More Pain for Canadian Stocks as Earnings Dampen, Scotiabank Says

Companies listed on the S&P TSX Composite Index are headed for their first sequential decline in a year, according to analysts at Scotiabank. Earnings per share is on course to contract 4.2% quarter-over-quarter to C$374 from last quarter’s all-time high of C$390 — suggesting that growth has topped out.

“At this stage, most indicators would argue that we are past peak growth,” Scotiabank strategist Hugo Ste-Marie said in a note to clients Thursday. “At best, we will likely endure another earnings plateau through 2023 and 2024.”

While the Canadian market has tumbled 12% this year, it has handily outperformed the S&P 500 Index’s 23% plunge. Banner energy results and better-than-expected bank earnings helped bolster the index as global equity markets sunk. Now, that resilience is coming to an end.

In particular, financials, materials, technology, real estate and communications earnings are expected to decline year-over-year as inflationary pressures mount.

“Given decelerating growth, shaky market sentiment and flat to down earnings trends, we expect more severe negative stock price reactions in case of unimpressive results,” Ste-Marie said. “Margins at Canadian companies have rarely been higher despite the inflationary environment.”

Companies that have been able to pass on additional costs to customers throughout 2022, will most likely not be able to do so next year, he added.