Daily Commentary

MarketMinder’s View: The titular “outlook” here refers to Europe’s Q2 corporate earnings, and while backward-looking, the better-than-expected results point to the wide gap between sentiment and reality right now. “Companies in the STOXX 600 [European blue-chips] index are now expected to report aggregate earnings growth of 24.1%, up from last week’s 23.4% estimate, LSEG I/B/E/S data showed on Wednesday, with 59.9% of the 282 firms that ⁠have already reported topping the estimates. While energy companies are still forecast to lead the index with a 138.6% profit jump, as the Iran war continues to disrupt the international crude market, corporate recovery has expanded into cyclical sectors like basic materials and industrials. Those two segments have become the market’s secondary growth engines, with industrial earnings expected to climb 18.1% following forecast-beating results ... Excluding energy, STOXX 600 profits are expected to grow 13.1%.” (As the article gives specific examples, please note MarketMinder doesn’t make individual security recommendations.) The piece also highlights how false fears abound, from geopolitics to rising bond yields and inflation worries. While those may weigh on sentiment, businesses have shown those issues don’t impede profits—the bottom line for investors. To us, the persistence of false fears suggests a bullish wall of worry in Europe—an opportunity for stocks there to run.

MarketMinder’s View: We love a good self-debunking article and this one is a prime example. It cites the recent rise in interest rates, especially the 10-year US Treasury yield, to levels unseen since … 2025 … as terribly troubling for equity investors. The reason? “… The so-called equity risk premium [ERP], which is a way to measure equity earnings relative to bond yields. A simple approach is to take the expected profits of the S&P 500 Index and EURO STOXX 50 Index over the next 12 months, divide them by index prices to get a ⁠yield and compare that to long-term government bonds. Between 2000 and 2022 the premium averaged 3.1 percentage points for U.S. stocks and 5.3 points for euro zone peers. Today, those premiums have shrivelled to just 0.3 and 3.5 percentage points, respectively, despite surging AI-fuelled earnings.” This, friends, strikes us as nonsense. Yes, ERPs fell lately as rates rose. But they have been low since mid-2023, when they first pierced one percentage point. Simple fact: ERPs, like all valuation tools, aren’t predictive, not of cyclical turning points, returns or volatility. While ERPs were negative ahead of the 2000 bear market, they were positive before 2008, 2020 and 2022 bear markets. This very column notes below-average ERPs in 2003 and 2004. A bull market launched then. It goes on to note that if yields stay high, “It may be, then, that the S&P 500 is stuck with a near-zero equity risk premium. The experience of the 1980s and 1990s shows this is feasible and can even exist alongside strong equity returns.” So what are we even doing here? Those are two of the best decades for stocks in all of history.

MarketMinder’s View: Upward wobbles in oil prices did reaccelerate Canada’s consumer price index (CPI) from 2.8% in June to 3.0% last month, a hair above the 2.9% consensus forecast, which is unwelcome news that likely adds to many consumers’ inflation angst. But the coverage here, especially in the back half, sensibly notes this is chiefly about gasoline: “Excluding gas, the consumer price index rose 2.2 per cent in July for a third consecutive month, Statistics Canada said. CPI-trim and CPI-median — two measures of core inflation that the Bank of Canada looks at — were a touch higher than expected … Despite some of the shorter-term measures of core inflation picking up a bit, those measures were still within the Bank of Canada's target range ….” Look, you can never know what a central bank will do with interest rates beforehand—these human beings aren’t a market function and could act on biases that rational analysis wouldn’t rate heavily. But with CPI excluding gasoline unchanged again, it is fairly apparent oil prices’ war-driven rise isn’t spilling economywide. Absent that, the case for rate hikes is flimsy, unless you think the central bank can somehow hike its way to speeding oil extraction and refining—or boost the Canadian policy rate enough to force Iran and America to reach a peace deal. Supply shocks like this tend to have a limited effect that drives substitution, not inflation, and they aren’t a call for central bank action.