Rally needs more profits

Coming off a week on the Toronto stock market that saw the TSX briefly go above 11,000 for the first time in 10 months, it may seem like investors can finally relax.

Coming off a week on the Toronto stock market that saw the TSX briefly go above 11,000 for the first time in 10 months, it may seem like investors can finally relax.

But investment advisers are cautioning that the recent rally — which has been largely based on a stream of positive second-quarter earnings results — doesn’t have the fundamentals to sustain itself.

So far, three-quarters of American companies’ quarterly earnings have topped expectations, as have more than half of Canadian companies.

But Gareth Watson, director and Canadian equity adviser for Scotia McLeod, said he would append “an asterisk” to these better-than-expected results if he could.

“While earnings expectations have been beaten, revenue expectations have not been beaten as much, which to me indicates that the earnings that are being reported are better than expected because of cost cutting and not because of revenue growth,” Watson said.

Although it was heartening for investors to see many major companies reporting an improvement, Watson cautioned that the rally experienced in recent weeks isn’t sustainable unless companies see some real growth.

“The only way I think you’ll see this market sustain itself is if in the next few quarters these corporations really start to see accelerated revenue growth, because you can’t keep cutting costs,” he said.

The key to revenue growth is increased consumer spending, but so far the numbers aren’t encouraging.

Major U.S. retailers released their July sales data last week, with most companies reporting lower sales as shoppers remained tight-fisted, raising concerns about the back-to-school and holiday shopping seasons.

Official U.S. retail sales data are due out on Thursday.

“You’ve got to get that spending going again, and the indicators that we’ve seen aren’t necessarily supportive that the U.S. consumer is right back on track to spending again,” Watson said.

Just Posted

Random Acts of Green Canadian tour comes to Red Deer

Red Deerians are being encouraged to lessen their impact on the environment.… Continue reading

Free blood testing for HIV, Hep C, syphilis offered Thursday in Red Deer

Anyone can drop by from 10 a.m. to 4 p.m. at Bower Ponds pavilion

Red Deer economy bouncing back but slowly: report

While Red Deer’s economy has been in recovery mode for the past… Continue reading

Red Deer cyclist dead after being hit by vehicle

A Red Deer cyclist was killed when he was struck by a… Continue reading

Support for retaining ‘public’ in Alberta school titles could snowball, says local trustee

Even districts that never had the word in their titles are now discussing adding it

WATCH: 2019 Canada Winter Games will leave a lasting legacy, say organizers

It leaves Red Deer with the infrastructure and confidence to host future such events

Your community calendar

Wednesday Central Alberta Historical Society annual general meeting is 6 p.m. at… Continue reading

Couche-Tard wants to be a player in the sale of cannabis

LAVAL, Que. — Alimentation Couche-Tard Inc. wants to be one of the… Continue reading

Michael Dawe: A safe supply of water has long been a priority for Red Deer

The oldest part of the Red Deer water treatment plant on 54th… Continue reading

New parent charged in admissions scam, linked to $400K bribe

BOSTON — A woman accused of paying $400,000 to get her son… Continue reading

Canadian stars Virtue, Moir say in video they’re “stepping away” from ice dancing

Canadian ice dancing stars Tessa Virtue and Scott Moir say they are… Continue reading

Bruce Cockburn avoids impulse to get political with lyric-less new album

TORONTO — If anyone is looking for activist folk singer Bruce Cockburn… Continue reading

13 seasons in, stars reflect on success of ‘Heartland,’ Canada’s ‘comfort food’

HIGH RIVER, Alta. — Alberta-born actor Shaun Johnston had already had a… Continue reading

N.S. senior whose birthday card request drew international response dies

SYDNEY, N.S. — A Nova Scotia widower who received thousands of birthday… Continue reading

Most Read