TOP STORY
🏦 Canadian Banks Soar After Strong Earnings

✨ The top story this week was Nvidia’s earnings, but since I already covered that on Thursday (read my breakdown here), there are two other major stories I’ll cover today that may have gotten buried as Nvidia dominated the headlines:

1. 🏦 Canadian Banks reported stellar earnings, with all the big 5 banks except TD soaring ~5% or higher this week

2. ❌ In a surprising turn of events, the Federal Appeals court upheld the May ruling by the Court of International Trade that President Trump’s tariffs issued under emergency law are illegal.

🫥 Despite the shake-up from the Court decision, the S&P 500 and the Nasdaq-100 stayed flat this week, with S&P rising a measly 0.04% and Nasdaq-100 falling -0.17%.

📈 But while the US markets stayed flat, the Canadian TSX-index jumped +1%, pulled up by the Canadian banks, which make up ~31% of the index.

🍁 So for this week, let’s turn our attention away from the US and look at what’s going on up here in Canada!

⭐️ Canadian Banks Beat Q3 Expectations

📈 Canadian Bank stocks were flying high this week after earnings, continuing the trend of a strong year of performance:

• Scotiabank ($BNS) soared +7.6% this week, now up +27% over the past year

• BMO jumped +5.1% this week, now up +47% over the past year

• RBC ($RY) jumped 4.8% this week, now up +24% over the past year

• CIBC ($CM) jumped 5.1% this week, now up +40% over the past year

• TD was the only bank of the Big 5 that stayed relatively flat this week - up only +0.5%, but is up +26% over the past year

✨ All the banks beat earnings estimates, with a few common themes emerging for the Canadian banking sector as a whole:

🤝 Lower Credit-Loss Provisions As Canada-US Tensions Improve

As Canada-US trade relations deteriorated between Trump’s election and ‘Liberation Day’ in April, Canadian banks took a dive, falling as much as -20% as banks made higher ‘provisions for credit losses’ to prepare for a trade-war driven recession.

These provisions are essentially excess money set aside to account for potential losses from unpaid loans. The more provisions, the less money that’s being put to work.

As uncertainty lessens, fewer provisions need to be made, with BMO setting aside only $797M compared to estimates of $948M, with CEO Darryl White saying:

💰 Capital Markets & Wealth Management Soar As Trading and Investment Banking Ramp

Another big theme of bank earnings this week was strong growth in the Capital Markets and Wealth divisions, which generate revenue from trading fees, AUM-based advisory fees, and underwriting/advisory for mergers and acquisitions (M&A).

As the markets have rebounded since April, the banks directly benefit as investment portfolios increase and dealmaking ramps back up.

RBC, for example, saw a 37% surge in trading revenues and a 11% rebound in investment banking fees as M&A activity increased amid the soaring markets.

🏆 Scotiabank Wins the Week With Renewed Focus on Canada

Scotiabank not only benefited from the two factors above, but has been winning over the market with a renewed focus on Canada.

Scotia had previously been lagging behind the other banks due to an overexposure to Latin America, but since Scott Thomson took the helm in 2023, the bank has managed to turn things around with a ‘long-term strategic repositioning’, focusing back on Canada with a ‘value over volume approach’

😰 National Bank Stands Out As Sole Loser

While much smaller than the rest of the Big 5 (with only a $47B market cap compared to $100B - $300B for the others), it’s worth calling out that National Bank ($NA) was the single loser this week, falling -4.6% as the other banks soared.

National was the only bank with an earnings miss this quarter, as the company works to integrate its high-profile acquisition of Canadian Western Bank and grow its presence out West.

National’s trading revenue also fell by 50% from last quarter, a bad sign as trading revenues soar across the other banks.

⚠️ Executives Still Call For Caution As Trade Deals Are Negotiated

While it was a strong quarter, many of the bank executives issued words of caution, saying that US-Canada trade relations were still driving considerable uncertainty as a trade deal hasn’t yet been reached.

⭐️ Overall, it was a great week for the banks, and as Tech P/E ratios (and even the P/E ratio of the S&P 500) soar to new highs, I’ll definitely be taking a closer look at the bank stocks and ETFs like ZEB (the Equal Weight Banks Index ETF) to consider adding some more Financials exposure to my portfolio (currently I hold 6% of my portfolio in TD).

🤔 Speaking of the uncertainty driven by the trade deals, let’s talk about the other major story this week - the Federal Appeals court ruling Trump’s tariffs illegal - and what that means for the market…

But first, a quick word from this week’s sponsor, Purpose Investments!

PRESENTED BY PURPOSE INVESTMENTS
📈 Stop Choosing Between Income & Growth Opportunities – Yield Shares Gives You Both

Tired of being told you can’t have it all? More income means less growth. More growth means no extra cash flow. Yield Shares flips that script. Now you can stack enhanced* monthly income and stay invested in Canada’s biggest names without missing potential growth opportunities – from the banks you bank with to tech icons like Shopify.

Why Canadian Yield Shares?

• ✅ Enhanced Monthly Income: Earn more from companies you already know and trust.

• ✅ Growth Potential Intact: Stay invested in Canada’s names without giving up upside.

• ✅ Built For Resilience: A covered call strategy helps smooth out market bumps.

• ✅ Tax Efficiency: Income is designed to be paid out as capital gains.

• ✅ TFSA/RRSP Eligible: Hold Yield Shares in registered accounts.

Visit the Purpose Yield Shares Suite.

🧠 Looking to Learn More?

• Yield Shares Introduction: Watch Yield Shares portfolio manager, Nick Mersch, discuss the structure of the funds and how they perform in various markets.

• Covered Calls & Options 101: Whether you’re still learning or just need a refresher, our Essential Guide to Covered Calls and Options has you covered.

• The Hidden Value in Your Portfolio: Hear from our founder & CEO, Som Seif, on why we built Yield Shares.

^{_{*See Purpose Investments disclaimer at the end of the newsletter}}

INTERNATIONAL TRADE
❌ Trump’s Tariffs Ruled Illegal by the Federal Appeals Court

🚨 Back in May, the Court of International Trade ruled that Trump’s tariffs were illegal, arguing that Trump invoking emergency law to issue executive orders on tariffs in response to “large and persistent” annual trade deficits crossed the line and that “trade deficits aren’t an emergency.”

👨‍⚖️ Trump’s administration quickly appealed the ruling, sending it to the Federal Appeals Court, but this week, in a 7-4 decision by a panel of judges Friday night, the Federal Appeals Court upheld the ruling.

🫤 The markets haven’t had time to react yet to the ruling (as it happened after market close), but the ruling is a big blow to Trump’s negotiating power, with Wendy Cutler - a veteran US trade negotiator - saying America’s trading partners must be “dazed and confused.”

💰 If Trump’s tariffs are deemed illegal, the government could have to pay back hundreds of billions of dollars in refunds on levies already paid. However, Trump will almost certainly appeal the decision to the Supreme Court, where 6 of the judges are Republican-appointed (3 by Trump himself), so while it’s a big headline, to me, it seems unlikely that the Supreme Court would actually block the tariffs.

😰 In any case, the ruling just adds more uncertainty to the mix in an already roller-coaster of a year and could delay the clarity on trade policy that investors so desperately crave.

PRESENTED BY CIBC CDRS
✨ Now Trading: Lockheed Martin & Coinbase CDRs Launched

🔍 Looking for new ways to diversify your portfolio? CIBC continues to expand the CDR marketplace with two exciting new listings: Coinbase (COIN) and Lockheed Martin (LMT). In response to strong investor demand, Canadians can now access leading crypto and defense companies on a Canadian exchange, no currency conversion required.

Why Choose CIBC’s CDRs?

• 💸 Affordable Access: Own a piece of the world’s largest companies at a fraction of the cost.

• ⭐️ Ease of Trading: Buy and sell CDRs just like any stock or ETF.

• 💧 Liquidity You Can Rely On: CDRs pull liquidity from their underlying global stocks, just like ETFs. With market makers ensuring fair pricing, you can trade with confidence.

• 💱 Manage Currency Risk: The built-in notional currency hedge protects your returns from exchange rate movements.

With over 100 CDRs to choose from, it’s simpler than ever to access the world’s markets from home. Explore the latest additions and see how CIBC’s expanding CDR lineup can help you build a balanced, globally diversified portfolio.

IN PARTNERSHIP WITH CBOE CANADA
🚨 ETF Alert: Franklin Templeton Launches New US Moat and India Index ETFs

⭐️ In other news this week, Franklin Templeton launched two exciting new ETFs on CBOE covering both the US and international markets:

• 💸 Franklin U.S. Quality Moat Dividend Index ETF or FDIV targets high-quality U.S. companies with durable competitive advantages and strong dividend profiles like Johnson & Johnson, Exxon Mobile, and United Health (which Buffett recently purchased)

• 🇮🇳 Franklin FTSE India Index ETF or FID provides low-cost exposure to one of the world’s fastest-growing economies, holding large- and mid-sized companies in India.

🔗 Tap the links above to add these ETFs to your Blossom watchlist!

FROM THE BLOSSOM COMMUNITY
⭐️ Featured Discussions this Week

👇 Click to see the full post!

Purpose Investments Disclaimer

^{*Yield Shares funds are designed to provide "enhanced" or higher monthly distributions compared with the underlying common stock, which pays a relatively lower or no distributions.}

^{Commissions, trailing commissions, management fees, and expenses may all be associated with investment fund investments. Please read the prospectus and other disclosure documents before investing. Copies of the prospectus can be obtained from purposeinvest.com. There can be no assurance that the full amount of your investment in a fund will be returned to you. If the securities are purchased or sold on a stock exchange, you may pay more or receive less than the current net asset value. Investment funds are not guaranteed; their values change frequently, and past performance may not be repeated. Fund distributions and their frequency are not guaranteed and may vary at the sole discretion of Purpose Investments.}