The Week in Review

Weekly Market Recap: U.S. and Canada

Despite a bit of a dip late on Friday, stocks moved mostly higher this week, with the Dow Jones, S&P 500 Index, and Nasdaq Composite all moving to record intraday highs. The biggest advance of the week was notched by the small-cap Russell 2000 Index, which gained 6.00%, marking its best week since early November. Canada’s TSX also saw strong gains this week, up just under 3%.

The unofficial start of earnings season kicked off Friday, with second-quarter earnings releases from JPMorgan Chase, Wells Fargo, and Citigroup. Shares of all three fell at the open of trading, with JPMorgan and Wells Fargo both missing estimates and the latter cutting its outlook.

S&P 500 Returns | Week At-a-Glance

TSX Returns | Week At-a-Glance

COMMENTARY

It was a relatively slow week for major economic news, but we did get CPI data for the US and the question now is what affect will this surprise data have on the deliberations of the Federal Reserve board?

🏦 U.S. Consumer Price Index

The annual inflation rate in the US fell for the third consecutive month to 3% in June, now the lowest since June 2023 and down from 3.3% in May. Consensus expectations were 3.1%.

On a month-over-month basis, the CPI fell unexpectedly by 0.1% from May, marking the first decline since May 2020. Expectations were for a 0.1% rise.

Meanwhile, annual core inflation also slowed to 3.3%, the lowest since April 2021, down from 3.4% in May, with the monthly core rate decreasing to 0.1% from 0.2%, below the expected 0.2%.

Full details in the story below.

📈 U.S. Consumer Confidence

The Consumer Sentiment Index fell for the fourth consecutive month in June to 66, the lowest since November, down from 68.2 in June and well below the forecast of 68.5.

Key Statistics:

• Current Conditions Gauge: Dropped to 64.1 from 65.9.

• Expectations Subindex: Decreased to 67.2 from 69.6.

• Year-Ahead Inflation Expectations: Decreased to 2.9% from 3%.

• Five-Year Inflation Expectations: Decreased to 2.9% from 3%.

Nearly half of consumers remain concerned about high prices and ongoing economic uncertainty as an upcoming election approaches.

🌰 Overall Impact, in a Nutshell

Some of the key takeaways from this week’s economic reports:

• The decline in CPI potentially paves the way for monetary easing by the Federal Reserve.

• This slowdown in core inflation, which excludes volatile food and energy prices, is a sign that underlying inflationary pressures might be moderating.

• The continued drop in consumer confidence might be a concern. This can lead to reduced consumer spending, which may impact economic growth.

THIS WEEK’S POLL QUESTION
(Results in Next Week’s Newsletter)

Most Overbought Stocks

The Relative Strength Indicator (RSI) can provide a signal that suggest a stock is either overbought or oversold. A stock that has an RSI over 70 is considered to be in “overbought” territory. This might suggest that the stock is due for a pullback, however it is not a recommendation to sell. Always perform your own due diligence.

Most Oversold Stocks

A stock that is trading with an RSI below 30 is considered to be in “oversold” territory. This might suggest that the stock is due for a recovery, however it is not a recommendation to buy. Always perform your own due diligence.

THE ECONOMY & INFLATION
US Inflation Rate Drops Slightly

The U.S. Bureau of Labor Statistics released June’s US inflation report on Thursday and it shows a slight decline of 0.1% on a seasonally adjusted basis. Over the past 12 months, the all-items index has risen by 3.0%.

🛑 Energy and Food Prices

Gasoline prices fell by 3.8% in June, following a similar drop in May. The overall energy index decreased by 2.0% for the second consecutive month. Food prices saw a modest rise of 0.2%, with food away from home increasing by 0.4% and food at home going up by 0.1%.

📉 Core Inflation Trends

The index for all items less food and energy edged up by 0.1% in June, the slowest monthly growth since January 2021. Key contributors to this rise included shelter, motor vehicle insurance, household furnishings, medical care, and personal care. However, on a positive note, prices for airline fares, used cars and trucks, and communication services declined.

🏡 Shelter and Medical Care

Shelter costs rose by 0.2%, with rent and owners' equivalent rent both increasing by 0.3%. Medical care services saw a slight uptick of 0.2%, while motor vehicle insurance jumped by 0.9%.

💡 Notable Monthly Changes

• Gasoline: -3.8%

• Electricity: -0.7%

• Natural Gas: +2.4%

• Airline Fares: -5.0%

• Used Cars and Trucks: -1.5%

• New Vehicles: -0.2%

💡 12-Month Overview

• Energy Index: +1.0%

• Food Index: +2.2%

• Shelter Index: +5.2%

• Motor Vehicle Insurance: +19.5%

The BLS report also noted that the recent uptick in pricing for shelter and other essentials has largely driven the overall increase in the all-items index.

The next CPI release is on August 14, 2024.

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BANKING
RBC Shakes Up Leadership, Splits Banking Unit

The Royal Bank of Canada announced this week that they're shaking things up at the top and splitting their largest division into two. This is one of the biggest reorganizations under CEO Dave McKay’s decade-long leadership.

Here’s what’s happening:

🚀 Leadership Changes

Neil McLaughlin, who’s been heading the personal and commercial (P&C) banking division, will now lead Wealth Management. Doug Guzman, who previously held that role, is stepping up as Deputy Chair while remaining on the executive team. Starting September 1st, Erica Nielsen will take over personal banking, and Sean Amato-Gauci will lead the commercial side.

McLaughlin's new role involves overseeing City National, RBC's significant U.S. acquisition from 2015.

RBC is also promoting Jennifer Publicover to the executive team, increasing the representation of women in their leadership.

📊 RBC’s Growth and Strategic Moves

RBC has been expanding, notably completing the acquisition of HSBC Holdings Plc’s Canadian division this year, adding over 4,000 employees and 100+ branches to their network.

Analyst John Aiken from Jefferies Financial sees these moves as McKay preparing for future leadership transitions:

📉 Financial Stability and Future Outlook

RBC's spokesperson Edith Galinaitis noted the bank’s strong financial results and momentum post-HSBC deal.

Looking ahead, RBC will operate under five business segments: personal banking, commercial banking, wealth management, insurance, and capital markets.

RETAIL
Costco Raises Membership Fees for the First Time Since 2017

For the first time in six years, Costco is increasing its membership fees. Starting September 1st, a basic membership will jump from $60 to $65 annually, while a premium membership will rise from $120 to $130. This 8% hike will impact about 52 million memberships.

Here’s a closer look at the Details:

🚀 Membership Fee Hike

Costco announced the new fees on Wednesday, and it didn’t come as a total shock to most. Investors and analysts had been anticipating this move, considering Costco's pattern of raising fees roughly every five years. On the timing, Costco executives explained the delay was due to consumer inflation concerns and economic outlook uncertainties.

📈 Costco’s Growth and Strategy

Membership income is crucial for Costco, enabling it to reinvest in operations and maintain low prices. Bartashus expects the renewal rates to remain steady despite the increase, noting that “the fee increase was expected and overdue from Costco’s usual five-year cadence.”

📉 Market Trends and Competitor Moves

Costco isn’t alone in this trend. Sam’s Club, a Walmart subsidiary, raised its membership fees last year, with basic memberships now costing $50 and premium ones $110. In their case, Walmart softened the blow by using their rewards program to offset the additional cost during the first year.

In addition to the fee hike, Costco has been expanding its footprint, adding more stores in the U.S. and overseas, and investing heavily in e-commerce. This strategic growth is strengthened by new leadership, with Gary Millerchip from Kroger Co. stepping in as the new CFO and Ron Vachris as CEO since January.

🌭 And, for you Costco food aficionados who may be worried, fear not. The Hotdog Combo isn’t part of the price hike strategy, so you’ll still be able to drop in for your $1.50 lunch, so long as you pay the higher membership fee to get in the door.

COMMUNICATIONS
Canadian Telecom Stocks Poised for Rebound as Price Battle Slows

According to some analysts, Canada’s top telecom stocks, which have knocked down to multi-year lows, are now seen as ripe for a rebound. Some believe this dip presents a prime buying opportunity.

Here’s what’s happening:

🚀 Telecom Stock Slump

The S&P/TSX Composite’s communications index has been the worst performer this year, down nearly 16% since January. Major players like Rogers Communications, Telus, and BCE are trading near their lowest levels in years. Adam Shine from National Bank of Canada says that the companies' aggressive pricing strategies, especially after Rogers acquired Shaw Communications and Quebecor acquired Freedom Mobile, are hurting growth and share prices.

✅ Are We Seeing An Investment Opportunity?

Drew McReynolds of RBC Capital Markets sees a silver lining in the share price slump of these companies.

The upcoming second-quarter results, starting with Rogers on July 24, will be critical. Investors are looking for stable revenue growth, which could stem from more consistent pricing strategies.

📉 What I’m Doing

If you’re considering telecom stocks, this might be the moment to dive in. And I’ll share a tidbit of information that shouldn’t necessarily affect your decision. I’m going through my process of due diligence on BCE right now, and might just pull the trigger on a buy if I get to the level of confidence I need.

The sector may be positioned for a potential bounce back and with signs of pricing stabilization, there could be gains ahead for those willing to take a bite. (If you’re interested in knowing what I end up deciding, follow up on the Blossom app to keep track of my trades. ✅)

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