which are presently occurring across the country. The group pointed to delays at Toronto's Pearson Airport as an example as wait times at the airport have doubled, and even quadrupled in some cases, in recent weeks. At the same time, it says every second flight landing at Pearson from abroad has been subject to an immigration delay, with some passengers waiting on planes for up to three hours before being allowed to disembark. 

Pfizer Chair and CEO Albert Bourla announced the company will sell 23 of its patent-protected products, including its top selling COVID-19 vaccine to 45 low-income countries at not-for-profit prices. Shipments of products are expected to begin before the end of the year.  The initiative is not expected to hurt Pfizer’s bottom line as sales to developing countries totaled about $8.4 billion in 2020, about one-fifth of the company’s total sales. 

Much of North America is at risk of blackouts this summer as heat, drought, shuttered power plants, and supply-chain woes strain the electric grid. Power supplies in much of the U.S. and part of Canada will be stretched, with demand growing again after two years of pandemic disruptions, according to a report from the North American Electric Reliability Corporation. The report cites climate change as partly to blame as droughts covering the western U.S. limit supplies of hydroelectric power (with temperatures only going up in the summer).   

Diversion: Thanks, I just ordered a beer though... 

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Company news

Royal Bank beat earnings estimates as business loans and solid credit conditions boosted its retail-banking business. Revenue in personal banking and commercial business rose 17% as businesses ramped up borrowing to meet customer demand and stockpile inventory to protect against supply-chain snarls. Also helping, Canada’s real estate market remained hot during much of the quarter, increasing Royal Bank’s mortgage balances. Royal Bank also released C$342 million in provisions for credit losses and announced a dividend increase of 6.7%. Royal Bank’s CET1 ratio rose 40 bps year over year to 13.2% 

CIBC’s adjusted earnings missed consensus estimates as profits in its domestic personal-banking segment dropped while loan provisions rose. Results were also hit by integration costs of C$106 million from the acquisition of Canadian Costo and C$45 million in legal provisions. The bank’s CET1 ratio was 11.7% as of April 30 compared with 12.4% the year prior. CIBC announced a dividend increase of 3.1%.  

TD Bank reported higher earnings and revenue in the second quarter. TD topped analysts’ forecasts as strength in its Canadian retail banking units offset higher expenses and loan-loss provisions. TD’s U.S. personal-banking business benefited from continued strength in the housing market and robust credit conditions in the fiscal second quarter. While TD’s CET1 ratio of 14.7% rose year-over-year, it was below estimates of 15.2%. TD left their dividend unchanged.  

Broadcom is looking to acquire VMware for $61 billion in stock and cash. The transaction, which is expected to be completed in Broadcom's fiscal year 2023, is subject to the receipt of regulatory approvals and other customary closing conditions, including approval by VMware shareholders. This will bring together Broadcom Inc., a global technology leader that designs, develops and supplies semiconductor and infrastructure software solutions, and VMware, Inc., a leading innovator in enterprise software.  


Oil prices rose this morning, extending a cautious rally this week on signs of tight supply and as U.S. crude and gasoline stockpiles decline further as motorists prepare to take to the road for the summer driving season. The EU has been in negotiations with Hungary recently over plans to ban imports from Russia, the world's second-largest crude exporter, after its invasion of Ukraine.  

Fixed income and economics

Fed minutes released yesterday afternoon showed that there is overwhelming concern of inflation that has far exceeded the Fed’s target. Officials are so concerned about the need to move “expeditiously” on taming inflation that most participants are looking at as many as three 0.50% moves will be needed in the coming months. In the weeks following their first 0.50% hike on May 4, Fed Chair Powell has made it clear that economic conditions remain incredibly uncertain and that the Fed may need to go bigger — or smaller — depending on how things evolve.  

The latter may be true as bonds have been on an upward trajectory since that Fed rate hike. The Fed’s rate hike path is now becoming less “hawkish” and the 50 bp hikes at the next two meetings are coming into question. Swap contracts are indicating that markets priced less than 100 basis points of combined rate hikes at the June and July meetings. The value of such contracts is determined by the effective federal funds rate after Fed meeting dates.   

Chart of the day


Quote of the day

It is not our differences that divide us. It is our inability to recognize, accept, and celebrate those differences.

Contributors: A. Innis, A. Nguyen, D.Mak, J. Price, P. Kwon

Charts are sourced to Bloomberg unless otherwise noted.

The opinions expressed in this report are the opinions of the author and readers should not assume they reflect the opinions or recommendations of Richardson Wealth Limited or its affiliates. Assumptions, opinions and estimates constitute the author's judgment as of the date of this material and are subject to change without notice. We do not warrant the completeness or accuracy of this material, and it should not be relied upon as such. Before acting on any recommendation, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professional advice. Past performance is not indicative of future results. Richardson Wealth Limited, Member Canadian Investor Protection Fund. Richardson Wealth is a trademark of James Richardson & Sons, Limited used under license.