Canadian markets beat U.S. last week

Last week, the S&P/TSX managed to outperform its U.S. counterparts. U.S. markets were holding well to start the week but earnings out of Cisco Systems on Wednesday night and Walmart Stores on Thursday morning disappointed investors, causing U.S. benchmarks to fall.

Read: Wal-Mart cuts annual profit outlook

Not all earnings were poor as large-cap Deere & Co managed to report a very strong quarter, but it was not enough to offset the weakness from the other market heavyweights.

North of the border, the S&P/TSX Index managed to advance thanks to support from Materials and Energy of all sectors, something we haven’t said for some time. The strength from these sectors was likely a result of the events in Egypt, where violence erupted after the military decided to clear pro-Morsi protesters from the streets.

While oil prices didn’t rally hard as they were already at lofty levels, the events in Egypt solidified current trading ranges as any geopolitical turmoil in that country always has investors concerned about the transport hub at the Suez Canal. The instability also tends to attract investors to gold and bullion prices advanced.

Economic data released last week was more or less in line with expectations. U.S. retail sales, inflation and housing starts were almost bang on economist estimates. One positive surprise was a lower than expected initial jobless claims report on Thursday. while bad news came on Friday when the University of Michigan consumer confidence indicator fell short of expectations.

Canadian data was hard to find, and what we did see was rather disappointing: manufacturing sales for June fell 0.5% from the month prior when economists were looking for growth of 0.3%.

Ichan buys Apple stock

One event that surprised the U.S. markets was Carl Icahn establishing a position in Apple, which sent shares higher.

Experts speculated that Icahn’s position is just north of $1 billion and is now one of his top five holdings. He called the stock “extremely undervalued,” stemming from his belief that Apple’s dividend and buyback program announced earlier this year did not go far enough and that the company is in a position to easily issue debt and buy back more shares. Some investors are speculating that Icahn would like to see the buyback increased by another $150 billion (an amount larger than New Zealand’s national GDP).

Read: Apple may release iWatch, invests in solar project

And before Icahn announced his stake (on Twitter), Apple stated it would launch the latest version of the iPhone on September 10 with a refresh of its iPad products coming later in the fall before the Christmas shopping season. So, for now the company has managed to reverse course in what has been a disappointing year.

Trading week ahead

Few, if any, influential Canadian companies will report earnings, while in the United States the focus will turn to retailing. Home Depot and Lowe’s Cos are set to report next Tuesday and Wednesday, respectively. Not to be outdone, clothing retailers will also have their fair share of announcements from the low-budget Dollar Tree to the trendy Abercrombie & Fitch.

Read: What’s in store for retail property?

Although Canada will be quiet on the earnings front, activity will pick up again next week as the Canadian banks report their fiscal Q3 earnings. Once again, economic data will be hard to come by in both Canada and the United States over the next five trading days. However, the Canadian data we will see will focus on retail sales and inflation, while the U.S. data will mainly focus on the housing market. Canadian retail sales for June are expected to fall, while inflation is expected to creep higher but still remain well within the Bank of Canada’s 1% to 3% targeted band.

In the world of commodities, all eyes will remain on Egypt as events there continue to support oil prices and have given bullion prices a small boost. If tensions remain elevated then you can expect to see some level of support for the loonie due to the commodity strength.

Gareth Watson is the Vice President, Investment Management & Research at Richardson GMP in Toronto. This team of research experts is responsible for monitoring and interpreting economic, geo-political situations, current market environments and trends. @Gareth_RGMP