With the theme of this week’s blog being ‘spooky’ and ‘Halloween-themed’, we wanted to touch on a few daunting charts in the Canadian investing landscape. While we are optimistic on the broader investing and Canadian economic landscape, there are a few areas and economic data points that we feel investors can keep an eye on for signs of further deterioration.

1. Earnings and Revenue Revisions Cast a Shadow on these Canadian Stocks

In the graph below, we have highlighted the Canadian companies that have both negative earnings and revenue analyst estimate revisions for the next fiscal year. This combination of both negative earnings and sales revisions means that these businesses are expected to see worse growth rates in the next year than previously expected.

Some of the names with the larger negative estimate revisions include: West Fraser Timber (WFG), BRP (DOO), Nuvista Energy (NVA), Parex Resources (PXT), Brookfield Infrastructure Partners (BIP.UN), and Tourmaline (TOU). Most notably, these are mostly companies that operate in the energy or materials sectors. This list does not necessarily imply that they are bad companies, but more so that their forward earnings and revenue growth rates are anticipated to be worse than previously expected. 

2. The Haunting Decline: Canadian Productivity Hits Decade Lows

Healthy growth in productivity means prosperous and robust economies, and Canada has seen its productivity rate drop to lows last seen in 2012, more than a decade ago. Productivity is essentially a gauge of how efficiently goods and services are produced – how much GDP is generated per hours of labour. The interest rate shock over the past couple of years has certainly put a damper on GDP growth, but also Canada has severely lagged in adopting new technologies and growing its tech sector relative to peer countries. If we see a revitalization in Canada’s growth industries as well as an economic benefit from interest rate cuts, we might expect productivity to begin rising once again.  

3. Rising from the Grave: Canadian Unemployment Rate Accelerates

The whole intention of raising interest rates is to stifle and slowdown the growth of the economy, in the case of an overheating economy. This is precisely what was accomplished with the Bank of Canada raising interest rates through 2022 to 2023, and as a result we are seeing the collateral damage of rising interest rates through the rise in the unemployment rate. The Canadian unemployment rate has risen from a multi-decade low of 4.9% to 6.6% as of the latest reading. This is still below highly worrying levels, but the trend is certainly worth keeping an eye on for continued deterioration in the economy. Eventually, we believe the offsetting impact from decreasing interest rates will help keep the unemployment rate subdued, but the timing of this is uncertain. 

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