Globe & Mail: What to watch for in Canadian GDP

BANK WEEK:  The Big Five Canadian banks are set to report this week with Scotiabank BNS-T -1.63%decrease first out of the gates Tuesday, BMO BMO-T -2.71%decrease and National Bank NA-T -0.04%decrease Wednesday, and RBC RY-T -1.47%decrease, CIBC CM-T -1.06%decrease and TD TD-T -1.61%decrease Bank reporting on Thursday. The earnings come as the group is trading at a record high and a premium to their historical average. This might seem counterintuitive considering the concerns about Canada’s economy, but the group is forecast to put up double-digit earnings growth this year. “Strong fundamentals … continue to support elevated multiples,” wrote TD Securities analyst Mario Mendonca in a preview note to clients. Indeed, the banks do seem to be humming along. They are all buying back stock at the same time – a rarity, Mr. Mendonca said. Credit quality isn’t a major issue, U.S. loan growth is papering over softness in Canada, net interest margins aren’t under pressure, cost discipline has been a key focus. High valuations could be one of the main risks. “While banks are not directly connected to the tech sector,” Mr. Mendonca said, “a shift from tech to value stocks should support [insurers] over the banks.”

‘Nertia: Nvidia NVDA-Q +0.11%increase will report results Wednesday after the bell as the chipmaker’s stock has stagnated. The results used to be appointment viewing – people were gathering at bars to watch their release. But the trading action on the stock after earnings has been downright pedestrian for the last three earnings reports – moving less than 4 per cent. The stock is still hugging its record high but hasn’t really done much in the last six months. The business, on the other hand, continues to go gangbusters. Sales are expected to surge 67 per cent from last year and free cash is expected to double to US$33-billion. While this is eyewatering growth for a US$4.6-trillion company, investors have seemingly grown wary of the tech trade with the sector underperforming the broader market. There are also concerns about the impending competition. Just last week there were reports Google wants to take on Nvidia and sell their own artificial-intelligence chips. But all those headwinds could be a positive set-up into earnings. “Given middling stock performance, supply chain signals that remain bullish, and a management team that seems frustrated with the prevailing doubts around growth and margin sustainability, the earnings set-up here seems positive,” wrote UBS analyst Timothy Arcuri.

SaaS-pocalypse: One of the biggest victims of the software selloff, Salesforce CRM-N -5.29%decrease, reports Wednesday afternoon. The sales management software provider has been cut roughly 40 per cent over the past year on fears that AI will replace its offering and their attempts to fight back aren’t strong enough. “We continue to hear about underwhelming Agentforce usage and core product demand,” wrote Citi analyst Tyler Radke in a preview note referencing Salesforce’s AI platform. Mr. Radke’s checks include talking with customers and tracking Salesforce website visits and notes that both have been negative. He’s an outlier, however. Most analysts still rate Salesforce a buy and expectations are for double-digit top-line growth, which the company hasn’t managed to achieve since 2024.

Down the aisle: Loblaw L-T +2.04%increase reports results Wednesday morning with the stock trading near record levels. Food inflation has been supportive with CPI for food stores up nearly 5 per cent in January. “Food CPI backdrop continues to favour grocers with strong value proposition and likely to keep shaping consumer shopping patterns,” wrote RBC Capital Markets analyst Irene Nattel in a preview note to clients. “Loblaw is earning its place in that group, with a disciplined operating model and commitment to its financial framework, notably bookended by sustainable top-line growth and return of capital to shareholders.”

GDP and Me: Canadian GDP for the fourth quarter and December will be out Friday and is expected to show a softening economy. The fourth-quarter consensus estimate is that the economy contracted 0.4 per cent after growing 2.6 per cent in the previous quarter. “The silver lining to a soft-looking quarter is that most of the weakness was concentrated in October and November with industry reports for December mostly positive,” wrote RBC Economics. Of course, key for Canada’s economy will be the future of tariffs. Investors will be watching for U.S. President Donald Trump’s response to the U.S Supreme Court ruling that tariffs enacted under emergency measures were illegal. Most of Canada’s exports were already exempt because of the continental free-trade agreement, but that could be upended this year. “We continue to view maintaining CUSMA-related exemptions more important for Canada than the [Supreme Court] ruling itself,” wrote RBC.