May 30, 2023

On Tuesday, the S&P 500 was unchanged on the day while Toronto was down 1.1% as oil prices fell.

Canadian Western Bank was up 3.3% after an RBC analyst recommended the stock with a price target of $34. The report indicated that CWB is noticeably under-valued and I concur with that view. The fact that its loan loss provision at 12 basis points in the latest quarter got little or no attention as bank earnings were released last week. 

The Alberta election win by the United Conservative Party last night is also judged to be a positive for Alberta businesses.

 After the close, Linamar announced it will acquire “three EV battery encloser plants” for US $3275 million cash. This is good news for Linamar’s increasing push into the EV space. 

The yield on the 5 year government of Canada bond was down modestly to 3.54%. At that level the rate reset preferred shares that reset will see noticeable increases to their dividends which can support price increases Offsetting that the market required return on those and all other investments is higher which is a gravitational force on the prices of preferred shares and all investments. Overall, unless inflation remains quite stubbornly high I expect the market required return on these shares to  move lower and which should push the share prices higher unless the 5 year Canada bond yield plummets under 2.5% which I do not expect. In any case the existing yields on rate reset shares are attractive especially in taxable accounts and can be bought to hold for yield with any capital gain a bonus.

Stock movements next week could be more volatile if the Bank of Canada raises interest rates as some suggest it will or should. Wage settlements like the 24% raise over four years for the Wet Jet pilots are not good news for the Bank of Canada which is hoping the economy will cool.

In the U.S., the yield on Treasury Bonds declined moderately on news of the debt ceiling deal.

Elizabeth Holmes starts an 11 year jail sentence today. It’s often said that white-collar criminals get off easy. Not in this case in my view. More importantly for the world I hope the goal of doing every blood test in an automated fashion from a few drops of blood will in fact soon be a reality. That would be quite a game-changer for our health.

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