Making sense of the markets this week: February 20

by Ann deBruyn

Two people are seen walking on a dock towards a lake

Photo by Asad Photo Maldives from Pexels

Each week, Cut the Crap Investing founder Dale Roberts shares financial headlines and offers context for Canadian investors.

Earnings season picks up the pace: Shopify crashes

I’m looking into more earnings, starting with Shopify.


Canadian tech darling Shopify (SHOP) stole the headlines north of the border. Shopify crashed 16% after earnings were released. 

Source: Seeking Alpha

Amazon (AMZN) leads with 41.0% market share of U.S. e-commerce sales in 2021, and SHOP comes in second at 10.3%. 

Source: Shopify earnings report 

SHOP stock fell hard after earnings, but it was mainly due to outlook and not to the realized results. Revenue of US$1.38 billion comfortably beat consensus estimates of US$1.34 billion. Non-GAAP (non-generally accepted accounting principles)income of US$1.36 per share also beat consensus estimates of US$1.31 per share.

It grew profits by 60%, revenue increased by 41%. 

It was the forward guidance from the company that brought the stock down. Shopify expects earnings and revenue growth to decline. Shopify was already a very expensive stock heading into earnings season. 

Shopify is a wonderful company. And funny enough, a year ago I looked at the dazzling Shopify earnings and I wrote: 

“Many will suggest that Shopify is a great company, but perhaps it is not a great stock at today’s levels.” 

You’ll see charts in that column showing that Shopify has been expensive in comparison to Amazon. Shopify is down over 50% from the time of that post. Yes, earnings matter. 

Source: Google


And now switching to the lower growth (and defensive stock side) of the ledger, Walmart (WMT) continues to deliver on the slow-and-solid growth promise. Below figures are courtesy of Seeking Alpha:

  • Q4 Non-GAAP earnings per share (EPS) of US$1.53 beats by US$0.03
  • Revenue of US$152.87B (+0.5% year-over-year) beats by US$2.67B—revenue was negatively affected by US$32.7 billion related to divestitures
  • Sam’s Club comparable sales increased 10.4% over 1-year, and 21.2% over the last 2 years, membership income increased 9.1% 
  • For 2023, the company expects net sales to increase about 3%

The stock price was up 4.1% on Wednesday after releasing earnings

Walmart increased its dividend by a modest 2% and it bought back $10 billion in shares in 2021. The company generated US$24.2 billion in operating cash flow and returned US$15.9 billion to shareholders through dividends and share repurchases. 

I own Walmart. And I truly appreciate those boring stocks. I’ll leave the growth to Apple (AAPL), Microsoft (MSFT), Nike (NKE) and others. 

TC Energy 

And speaking of steady, TC Energy (TRP) reported comparable EBITDA (earnings before interest, taxes, depreciation and amortization) increased 3% year-over-year to CAD$2.4 billion, compared with CAD$2.37 billion analyst consensus estimate. For the full year, TC reported comparable earnings rose to CAD$4.2 billion compared to CAD$3.9 billion for the comparable period in 2020. 

It increased its dividend by 3%. I own TC Energy and I’m happy to collect that juicy dividend. TC Energy shares have gained 17% during the past year and 12% year-to-date. 


Last week, I wrote about Disney as a “go out and play stock,” that will grow with the pandemic restrictions slowing down. This week Airbnb (ABNB) saw revenue increase 78% year over year, with bookings up 91%. 

This comes from its earnings report: 

“As such, for the first time since the pandemic began, we expect Q1 2022 Nights and Experiences Booked to significantly exceed Q1 2019 levels, which we believe will result in our strongest quarterly Nights and Experiences Booked on record.”

Airbnb is up over 10% year-to-date. I will be keeping an eye on this trend for the “other side of the pandemic” momentum. The stock is up 28% over the last six months, while the U.S. market (IVV) is flat. Disney has another solid week, up over 2%. 

It’s all riding on February now 🙂   

In a recent column, I looked at the “January effect”: As goes January, often goes the rest of the year. Here’s a clip from that:

“The takeaway here: The SP is usually positive during January (over 60% of the time) and generates a much better return during these years with positive returns in the first month of the year. The difference is remarkable with an average annual return of +15.5% in up years, versus +2.2% in the down years.” 

To add to that: Low- to modest-return years are very rare for U.S. stocks. And a weak February can make it challenging for stocks to fight back. 

To see what I mean, here’s the stock market history of the “January effect” in February, thanks to DataTrek. (I have edited to condense.) 

1. The SP has posted a modest positive annual total return (from 0.0% to +5%) in only six years over the last six-plus decades, versus an average total return of +12.2%. 

It’s happened less than one-tenth of the time (9%) since 1958.

2. During so-so years, the SP is usually down in January, but comes back up in February:

  • The SP dropped two-thirds of the time in January in the above-mentioned years, and the average return for this month was -2.5%. 
  • The index rose in February in all of those mediocre years, with only one exception. The average return was +2.3%. 

My derived takeaway: When the SP performs modestly positive for the year, it starts off negative for January, but it recovers most of those losses come February. So far this year, the index was down 5.3% in January and it has fallen by another 2.5% so far this month.

3. In the below years of modest returns, the SP bottomed for the year between Q2 and Q4. Of course, Q1 ends March 31. Historically, this is when the previous bottoms occurred in the modest return years. 

  • 1960: October
  • 1970: May
  • 1994: April
  • 2005: April
  • 2011: October
  • 2015: August

4. On average, the SP is down 11.9% when it hits its intra-year bottom during those six instances. 

  • The range of decline in those six years: down 5.9% to down 24.7%
  • The recovery through year-end: +4.6% to +33%The strong +33% snapback came from quick and aggressive monetary policy (rate cutting) in response to a recession in 1970.)

The bottom line? Even if you think the SP can squeeze out a modest gain (+0% to +5%) in 2022, there’s still likely more pain to come since the index does not typically hit its annual low until at least Q2 during these types of years. As for how much lower that bottom could be, that largely depends on whether the Federal Reserve can hike near-term rates to tame inflation without creating a recession. 

And, of course, while these stats are interesting, know that anything can happen and, likely, more volatility is in store. 

Speaking of stats: Inflation is a big theme right now, as you would know in reading in my weekly columns. Four in five (84%) Canadians admit to being worried about inflation, and almost two in five (39%) saying they are very worried, according to a Questrade and Leger study. And those not investing (89%) are more worried about inflation than those with investments, it reports.

Goldmans Sachs return scenarios for the SP 500

Goldman Sachs has laid out the potential return scenarios for U.S. stocks in 2022. And yes, they are calling for one of those modest return years. They are projecting a 4% annual return from prices seen this week. 

Goldman also lists three alternative scenarios, as excerpted from this Seeking Alpha post:

“If inflation remains high and prompts continued Fed hiking that lifts the terminal funds rate well beyond the market and our economists’ estimates, we expect the cost of equity would rise on net and the SP 500 would decline by 12% to 3900.” 

“Alternatively, if inflation recedes by more than expected this year and results in fewer Fed hikes, we expect the SP 500 would rise by 24% to 5500.” 

“Finally, if the US economy tips into a recession—a question investors have increasingly been asking—the typical 24% recession peak-to-trough price decline would reduce the SP 500 to 3600.”

While it’s hard to predict the future 😉 this framing seems reasonable. Inflation and the response from the Fed is in the stock market total return driver’s seat. 

On this side of the border, Canadian stocks (XIC) are essentially flat year-to-date. They are holding up quite well. Here’s the sector performance:

— CutTheCrapInvesting (@67Dodge) February 17, 2022

The big Canadian dividend approach is well positioned in 2022, after a very strong year in 2021. 

U.S. dividend growth stocks for retirees. 

This Morningstar article on the U.S. Dividend Growth Index lists seven undervalued stocks from that index list. 

“The index focuses on companies with a history of dividend growth and an ability to maintain it. The index includes U.S.-based securities that pay qualified dividends and have increased their dividend payments over the past five years. To gauge the durability of dividend growth into the future, eligible constituents must display positive consensus earnings forecasts from the analyst community and must also pay out no more than 75% of their earnings in the form of dividends.”

Here’s the list of those seven undervalued dividend stocks. It’s a nice mix across various sectors. 

Source: Morningstar

And, yes, dividend growth can help in an inflationary environment, as confirmed by this Morningstar quote from the same above article: 

“Last, dividend-growth stocks provide some inflation protection, which is a plus for retirees in particular. ‘Income-focused investors receive a little ‘raise’ when a company increases its dividend,’ reminds Morningstar director of personal finance Christine Benz.”

For retirement funding, a lower-volatility portfolio can be beneficial. The sequence of returns risk exists mostly in the early years of retirement. Retiring during, or just before a major market correction, can put the portfolio and retirement funding at risk. 

Moving to 10 years of dividend growth 

Here’s a look at the U.S. Dividend Achievers vs the SP 500 from 2007 through to the end of 2012. The Dividend Achievers Index insists on at least 10 years of dividend growth. The index also applies financial health screens. 


 In the above chart, see the Vanguard Dividend Appreciation ETF (VIG) outperform the market (SP 500) through the correction known as “the great financial crisis” that began in 2008. That ETF tracks the dividend achievers index. 

VIG is a U.S.-dollar exchange-traded fund. Vanguard Canada offers Canadian-dollar versions, hedged and non-currency hedged. 

25 years of dividend growth 

And here’s a look at the venerable U.S. dividend aristocrats, courtesy of Kiplinger. The dividend aristocrats are SP 500 constituents with a history increasing dividends each year for at least 25 years. The index has a history of outperforming the market with lower volatility. That index and list of stocks could also be a consideration for retirees and those seeking a lower-volatility portfolio. 

There are 66 current dividend aristocrats, and you’ll find that list of companies within that link above. 

There is a U.S. Dollar dividend aristocrat ETF (NOBL). 

For our U.S. stock portfolio, my wife and I have 17 dividend achievers. And 10 of those companies are also on the aristocrat list. My research has demonstrated that lower volatility dividend growth stocks are modestly superior for retirement funding. Those dividend growth stocks can work in concert with bonds, cash, commodities and real estate investment trusts (REITs).

Dale Roberts is a proponent of low-fee investing, and he blogs at . Find him on Twitter @67Dodge for market updates and commentary, every morning.