October 1, 2016

On Friday the S&P 500 rose 0.8% while Toronto fell 0.2%.

Part of the reason for Friday’s S&P 500 gain was an unofficial report that Deutsche Bank was about top settle a major U.S. fine for $5.4 billion instead of the $16 billion amount of the fine.

Most financial stocks rose on this news with Bank of America up 3.2%.

Bombardier was up 7.2% to $1.80 on news of some sales in its rail transportation business.

Costco was up 3.4% to $152.51 after reporting better-than-expected earnings. This company always seems to look expensive but is extremely good at what it does. I was at my local Costco today and the place was booming.

The Canadian Dollar

Many companies have had positive or negative affects from the changing Canadian dollar exchange rate versus the U.S. in the past couple of years. Companies like Costco that report in U.S. dollars but which have significant operations in Canada were harmed by the lower Canadian dollar in quarter over quarter comparisons. Companies like Stantec and CN Rail that report in Canadian dollars but have large U.S. operations benefited from the lower Canadian dollar.

In the upcoming Q3 reports there should be little impact and the dollar in Q3 2016 had a U.S. exchange rate very similar to that of Q3 2015. In some cases there may still be significant impacts due to lags in expenses versus revenues.

CN rail may have a hard time showing earnings growth in the face of lower car loads in Q3 and little or no benefit from a lower dollar. However, the market seems to be anticipating that CN’s Q3 earnings will be good (based on the fact that the stock is near a 52 week high). Perhaps the market is predicting a return to car load growth in Q4 and beyond.