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The Dow Days of Summer

This week we got a heap of earnings alongside Fed news. First, let’s talk about our reigning champ - the Dow. This bull just won’t stop running, marking a remarkable 13-day winning streak - reaching 35,475 points as of today's market close. This is especially impressive when you consider that nearly half of the Dow's components are down year-to-date. We haven’t seen such tenacity since the days of perms, shoulder pads, and bell bottoms back in ’87. Among the unusual suspects, frontrunner Boeing soared to new altitudes despite posting a quarterly loss, thanks to their increased delivery of commercial planes. Overall, the DOW index has climbed 4.8% since July 7, compared to a 4.7% increase in the Nasdaq and a 4.0% rise in the S&P 500.

For the week the S&P 500 gained 39 points to reach 4,582. The NASDAQ rose by 235 points to reach 14,317. The TSX (Toronto Stock Exchange) increased by 54 points to 20,519.

Turning to Tech, Spotify delivered disappointing results with increasing losses attributable to its unsuccessful ventures in the podcasting realm and its revenue forecast falling short of analysts’ expectations. Interestingly, the steep decline in its stock value occurred even as it achieved an unprecedented surge in new subscribers.

Shares in major tech companies have been skyrocketing this year as investors rush to stake their claims early in what may become the upcoming technological revolution: Generative A.I. Yesterday, a moment of reckoning arrived. Two titans in the A.I. industry, Microsoft and Alphabet (the parent company of Google) released their first inaugural earnings reports since channeling substantial capital—amounting to tens of billions—into A.I. initiatives. This served as the initial evaluation of whether their technological ventures lived up to the preceding fanfare. Google saw a one-week gain of 10.46% and Microsoft, being already priced to perfection, fell 1.58% - so not much of a move.

Shifting gears to the world of social media, Meta’s, formerly known as Facebook, is on the run - delivering promising revenue projections and a booming forecast. The tech behemoth’s shares surged close to 9% in pre-market trading leading up to the earnings call, all thanks to promising revenue projections. It seems their own romance with A.I. is paying off, fostering both ad sales and user engagement despite economic uncertainties. The stock ended the week with a 10.57% gain.

On the not-so-bright side, the commodities market saw oil and gas producer Cenovus Energy face a steep 64% drop in their second-quarter profit. Wildfires raging across Alberta, Canada’s key oil-producing province, forced numerous companies - including Cenovus - to cut back on output. Oil prices are at $80.63 per barrel for WTI crude.

Transitioning from the thrill of the market to the sobering world of interest rates. We have journeyed back in time to a period when President George W. Bush was just taking office and MP3 players were the cool kid’s gadget of choice. Yes, you heard it right! Federal Reserve Chair Jerome Powell confirmed another quarter-point increase yesterday, nudging interest rates to a target range of 5.25%–5.50% - a range unseen since the dawn of 2001. Marching forward from March 2022, this marks the 11th rate hike since interest rates departed from the near-zero point. We may have to brace ourselves, as Powell is suggesting there could be one more bump in the road before year’s end. The market took the news with a bit of a ho-hum, "saw that coming" mentality.

In Canada, strong moves were made in materials and energy stocks, supported by CPI data showing a fall in the annual inflation rate in June. Housing starts in Canada rose significantly in June, with a 41% increase compared to the previous month.

Globally, the pan-European STOXX 600 index experienced a dip, impacted by the financial outcomes from LVMH, while the FTSE index saw a slump due to less than satisfactory earnings from Rio Tinto and Lloyds Bank. In Asia, the Japanese Nikkei index closed at a lower mark primarily due to a fall in auto and tire manufacturers. In tandem, stocks in China and Hong Kong ended in the negative, influenced by doubts over stimulus measures. As uncertainty looms ahead of the Fed’s decision, gold prices ascended to $1,958.90 per ounce due to its status as a safe haven, and the U.S. dollar experienced a slight downward shift.

An unexpected question has arisen: Can extreme heat impact ice cream consumption? Unilever’s CFO, overseeing the largest ice cream production globally, suggested that the current heatwave in Europe could potentially diminish the demand for ice cream as consumers might lean towards refreshing beverages when the temperature gets exceedingly high. Apparently, he overlooked the ingenious American solution to this predicament—the root beer float. Or for those with more sophisticated taste buds, a Dr Pepper cocktail. That little concoction is sure to be a hit at the summer cabin retreat.

Happy trading and stay safe,

Ian David Clark, Portfolio Manager of the Ocean Wealth Team at PI Financial