Talk of a trailing TSX might seem like the new normal. However, the Canadian earnings season gave TSX investors something positive to talk about.

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In a late February interview, after about 60% of TSX companies had reported earnings, CIBC Asset Management portfolio manager Craig Jerusalim said those companies were showing “an aggregate growth rate of about 6% on the top line, and about 2% on the bottom line.”

Further, he said most of those companies had reported “positive surprises” in revenue (top line), and that more than half had reported strong earnings (bottom line).

“I tend to focus more on growth—quarter-over-quarter and year-over-year growth,” says Jerusalim. “That’s really the core reason why I have a positive opinion of the stock market looking forward.”

For example, he says the TSX is reporting 20% revenue growth and 22% earnings growth quarter-over-quarter.

“That’s a very positive result because the growth is not only coming from the bottom line due to cost cutting and share buybacks. It’s also showing broad-based, top-line sales growth,” says Jerusalim.

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Sector specifics

For the TSX, there were only a few sectors that were lagging as of late February.

At that time, Jerusalim pointed to utilities, “which is a very small sector,” and energy. “The energy sector has underperformed due to wider differentials between Canadian oil prices and international benchmarks, as well as weaker gas pricing,” he said.

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In contrast, the index’s strongest sector was healthcare, though it’s “a relatively small one,” he said. Its “strength has been coming from cannabis-related stocks,” he added.

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Healthcare was followed by financials, which make up the largest subsector. “That’s largely coming from rising interest rates, where banks benefit from expanding margins and insurance companies benefit from their long-dated liabilities,” says Jerusalim.

In the technology space, there was “company-specific strength,” he added, due to the positive momentum experienced by names such as Shopify and Kinaxis, CGI and OpenText.

Industrials and materials were also showing strong growth, he said, “due to the global synchronized growth theme.”

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Positive earnings results could help the TSX recoup some of its recent losses, Jerusalim explains. As of March 19, the S&P/TSX Composite Index was down 3.07% year-to-date and quarter-to-date, but was up 1.74% month-to-date.

Even though the index hasn’t yet recovered, it seems to be on its way. “There’s reason to be optimistic given the underlying growth in company earnings,” Jerusalim said in February.

Keeping interest rates in mind, his firm was repositioning into companies with the strongest growth fundamentals. Said Jerusalim: “Within the interest rate-sensitive bucket, there has been a shift from the utilities, telecoms and REITs into the banks and the life insurance companies that are going to be benefiting from the rising interest rate trend.”

On March 7 the Bank of Canada held its key rate, citing possible U.S. trade issues despite the positive impact of tax reform and government spending south of the border. The U.S. Federal Reserve, which also stood pat on rates at the end of January, makes it next announcement this Wednesday—it will be new Fed chair Jerome Powell’s first call.

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