Plus: Coke knows you’re addicted July 31, 2023 Sign Up | View Online IN THIS ISSUE 9 min read 🩺 Cash for care 🍚 Runs on rice ​🥤 Profits for pop Coke is so confident that nothing beats the real thing that it might keep raising prices, trusting you’ll probably buy it anyway. We explain why in the Big Important Story, below. | Coca-Cola THE WEEK IN MARKETS Stocks’ Surprisingly Good Summer We’ll spoil TLDR’s big plot development right at the top: markets are looking pretty, pretty good. Why? We’re in the heart of earnings season and profits came in surprisingly strong last week (see the Big Important Story). The economy is growing but not too much. And a soft landing is looking very possible. With these tailwinds, stocks are buoyant: the S&P 500: +20% YTD; Nasdaq: +40%; the TSX: +5.5%. (Oil stocks have weighed down the TSX, but it’s also climbing out of a shallower hole.) Some folks think the rally won’t last — that investors are too jazzed. But others don’t see much froth in the markets. Either way, as we head into August, it’s clear that stocks have had a very pleasant summer. Read on. THE WEEK IN ONE NUMBER 12,000% The increase in traffic to a site called Threads.com, after Meta launched a Twitter competitor called Threads. That’s a 10% diversion in Meta’s traffic — and a good lesson for companies to lock down their domains and naming rights. The app formerly known as Twitter should take notes. WHAT HAPPENED LAST WEEK IMPORTANT The Fed won’t commit. In the biggest macro news of last week, Fed chair Jerome Powell announced that the U.S. central bank would raise its benchmark interest rate to 5.5% — the highest it’s been in more than 22 years. Everyone saw this coming, so it wasn’t a shock. The consensus among pro investors, according to Bloomberg, is that the Fed probably won’t hike rates again this year. But these are the same Wall Street pros who, late last year, thought rates would have peaked months ago and would already be falling by now. And, well, they definitely guessed wrong on that, so they may be wrong again. And Powell (like Tiff last week) isn’t committing one way or another. Also, the recession is cancelled. At least according to Powell and the Fed. (Investors seem to concur.) Why? The economy looks much stronger than anyone expected a year ago, which also happens to be why the Fed isn’t ruling out another rate hike this year. Want to join a brain-surgery club? Canadian docs aren’t allowed to charge for essential care, but at least one Calgary clinic has found a loophole: charging a $2,200/year “membership fee” for a Fast Pass to see a physician more quickly than patients would otherwise. A doctor at the clinic has claimed (a bit dubiously) that it needs the fees to cover overhead. True or not, last week, Health Canada asked Alberta to put a stop to the membership system or risk losing federal funding. Critics are curious how Premier Danielle Smith will respond given her past privatization nods. INTERESTING India triggers a run on rice. The source of nearly half the world’s rice recently announced an export freeze on non-basmati white rice, in a bid to shore up its own supply and bring down food prices. News of the export ban sparked panic-buying around the globe last week, including in Saskatoon and Mississauga. Food prices have fallen since peaking in the spring of 2022, but there are fears that India’s export ban and Russia’s blockade of Ukrainian grain could strain the global food supply. China isn’t helping matters. It’s sitting on 60% of the world’s rice reserves after importing a bunch for perhaps ominous reasons. Shopify? More like Shopif-AI. The e-commerce giant announced plans to expand its suite of generative AI tools with a new customer-service chatbot called Sidekick. We’ll learn more about Shopify’s product plans when it announces Q2 earnings on Wednesday. Cineplex is now the Uber of exhibitors. Powered by boffo demand during Barbenheimer’s record-setting opening weekend, Canada’s largest movie-theatre chain — market share: 75% — test-drove its own version of dynamic pricing, by charging customers more to see this month’s two blockbusters than other releases. But what were moviegoers supposed to do about it? See Mission: Impossible? At any rate, the Competition Bureau is already suing Cineplex for advertising misleading ticket prices, so we’ll have to see if this dynamic-pricing model adds to its regulatory woes. FROM OUR SPONSOR THE FOMO INDEX by Stacey Woods IMPORTANT 🥵 Seawater in Florida reaches hot-tub temperatures, which is bad news for everyone, not just hot-tub makers. Source 🤖 Netflix posts $900K a year AI manager job amid Hollywood strike. Skills needed: rubbing CGI salt into human wounds. Source ✍️ TikTok adds feature that lets you post text only, in a vain hope that its users really miss reading. Source 👽 Whistleblower tells Congress that U.S. has been hiding UFOs for decades. We’re gonna need a bigger probe. Source CRASH & BURN TO THE MOON ✈️ Bad news: only half of recent Air Canada flights were on time. Worse news: “on time” means under 15 minutes late. Source 🩺 Junior doctors in England staging fifth strike over pay dispute. AI and streaming residuals still off the table, though. Source 😲 Newly discovered fossil shows small mammal eating much larger dinosaur, who probably hoped this would never get out. Source 🪨 Trader Joe’s recalls two types of cookies that might contain rocks and promises to stop baking them in Joe’s Quarry. Source WHO CARES WHAT’S UP THIS WEEK Amazon and Apple report earnings (Thursday). The stock prices of both are up more than 50% YTD. Can they keep the momentum going? The Canadian oil-and-gas giants are reporting too (Thursday – Friday). We’ll hear from Enbridge, Suncor, and Canadian Natural Resources. U.S. and Canada jobs data drops (also Friday), which means we get to find out whether the economy will begin to show cracks or if it’s as recession-proof as Wall Street wants to believe. SHARE TLDR WITH YOUR FRIENDS 🤝 Put this link in your group chats, your Slack threads, tattoo it on your back — whatever works for you! THE BIG IMPORTANT STORY MARKETS Earnings Season Is Telling Us Three (Not Bad!) Things About the Economy Earnings season always offers a snapshot of the forces playing out in the economic world. And last week we got a particularly interesting picture, with some of the world’s largest public companies reporting their second-quarter performances. We dug in to see how macro forces have influenced their businesses and to get a sense of where the economy might be headed. Shoppers are shopping a tiny bit less One of this year’s biggest stories is that shoppers have kept buying tons of stuff despite high interest rates and inflation. That’s changing, a little. Visa reported that payments volume slowed by 1% in Q2 compared to Q1, meaning folks aren’t swiping their cards as much. CN, Canada’s largest railway, told a similar story, blaming a 7% YoY drop in revenue in part on a decline in consumer-product shipments. Similarly, Packaging Corp., which sells cardboard shipping boxes, reported a 13% YoY revenue drop. This all aligns with data out of the U.S. last week that showed consumer spending is slowing but in no way collapsing. RBC is forecasting the same for Canada. Companies are raising prices without driving us away Consumers are buying less, but companies have been able to raise prices to make up for the lower sales volume. It’s a tactic called “price over volume,” and Coca-Cola is all about it. The soda-maker raised prices by 10% (!) in Q2, which pushed its revenue up by 6% YoY despite flat sales volumes. The company’s CFO said that, since people are still buying lots of Coke, it’ll keep hiking prices, at least in some markets. PepsiCo raised prices, too, and, though its sales volumes slid by 2.5%, its revenue rose by 10% YoY and its profits nearly doubled. The trouble for these price-over-volume converts is that, with inflation falling fast, they’ll soon lose their primary excuse — increased costs — for raising prices and may have to stop (despite Coke’s confidence on the contrary), which could hurt future profits. Businesses are buying ads again Alphabet was arguably tech’s big winner in Q2, after it raked in a mountain of cash the old-fashioned way: through search ads. Google’s ad revenue rose by 3% YoY, after having fallen for two consecutive quarters. Meta’s Q2 ad revenue growth was even stronger, at 12% YoY. Companies usually cut ad budgets whenever they sense shaky times ahead, as they did last year, so the fact that they’re buying digital ads again suggests business leaders think the near future looks pretty good. A WORD ABOUT AI: AI, for all the tailwinds it gave stocks this year, hasn’t provided much lift to tech earnings yet. Microsoft told investors that AI demand is expected to boost sales in the future (aka not now), while Alphabet pointed to AI as the main reason for its increasing costs, since it had to pay to boost its data-centre capacity. Expectations are high for AI, no doubt, but last week illustrated that tech’s main businesses still matter a whole lot. THE UPSHOT What’s next? Well, so far, nearly 80% of U.S. public companies have beaten profit targets, and roughly two-thirds of companies have issued somewhat positive forecasts for the rest of the year. It seems like companies are performing much better in our high-interest-rate environment than anyone could have expected a year ago. And all this positive news has done wonders for stocks, as we mentioned up top. Of course, anything could happen; soft landings can turn not soft fast. But if you were looking for something to panic about in corporate earnings, you probably didn’t find it this quarter. —Sarah Rieger OTHER VERY GOOD READS 👪 The Vanishing Family* What it’s like to live with a cruel genetic mutation | The New York Times Magazine 🔮 The Greatest Scam Ever Written A Montrealer scammed $200M pretending to be a psychic | The Walrus 🤑 Money Diaries: Simu Liu The Barbie star on his relationship with money | Wealthsimple *Article is paywalled, which, yeah, is kind of annoying. But we think good journalism is worth paying for. THE WISDOM OF TWITTER X We don’t have bangs, but we do have some regrettable post-breakup tattoos that are hard to explain to our kids. THOUGHTS ON TODAY’S ISSUE? Love it Good So so This week’s newsletter contributors: Brennan Doherty (writer), Devin Gordon (writer), Stacey Woods (writer), Sarah Rieger (news writer), Ambrose Martos (fact checker), Ciara Rickard (copy editor), Nikki Holmes (copy editor), Sara Black McCulloch (fact checker), Jared Sullivan (senior editor), Peter Martin (senior editor), Kat Angus (managing editor), and Devin Friedman (editor-in-chief). Contributors to this newsletter own stock in Google, Amazon, and Microsoft. Correction: Last week, we reported that Rob Ford was demanding more federal funding for asylum seekers, which would’ve been quite the feat considering he died in 2016. Thanks to every last one of you who emailed us to point out that we meant Rob’s brother Doug. You were right. Our apologies. Wealthsimple Media Inc. 80 Spadina Ave Suite 400 Toronto, ON, M5V 2J4 Replies to this email address are not monitored. Have questions? Visit our Help Centre or submit a request to our Client Support team. 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