Earlier on Monday, before markets open, Scotiabank’s Portfolio and Quantitative Strategy Research team said in a note that with 53% of TSX composite companies reporting, the season Q1-22 results are “going well” in Canada. Scotia noted that overall earnings beat the consensus set on April 14 by 2.7%, on a ratio of 67% (the top three in the past 21 years) and a median pace of 5.6%. And the top line also “exceeds” expectations with an overall pace of 2.8%. Scotia said that with profit margins likely to reach a new all-time high, “it would appear that cost inflation remains well contained for now.” But sectorally, the bank added, the consensus was too low in most sectors, leading to big beats in energy, materials (gold mining), discretionary, communications and public services. Still, Scotia notes a tougher earnings season for transportation and technology. He noted that banks will report on the last week of May and “should hold the key to whether the apprehended sequential decline in earnings could be erased, marking a new all-time high for TSX quarterly EPS levels.”

Based on current Bay Street revisions, Scotia said more TSX earnings peaks may be ahead. He noted that Q2 2022 through Q4 2023 have all been revised up 2% to 4% since April 14. see “bumps” in the estimates. The bank noted that the industrials and discretionary sectors are the only two sectors with significant negative revisions so far.

Scotia noted that the outlook for fiscal 2022 has now risen to C$1,589 from C$1,552 just 3 weeks ago (it was C$1,440 at the start of the year). And projections for fiscal 2023 are being revised up at a similar pace (C$1,673 today vs. C$1,628 on April 14 and C$1,513 at the start of the year). Consequently, Scotia said, the TSX could benefit from “tailwinds” this year, particularly with a flatter revision profile in the United States and negative in Europe. “Overall,” the bank added, “investor reaction to the results was more positive than in the U.S. And, the bank noted, while resource and defensive names enjoyed a “strong overall outperformance” after the earnings release, most cyclicals also outperformed Only Tech and Healthcare/cannabis stocks were “punished” after the earnings release.