Morning Markets for Wednesday, Dec. 3, 2025

Key Concepts

• Bank Earnings: Royal Bank of Canada (RBC) and National Bank of Canada reported strong fourth-quarter earnings, exceeding analyst estimates.
• Capital Markets & Wealth Management: These divisions were highlighted as key drivers of growth for the banks.
• Personal & Commercial Banking: This segment is facing pressure due to scrutiny on fees and slower loan growth.
• Dividend Increases: RBC boosted its quarterly dividend by 6%, leading to a 3% dividend yield. National Bank increased its dividend by 5%.
• Housing Market: Toronto and Vancouver experienced declines in home sales and prices, attributed to slowing demand and economic uncertainty.
• US Tariffs: Tariffs imposed by the US are impacting Canadian businesses, notably Algoma Steel, leading to job cuts.
• Economic Outlook: Concerns about the Canadian economy are influencing consumer confidence and investment decisions.
• Gold as a Hedge: Gold is considered a hedge against a weakening Canadian or US dollar and market volatility.
• AI in Banking: Artificial intelligence presents an opportunity for Canadian banks to improve efficiency, lower costs, and upgrade technology platforms.
• Flair Airlines: The airline is implementing changes to improve reliability and customer experience, including a new "Express" product for priority boarding.
• Copper Prices: Copper is experiencing a surge and approaching record highs due to demand and potential supply squeezes.

Bank Earnings and Investor Perspectives

Royal Bank of Canada (RBC)

• Performance: Topped income and revenue estimates, hovering around record territory. Strong results in Capital Markets, Wealth Management, and Personal & Commercial Banking.
• Key Drivers: U.S. Capital Markets franchise accounts for over half of the unit's revenues.
• Dividend: Boosted quarterly dividend by 6%, resulting in an approximate 3% dividend yield, considered acceptable for income-focused investors.
• Acquisition: The acquisition of HSBC Canada is expected to yield significant explicit and implicit revenues, enhancing RBC's global investing capabilities.
• Profit Forecast: Raised profit forecast for the next year, indicating a positive outlook.
• Investor Sentiment: Considered a strong buy for new long-term money due to its "juggernaut" status and successful integration of HSBC Canada.

National Bank of Canada

• Performance: Beat analysts' estimates on net income and revenue in its fourth quarter. Posted better-than-expected results in its Capital Markets unit, marking a resurgence after a previous miss.
• Acquisitions: Set to take over Laurentian Bank's retail and small businesses in a three-way transaction involving Fairstone Bank. The acquisition of Canadian Western Bank is also filtering down to the bottom line.
• Dividend: Increased its quarterly dividend by 5%, resulting in a dividend yield below 3%, which might not meet the criteria for some yield-focused investors.
• Focus: More focused on Quebec, with less worry about housing market renewal risks compared to other big Canadian banks. However, its manufacturing focus makes it more susceptible to tariff-related risks.
• Investor Sentiment: Considered a "hold" for now, with a slight disappointment regarding the dividend yield increase. However, its strategic acquisitions and growth in Capital Markets and Wealth Management are viewed positively.

Investor Insights (Tony Sierra, Caldwell Asset Management)

• Expectations: Capital Markets and Wealth Management were expected to show the most growth. Personal banking and loan growth were anticipated to be under pressure.
• Personal Banking Pressure: Bank fees are under scrutiny, and the potential creation of a stablecoin backed by the Canadian dollar could make everyday banking and wire transactions more efficient and cost-free, further pressuring this segment.
• Loan Growth: Directly reflects the Canadian economy. With falling housing prices, loan growth is expected to be stagnant, potentially increasing provisions for credit losses.
• Dividend Yield: A 3% dividend yield is acceptable for investors living on dividend income.
• Comparison: Royal Bank's 6% dividend increase leading to a 3% yield is positive. National Bank's 5% increase leading to a yield below 3% is a "disappointment."
• Royal Bank vs. National Bank: Inclined to buy Royal Bank with new money due to the HSBC acquisition and its implicit revenue potential. National Bank is a "hold" due to its strong earnings but a less impressive dividend increase.
• Gold as a Hedge: Holds 2-5% in gold as a direct hedge against a weakening Canadian or US dollar and market volatility. Gold is valued in US dollars, so a weaker USD leads to gold price appreciation.

Investor Insights (Ernest Wong, Baskin Wealth Management)

• National Bank's Niche: Focus on Quebec offers some insulation from housing market renewal risks. However, its manufacturing focus makes it vulnerable to tariffs.
• Sector Performance: Capital Markets and Wealth Management are driving strong results due to the stock market's performance. Consumer and Commercial Banking segments are sluggish but offset by other business areas.
• Resilience: Despite economic headlines, loan growth remains resilient, aided by lower interest rates. Consumers are flocking to larger banks like National.
• Laurentian Bank Acquisition: Expected to be revenue-accretive for National, providing a great deposit base and opportunities to upsell wealth management services.
• Canadian Western Bank Integration: Ongoing, with capital synergies expected next year. This gave National confidence to raise its dividend and commit to further increases.
• National Bank's Strategy: A well-run bank that competes by finding niches and making strategic acquisitions (Canadian Western Bank, Laurentian portfolio).
• Future Growth: Organic growth, completing the integration of Canadian Western Bank, building wealth management services, and expanding its footprint in Western Canada.
• Big Picture (Canadian Banks): Loan losses are higher due to a weaker economic outlook, but this is offset by strong Wealth Management and Capital Markets performance, highlighting the business model's resilience. Sluggish loan growth in the consumer sector is expected to continue, offset by lower rates.
• Investor Satisfaction: Canadian banks are generally satisfying investors due to strong balance sheets, cautious outlooks, share repurchases, and dividend increases.
• AI Opportunity: Banks can leverage AI to lower costs, improve efficiency, and upgrade their technology platforms.

Housing Market Trends

Toronto Real Estate Board (TREB)

• Sales Decline: Sales in Toronto were down nearly 16% from the same time last year, driven by slowing demand.
• Benchmark Price: Fell nearly 6%.
• Stagnation Factors: Tariffs imposed by the US are deterring customers from big-ticket items. Economic uncertainty and a lack of confidence in the overall economy are keeping buyers on the sidelines.
• Affordability Improvement: While affordability has improved due to lower borrowing costs and selling prices, buyers lack confidence in retaining employment and seeing income increases.
• Immigration Impact: Changes in immigration, particularly a reduction in temporary migration, have led to less demand in the rental market and a reduced push into homeownership, impacting first-time buyer activity, especially in the condo market.
• Sector Performance:
  • Condos: An uptick in listings has given buyers more choice and negotiating power, leading to lower average selling prices.
  • Chain Reaction: People not moving up impacts the availability of listings for new homes.
• Recovery Outlook: Poised for a recovery in sales into 2026 as affordability improves and economic certainty increases.
• Buyer's Market: Buyers are benefiting from more choice than in the past decade, influencing pricing trends.
• New Home Construction: Sales are slower due to slack resale market conditions, as buyers seek certainty in price increases over the construction period.

Vancouver Real Estate

• Sales Decline: Home sales were down more than 15% compared to November of last year, 20% below the seasonal average.
• On Track for Lowest Year: The city is on track for its lowest year of home sales in a quarter-century.
• Month-over-Month: Sales were stable, down about 0.1%.
• Inventory: Remains healthy, giving buyers ample choice and forcing sellers to adjust prices.
• New Listings: Saw a 14% increase compared to November of last year, 36% above the seasonal average.
• Benchmark Price: Down to $1.12 million for all properties, a notable decrease for the city.
• Outlook: Not expected to improve significantly in the near term due to December being a slower month.

Algoma Steel and US Tariffs

• Job Cuts: Algoma Steel is accelerating its retooling plans, leading to job losses.
• Cause: The company and workers blame U.S. President Donald Trump's 50% tariffs on Canadian steel, which effectively closed off their primary customer.
• Retooling Plans: A transformation to a new, modern steel-making process announced in 2021, requiring a smaller, less labor-intensive workforce. This transition was expected in 2027 but has been accelerated due to the tariffs.
• Government Awareness: The federal government was aware of the plan when it loaned Algoma over half a billion dollars earlier this year.
• Worker Impact: Workers are shocked and devastated by the job eliminations, which will occur in March. Union heads express concern that workers are being let go without a previously negotiated mitigation strategy focused on job retraining.
• Regional Impact: 1,000 job losses will have a profound impact on Sault Ste. Marie, as Algoma Steel is the region's largest employer.

Other Market News and Insights

• Federal Housing Spending: Projected to drop by more than half over the next three years, from $9 billion to $4 billion, due to expiring housing programs.
• Enbridge: Increased its dividend by 3% and reaffirmed its 2026 growth outlook, with $8 billion in projects entering service next year.
• Telus: Plans to pause dividend growth while continuing its quarterly dividend at the current level until its share price reflects growth prospects. Announced a new three-year free cash flow growth target of 10%.
• Gold: Considered a direct hedge against a weakening Canadian or US dollar and market volatility.
• Copper: Experiencing a surge and approaching record highs due to demand and potential supply squeezes on the London Metal Exchange.
• Market Performance: The TSX is in the green, up about a quarter point. South of the border, the S&P 500 is nearly flat, the Dow Jones is up, and the Nasdaq is slightly down.
• Banking Oligopoly: Canada's banking system is considered an oligopoly, with strong returns on equity (15-20%) compared to the US (10-12%). This is seen as the price for a strong and secure banking system.
• EQB: Despite management turmoil and concerns about loan losses, EQB is considered well-capitalized and poised for growth beyond $100 in the next two years.
• Market Sentiment: A cautious approach to the market, with some selling leading to 10% cash positions, is seen as prudent. Counterintuitively, when investors are worried, markets tend not to implode.
• 2026 Market Prediction: The average calendar year market return is 20% if up, and 10% if down. No one can accurately predict future market movements.

Flair Airlines

• Fleet: 20 aircraft, all modern Boeing 737 MAXes.
• Operations: Carries about 5 million passengers, primarily on Canadian domestic routes, with Caribbean, Mexican, and US destinations in winter.
• Canadian Cities Served: Covers all major Canadian cities, with four key bases: Vancouver, Calgary, Edmonton, and Toronto. Also flies to Mexico City from Vancouver and Toronto.
• Service Improvements: Acknowledges past service problems but states the company is now different and more reliable, citing on-time performance and completion factor data from independent sources.
• Ownership: A wide portfolio of Canadian (65%) and US (35%) investors, with no single majority owner.
• "Express" Product: Launched today, offering priority boarding and the ability to skip the bag sizing process at the gate for passengers who pay for a carry-on bag. Aims to be the easiest airline to fly, both financially and operationally.
• Business Model Differentiation: Not emulating European ultra-low-cost carriers like Ryanair. The Canadian model requires a "value airline" approach tailored to the country's unique geography and demographics.

AI in Banking

• Potential: AI offers significant opportunities for Canadian banks to improve efficiency, lower costs, and upgrade their technology platforms, which are often built on older systems.
• Examples: TD and other banks are actively discussing the use of AI for these purposes.