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Wow, what you can you say when the Dow rallied up 1779 points this week. Is this the end of the bear market? Not likely. This looked more like a rebound from a very oversold market. Factor in some sighs of relief from investors that got a lift from better-than-expected earnings, plus signs of an economic slowdown certainly helped. The latter stats created a floor for bond prices and downward pressure on the US Dollar. For those that do not keep a sharp eye on the Greenback, the trade weighted US Dollar has rallied from $.95 cents in January, to $1.14 in September. The strength of the US currency has created a significant drag on corporate earnings which showed up in spades for the third quarter. This week’s 2 cent drop should lesson the blow for Q4 earnings and was cause for celebration by both bond and stock investors.

We should also point out the change in leadership in Corporate America. It has taken the better part of a year, but our rants over sky high priced tech stocks have finally been vindicated with the sell off of the mega cap tech stocks. On the earnings front, Alphabet fell 4.8% this week and 33% this year, Amazon down 13% this week and 37% down this year, plus Meta’s 23% plunge this week and 70% drop this year. Even Microsoft fell 2% this week and 29% from its all time high of $349. The only saving grace was Apple up 5.7% this week and down only 12% this year. Make no mistake these companies still have a long runway ahead of themselves but clearly consumers have switched from buying things while staying at home to enjoying travel and hospitality as the economy reopened. If we look at the top three Dow stocks this year, Chevron is up 53%, Merck has rallied 31% and Amgen hit an all time high of $274 today. In fairness, Chevron has benefitted from a global misallocation of capital over the last decade and the underinvestment in energy has led to supply shortages exacerbated by the Russian invasion.  But we would argue that even without the war, energy prices would have risen this year leading to solid gains in energy. If nothing else, we believe Wall and Bay Street have ignored the rising demand from emerging markets like India, Indonesia, and Africa. This supports our thesis that Alberta, Saskatchewan, and BC will once again drive the Canadian economy despite the constraints and obstructions from Ottawa.

Speaking of Canada, investors definitely took the less than expected ½ point rate hike by the Bank of Canada in stride, ignoring the prognostications of future rate hikes by Mr. Macklem and jumped in following Wednesday’s decision…well that and a smorgasbord of better-than-expected earnings from energy, mining and forestry companies. And fasten your seatbelt as over 250 Canadian companies report earnings next week. We should also point out that the TSX is the best performing index this year, it’s still down but only by just over 8% versus 18% for the S&P500. Mind you it might be all for naught if the US Federal Reserve makes more hawkish statements following the anticipated 75bp rate hike on Wednesday. We don’t think that will be the case, but the PCE Price index stayed steady at 0.3% implying an annualized inflation rate of 6.2%.  Clearly, Americans are still spending money on goods and services and between the ongoing supply chain disruptions and the penchant for travel and entertainment, Inflation is still imbedded in the economy. What boggles our minds is the ongoing losses from airlines. Air Canada for example, reported a loss of $1.42 even though quarterly revenues more than doubled.  Rising fuel costs plus skyrocketing labor costs ate into the bottom line, but given the line ups at the airports, we think it very possible, their fortunes will change for the better.

Happy trading and Stay Safe.

Steve Bokor, CFA

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