The Week in Review

It was another good week for stock markets in general, with the Dow and S&P 500 again hitting all-time highs and the Nasdaq posting a small gain that takes it back to within 3.7% of the historic high it previously reached on November 19, 2021. Here at home, our TSX was up just over 1% for the week.

Major movers included a couple of companies we’ll talk more about later in this newsletter. Tesla had very bad week, while Netflix overperformed and was up strongly.

In economic news, the Bank of Canada announced its key lending rate on Wednesday, holding at 5.0%, as was widely expected. It’s the Fed’s turn this coming week, as they announce on Wednesday. Odds are they’ll again hold rates at 5.25% - 5.50%.

We also heard from the US. Bureau of Economics this week, and they told us that Q4 GDP blew out expectations and registered 3.3% annualized vs expectations of 2.0%. This was a slowdown from Q3 (4.9%), but a strong showing nevertheless.

When you look at this goldilocks scenario, with better-than-expected growth and inflation down substantially over the past year, there just may be enough support in the financial markets to help the central banks navigate us through a soft landing.

I’m not quite convinced yet, but the numbers are writing their own story, at least for now.

S&P 500 Weekly Overview

S&P TSX Weekly Overview

Overbought

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.

Oversold

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.

In this episode of The Pulse:

• Bank of Canada Holds Interest Rates

• Tesla’s Really Bad Week

• High Interest Rates Widen Gap

• U.S. GDP Strong

• Netflix Shares Soar

THIS WEEK’S POLL QUESTION

RESULTS IN NEXT WEEK’S NEWSLETTER

LAST WEEK’S POLL RESULTS

“Have the S&P 500 gains over the past three months confirmed we are in a Bull Market?”

THE ECONOMY
Bank of Canada Holds Rates

Much to absolutely nobody’s surprise, the Bank of Canada left the prime lending rate untouched at 5% when it announced on Wednesday. This is now the 4th consecutive decision to keep the lending rate at the even 5% level, and a continuation of holding these borrowing costs at a 22-year high.

The bank made a bit of news when it explicitly stated that it doesn’t expect it will need to increase rates again, so long as the economy continues to evolve in line with its forecasts.

At his news conference, bank Governor Tiff Macklem summarized the committee’s deliberations and said that discussion on future policy is shifting. I’ll take that as a pretty clear signal that the bank is getting more comfortable with saying that the next rate move will be down, but as always, that can change if the data steers them in a different direction.

The bank did note that it does remain concerned about risks on the outlook of inflation, and in particular they singled out the underlying price growth after we saw an unexpected increase in the preferred core inflation gauges in December.

At this point, the bank expects headline inflation to remain near the 3% mark during the first half of the year, and then the expectations are that it will ease back to the 2% target rate in 2025.

AUTOMOTIVE
Tesla had a Really Bad Week

On Wednesday, Tesla released its fourth-quarter earnings, and the markets reacted violently to what they heard. Shares of Tesla dropped around 12% on the news, and pretty much stayed that way through the end of Friday.

CEO Elon Musk has warned in recent weeks that sales growth would be slow in 2024 and the company has announced price cuts in China, one of the auto-maker’s most important markets.

The entire industry has been hit with slowly demand for EVs, and Tesla is no exception to that rule.

And Elon being Elon, he added to the confusion surrounding Tesla when he recently announced that he’s not content with his current ownership position, and has said that if he isn’t able to increase his ownership to 25% of the company he plans to start diverting more attention away from Tesla and to other projects he is involved in. That can’t do much to inspire confidence in shareholders.

And the hits kept coming.

The National Highway Traffic Safety Administration announced Friday that Tesla would be recalling all 2023 Tesla S, Y and X models, nearly 200,000 vehicles, due to faulty software that could affect drivers as they are backing up.

This recall follows another from last month which again affected pretty much every vehicle Tesla has sold in the U.S. and Canada, with issues affecting its Autopilot system.

So it’s been a tough go of late for Tesla. In an effort to keep the ship upright, the company assured investors on a call Wednesday that a ‘next-generation vehicle” due out late next year would turn sales around.

What’s happening at Tesla? Vote on this week’s Poll Question above.

INVESTMENTS
High Interest Rates Widen Gap

A new report published by Statistics Canada this past week show that the high Interest rates we've seen over the past couple of years have had a bigger negative impact on lower income Canadians than the everyday population, and especially the wealthier.

The report says that higher interest rates have disproportionately hurt the lowest earners, and that has found them in a position where they have practically no money left over to invest exactly when the market conditions are attractive for investors who are looking for safe, secure, predictable returns.

The same conditions have provided a rare opportunity for the wealthier segment of our population looking for the same secure savings vehicles. Households with higher incomes have capitalized on the higher rates that we've seen as a result of the Bank of Canada hiking rates to try and tame inflation.

Sadly, this looks like the same old story. The rich get richer, and the poor get poorer.

THE ECONOMY
US GDP Growth Blows Past Expectations

The U.S. Department of Commerce’s Bureau of Economic Analysis reported on Thursday that the gross domestic product, GDP, grew at an annualized 3.3% in the fourth quarter of 2023, far exceeding the Wall Street consensus of 2.0%.

Consumer spending came in slower than the previous quarter, at 2.8% versus 3.1% in Q3. Consumption of services rose 2.4 percent, led by food services, accommodations, and health care.

Government spending was up 3.3 percent versus 5.8% in Q3.

When we look at exports and imports, the US saw exports accelerating 6.3%, versus imports growing at a 1.9% pace.

State and local government spending also contributed, up 3.7%, as did a 2.5% increase in federal government expenditures. Gross private domestic investment rose 2.1%, another significant factor for the robust quarter.

Subject to final adjustments, for the full 2023 calendar year, the US economy grew 2.5 percent, compared with 1.9% growth in 2022, and slightly under the Fed's estimates of 2.6%.

HOT STOCKS
Netflix Shares Take Off

Netflix reported 4th quarter results on Tuesday, and they couldn't have hoped for a better response. Share prices were up over 18% for the week following the announcements.

As a strong signal that Netflix is back in full force, the company reported that 13.1 million new people signing up in the quarter, which now makes it the best growth rate since the pandemic.

One of the big stories that affects us home here at home in Canada is that the company plans to eliminate the cheapest, ad-free plan available to Canadians.

Netflix announced back in June 2023 that they were cutting off the basic plan to new customers, but said that existing customers of that plan can continue to pay as long as they do not change their account. At the time though, they also said that at some point even existing customers would be cut off as well.

Although they haven’t given a specific date for this to happen, all indicators are that it will be during its second quarter this year.

The basic, zero-ad plan currently costs $9.99 per month. When current subscribers are kicked off this plan they can choose between a cheaper, $5.99 per month plan that includes advertisements, or one of its an advertisement-free plans, which start at $16.49 monthly. Of course they can also say “adios” in protest, and move on to another platform.

Plans that include ads already account for 40% of all Netflix sign-ups in those markets that include the ad plans.

As for new products, Netflix says it will spend as much as $17 billion US on content this year as they try and catch up from a backlog caused by 2023’s Hollywood actors and writers’ strikes.

Netflix also announce this week that they have struck a deal to bring World Wrestling Entertainment’s “Raw” and other programming to its platform starting in January 2025.

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