Making sense of the markets this week: January 28, 2024

As their shareholders expected, Johnson & Johnson and Procter & Gamble had solid, if unspectacular, earnings reporting days. These companies aren’t strangers to predictable growth, as J&J and P&G have raised their dividend payout for 61 and 67 consecutive years, respectively.

GE shares were more or less flat, despite the earnings beat, as shareholders await the results of the company breakup. The plan is to break away both GE’s aerospace and energy divisions into their own companies.

CNR keeps profits on the right track

Canadian National Railway (CNR/TSX) announced earnings per share of $2.02 (versus $1.98 predicted) and revenue of $4.47 billion (versus $4.38 predicted) on Tuesday. Share prices were up slightly on this news. Shareholders appear to largely agree with management’s prediction that increased Canadian economic activity in the second half of the year will lead to a profit boost.

Gross ton miles (GTM) came in at 118,687 million versus 118,272.3 million estimated by analysts. 

Management painted a very positive picture when it came to future projections. CNR chief executive officer Tracy Robinson stated, “Through 2023, our team of dedicated railroaders leveraged our scheduled operating model to deliver exceptional service for our customers and remained resilient in the face of numerous external challenges. Looking forward, we are optimistic as CN-specific growth initiatives are producing volumes. While economic uncertainty persists, we have the momentum to deliver sustainable profitable growth in 2024.”

The current guidance for management states that 2024 will see a 10% increase in earnings per share, with record revenues from potash, refund petroleum and propane. International volume is back to pre-pandemic levels, fully recovering from the British Columbia dockworkers’ strike last summer. For more details on CNR, please check my article on Canadian railway stocks at

Bank of Canada HODLs—ahem, hangs on for dear life

As most economy experts predicted, the Bank of Canada (BoC) decided to hold the policy interest rate steady at 5% this week. It was the fourth consecutive time the BoC has decided not to increase or decrease the rate. There appears to be a growing consensus that the Bank will be forced to cut rates in April or March, but BoC governor Tiff Macklem did hedge everyone’s bets by stating that the BoC isn’t taking future rate increases off the table, in case inflation pressures persist. He added that it would be “premature” to discuss interest rate cuts.

Takeaways from the BoC announcement include:

  • Where rates may go: Macklem stated that BoC discussions around the interest rate are now shifting from “how high will it go?” to “how long will they stay at the current level before being reduced?”
  • Housing prices are high: An admission that “Shelter costs remain the biggest contributor to above-target inflation” means the BoC is semi-responsible for a solid chunk of the relatively high CPI numbers that we’re seeing.
  • No recession… maybe: “We don’t think we need a deep recession to get inflation back to target. But we do need this period of weak growth,” Macklem also stated.
  • Inflation’s moving target: Given that December’s CPI increase was 3.4%, it wasn’t a surprise to hear the BoC governor say, “Inflation is still too high, and underlying inflationary pressures persist. We need to give these higher rates time to do their work.”
  • Unemployment rates: Job vacancies are trending upward and are now close to pre-pandemic levels.
  • GDP growth expectations: The BoC expects zero GDP growth in the first quarter, and only 0.8% for the year.

While Canadian borrowers are likely to grimace at the idea of inflation rates “doing their work,” the recent core inflation figures have backed the BoC into a bit of a corner. If a rate-cutting cycle started, only for inflation to once again trend upward, it could have devastating effects on people’s confidence that the BoC will eventually get inflation back in line. Once that confidence goes… it’s very difficult and economically painful to get it back. Options markets now believe there is about a 50% chance of a rate cut in April, with a very low probability of a cut in March, and a high probability of at least one cut by June.

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