Please select one of the following:


For Clients:

For Advisors:

Please select one of the following:


For Clients:

For Advisors:
Close search  
  • Please enter a search term.

Please select your language preference on the right hand side

Languages - Canada

  • English
  • Français
Back
Regions
Language
  • English
  • Français
Skip to signin Skip to main content Skip to footer
Sunlife logo
  • Applications & forms
  • Contact us
  • CANADA | EN
  • Search
  • Products

    New! Check out our enhanced Fund Pages

    Mutual funds

    • Overview
    • Sun Life Granite Managed Solutions
    • Sun Life Private Investment Pools
    • Sun Life Tactical ETF Portfolios
    • Sun Life Milestone Funds
    • Sun Life MFS Funds
    • Emerging Markets Funds
    • Private Client Pricing

    Segregated funds

    • Overview
    • Sun GIF Solutions
    • Sun Lifetime Advantage
    • Investment options
    • Sun Life GIFs Products no longer for sale

    Payout annuities

    • Overview

    Insurance GICs and Trust GICs

    • Overview
    • Insurance GICs
    • Superflex
    • Income Master
    • Trust GICs
    • Sun GIC Max
    • SLF Trust GIC
  • Performance

    Mutual funds

    • Overview
    • Daily prices
    • Performance
    • Ratings
    • Fund codes

    Segregated funds

    • Overview
    • Daily prices
    • Performance
    • Ratings
    • Fund codes

    Insurance GICs and Trust GICs

    • Rates
  • Insights

    Commentary

    • All
    • Market updates
    • Portfolio insights
    • Videos & podcasts
    • Advisor knowledge hub

    Investor education

    • All
    • Getting started
    • Understanding market volatility
    • Saving for retirement
    • Your retirement income
    • Tax & estate planning

    Women's Investment Community

    • All
    • Invest in yourself
    • Industry trends
    • Invest in your health
  • Resources

    Quick Links

    • MySunLifeGIFS tool – Client
    • MySunLifeGIFS tool – Advisor

    Applications & forms

    • Overview
    • Mutual funds
    • Segregated funds
    • Payout annuities
    • Insurance GICs & Trust GICs

    Investor resources

    • Market volatility
    • Retirement Hub

    Tools & calculators

    • Overview

    Mutual Funds

    • Mutual fund illustration tool
    • Granite Solutions tool
    • Series T calculator

    Segregated Funds

    • Choose your path
    • Current income rates
    • Investment GIF e-App
    • Sun Life GIFs Proposal tool

    Advisor marketing & resources

    • Segregated funds marketing
    • Fund reviews
    • Payout annuities advisor resources
    • Trust GICs advisor resources
    • Insurance GICs advisor resources
    • Multi-product conversations

    Regulatory documents

    • Fund facts
    • Financial statements
    • Management Reports of Fund Performance and Quarterly Portfolio Disclosure
    • Simplified Prospectus
    • Proxy voting
    • Independent Review Committee (IRC) report
    • Passive Foreign Investment Company (PFIC)
  • About us

    Our story

    • Who we are
    • Investment management
    • Leadership
    • News releases
    • In the media

    Sustainability

    • Sustainability commitment
    • Sustainable investing
    • Climate action
    • Governance & engagement
    • Diversity, equity & inclusion

    In the community

    • Livebright Scholarship Program
Sign In
Skip to signin Skip to main content Skip to footer
sunlife logo
Sign In
  • Please enter a search term.
  • Sun Life Global Investment products - mutual funds, segregated funds, payout annuities, insurance & trust GICs
    • Back
    • Sun Life Global Investment products - mutual funds, segregated funds, payout annuities, insurance & trust GICs
    • Sun Life Global Investment products - mutual funds, segregated funds, payout annuities, insurance & trust GICs Overview
    • Sun Life Global Investments | Sun Life Granite Managed Solutions
    • Private Investment Pools
      • Back
      • Private Investment Pools Overview
      • Sun Life Core Advantage Credit Private Pool
      • Sun Life KBI Global Dividend Private Pool F
      • Sun Life Global Tactical Yield Private Pool A
      • Sun Life Global Tactical Yield Private Pool F
      • Sun Life KBI Global Dividend Private Pool A
      • Sun Life Core Advantage Credit Private Pool F
      • Sun Life Wellington Opportunistic Fixed Income Private Pool
      • Sun Life Real Assets Private Pool F
      • Sun Life Real Assets Private Pool
      • Sun Life Wellington Opportunistic Fixed Income Private Pool F
      • Sun Life KBI Sustainable Infrastructure Private Pool A
      • Sun Life KBI Sustainable Infrastructure Private Pool F
    • Sun Life Tactical ETF Portfolios
      • Back
      • Sun Life Tactical ETF Portfolios Overview
      • Sun Life Tactical Fixed Income ETF Portfolio A
      • Sun Life Tactical Fixed Income ETF Portfolio F
      • Sun Life Tactical Conservative ETF Portfolio A
      • Sun Life Tactical Conservative ETF Portfolio F
      • Sun Life Tactical Conservative ETF Portfolio F5
      • Sun Life Tactical Conservative ETF Portfolio T5
      • Sun Life Tactical Balanced ETF Portfolio
      • Sun Life Tactical Balanced ETF Portfolio T5
      • Sun Life Tactical Balanced ETF Portfolio F
      • Sun Life Tactical Balanced ETF Portfolio F5
      • Sun Life Tactical Equity ETF Portfolio A
      • Sun Life Tactical Equity ETF Portfolio F
      • Sun Life Tactical Growth ETF Portfolio A
      • Sun Life Tactical Growth ETF Portfolio F
    • Sun Life Milestone Funds
      • Back
      • Sun Life Milestone Funds Overview
      • Sun Life Milestone 2020
      • Sun Life Milestone 2025 Fund
      • Sun Life Milestone 2030
      • Sun Life Milestone 2035 Fund
    • Emerging Markets Funds
      • Back
      • Emerging Markets Funds Overview
      • Inside India
    • Private Client Pricing
      • Back
      • Private Client Pricing Overview
      • Private Client Program Announcement
    • Sun Life Guaranteed Investment Funds (GIFs)
      • Back
      • Sun Life Guaranteed Investment Funds (GIFs) Overview
      • Sun GIF Solutions
      • Sun Lifetime Advantage GIF
      • Sun Life GIFs Products no longer for sale
      • Sun Life GIFs Investment options
      • Sun Life GIFs Products no longer for sale
    • Payout annuities
      • Back
      • Payout annuities Overview
      • Life annuities
      • Term certain annuities
    • Insurance GICs and Trust GICs
      • Back
      • Insurance GICs and Trust GICs Overview
      • Trust GICs
      • Insurance GICs
    • Sun Life MFS funds
      • Back
      • Sun Life MFS funds Overview
      • Thank you
  • Performance
    • Back
    • Performance
    • Performance Overview
    • Mutual funds
      • Back
      • Mutual funds Overview
      • Historical Prices and distributions
      • Overview
      • Fund codes
      • Ratings
      • Performance
      • Daily prices
    • Segregated Funds
      • Back
      • Segregated Funds Overview
      • Historical prices
      • Daily prices
      • Performance
      • Fund codes
      • Overview
      • Ratings
    • Insurance and Trust GICs
      • Back
      • Insurance and Trust GICs Overview
      • Rates
  • About us
    • Back
    • About us
    • About us Overview
    • Who we are
    • Investment management
      • Back
      • Investment management Overview
      • MFS
      • Aditya Birla Sun Life Asset Management Company Pte. Ltd.
      • Nuveen
      • JPMorgan Asset Management Canada Inc
      • KBI Global Investors
      • Schroders
      • Dynamic Funds
      • Sun Life Global Investments | Investments Management | Black Rock
      • Wellington Management
      • Lazard Asset Management Canada Inc.
      • Amundi Asset Management
      • SLC Management
      • Crescent Capital Group
    • Leadership
    • LiveBright Scholarship Program
    • News
    • In the media
    • Sustainable Investing
    • Diversity, equity and inclusion
    • Sustainability commitment
      • Back
      • Sustainability commitment Overview
      • Climate Action
      • Governance & engagement
  • Insights
    • Back
    • Insights
    • Insights Overview
    • Commentary
      • Back
      • Commentary Overview
      • Videos & podcasts
      • Market updates
      • Portfolio insights
      • Advisor knowledge hub
    • Investor education
      • Back
      • Investor education Overview
      • Understanding market volatility
      • Getting started
      • Saving for retirement
      • Your retirement income
      • Tax & estate planning
    • Women's investment community
      • Back
      • Women's investment community Overview
      • Invest in yourself
      • Industry trends
      • Invest in your health
  • Resources
    • Back
    • Resources
    • Resources Overview
    • Advisor tools and calculators
      • Back
      • Advisor tools and calculators Overview
      • Series T calculator
      • Granite Managed Solutions proposal tool
      • Investment illustration tool
      • Current income rates
      • Choose your path
      • My SunLifeGIFS tool
      • Investment GIF e-App
    • Applications and forms
      • Back
      • Applications and forms Overview
      • Sales process tips and reminders
      • Advisor forms - flattened versions
    • Fund reviews
      • Back
      • Fund reviews Overview
      • Sun Life MFS International Value Fund
      • Sun Life MFS U.S. Growth Fund
      • Sun Life MFS Global Growth Fund
      • Sun Life Schroder Emerging Markets Fund
      • Granite Managed Portfolios Tactical Update
      • Sun Life Wellington Opportunistic Fixed Income Private Pool
      • Sun Life Core Advantage Credit Private Pool
      • Sun Life KBI Global Dividend Private Pool
      • Sun Life Real Assets Private Pool
      • Sun Life MFS International Opportunities Fund
      • Sun Life Granite Managed Portfolios
      • Sun Life MFS Global Value Fund
      • Sun Life MFS Global Total Return Fund
    • Regulatory documents
      • Back
      • Regulatory documents Overview
      • Fund facts guide
      • Sun Life GIFs Fund Facts
    • Segregated funds marketing
      • Back
      • Segregated funds marketing Overview
      • Segregated funds – Industry best practices for meeting clients’ needs
    • Payout annuities advisor resources
      • Back
      • Payout annuities advisor resources Overview
      • Premium source and available annuity types
      • Payment options
      • Maximum deferral periods
      • Guaranteed period
    • Trust GICs advisor resources
      • Back
      • Trust GICs advisor resources Overview
      • TFSA held by non-residents Max
      • Tax-Free Savings Account (TFSA) - Taxation upon death
      • Taxation on non-registered
    • Insurance GICs advisor resources
      • Back
      • Insurance GICs advisor resources Overview
      • Superflex/Income Master, Sun GIC Max and GIC - Comparison
      • New applications - Rate commitments
      • Subsequent cheque deposit - Investment instructions
      • Accrued income
      • Adjusted Cost Basis (ACB) - Deferred annuities
      • Annuitization
      • First sixty-day receipt information for Superflex and GIC products
      • General tax info for TFSA
      • Marriage breakdown and removal of spousal designation
      • Non-registered taxation of surrenders or withdrawals for non-residents
      • Non-residents - Non-registered annuity
      • Pension tax credit
      • Tax slip and receipt mailing schedule for all Individual products
      • Withholding tax on withdrawals from an RRSP
      • Withholding tax rates around the world
      • Six things you need to know about Insurance GICs
    • Solve for Client risks
  • Register
    • Back
    • Register
    • Register Overview
    • Registration Details
  • Our commitment to achieving net-zero greenhouse gas emissions by 2050 or sooner
  • CANADA | EN

    Please select your language preference on the right hand side

    Languages - Canada

    • English
    • Français
    Back
    Regions
    Language
    • English
    • Français
  1. Home
  2. Insights
  3. Commentary
  4. Market updates
  5. 2023 corporate earnings may be in trouble as consumers lose confidence and inflation fades
Share this:
  • Share this on Facebook
  • Share this on Twitter
  • Share this on Linkedin

Market updates

December 07, 2022

2023 corporate earnings may be in trouble as consumers lose confidence and inflation fades

Following the pandemic, most consumers face soaring living costs, job uncertainty and declining home and/or portfolio values. It’s clear that our economy is confronting a big headwind.

2023 corporate earnings may be in trouble as consumers lose confidence and inflation fades

Authored by: Christine Tan, Portfolio Manager, and Pedro Cadavid, Senior Portfolio Analyst, SLGI Asset Management Inc.

 

Pent-up pandemic demand has impacted Canada’s economy. Looking back, consumers emerged from over a year of lockdowns with big savings. During that time, they also consumed endless headlines on how supply chain problems were driving up inflation. What happened after that? Those same consumers grudgingly paid up for all the experiences, and goods, that they had dearly missed. 

In turn, this means that companies catering to these insatiable consumers were able to pass through higher costs, and in many cases, increase their profit margins to above historical levels. Let’s take a closer look at the impact this has had on many companies.

Example – the math behind rising profit margins

Let’s illustrate with a hypothetical widget manufacturer called W Inc.

Scenario BEFORE lockdowns

$100 widget sale price

- $20 materials cost

- $20 transport

- $20 wages

- $20 sales & marketing

= $20 pre-tax profit

Pre-tax profit margin = ($20/$100) = 20%

W then announces it must increase its widget price by 10% because of a 10% increase in material and transportation costs. And some of the other costs have also risen. 

Scenario AFTER lockdowns

$110 widget sale price

- $22 materials

- $22 transport

- $20.80 wages (4% increase in wages)

- $20.80 sales & marketing (reflecting wages increase)

= $24.40 pre-tax profit

Pre-tax profit margin = ($24.4/$110)) = 22.2%

This repricing example above shows how earnings margins could rise above pre-pandemic levels despite severe cost inflation. In addition, inflation also provided nominal earnings growth. Let’s say W sells the same number of widgets at $110 as in the prior year for $100. Company sales would appear to have risen by 10% while pre-tax profits looked like they grew 22% year-over-year ($24.40 vs $20) even though the actual demand for widgets was unchanged. This raises the question – over the past few quarters was earnings growth that resilient or was inflation boosting numbers?

Where are we today?

Nearly three years after the pandemic, Canadian consumers are facing soaring living costs, declining home and/or portfolio values, and more job uncertainty with a rising risk of recession. The Bank of Canada’s Q3 Consumer Survey showed that 80% of Canadians are reacting to inflation by buying less, seeking discounts, or restricting purchases to only necessities. This is a big headwind for our consumption-based economy. There are similar weakening trends in the U.S., but its labour market is still tighter than Canada’s.

The year 2022 has been mainly about higher interest rates causing stock valuations to drop. We saw a reversal of the prior two years of TINA (“there is no alternative”), when markets were willing to pay high stock multiples in the wake of depressed bond yields near zero. We believe next year’s focus will be on earnings as margins normalize on weaker consumer demand without the pricing tailwind. While earnings expectations for 2023 have been revised downwards several times, consensus estimates still point to 7% and 3% earnings growth for the S&P500 and TSX, respectively. We believe these estimates to be optimistic given heightened recession risks and we expect more downside risk. But it’s not all doom and gloom. We see company balance sheets remaining strong. Management teams sound cautiously optimistic looking beyond the next couple of quarters, and consumers still have savings.

Recession risks

While we think the chances of a recession are high, it’s not a certainty. And if there is a recession, we don’t believe it will be severe. So, we are taking this opportunity to own bonds at an attractive yield and to hold quality stocks trading at a more reasonable (although not cheap) valuation, while keeping a close watch on the direction the economy and company earnings. 

The views expressed in this article are those of the authors and are subject to change at any time. Views expressed regarding a particular company, security, industry or market sector should not be considered an indication of trading intent of any mutual funds managed by SLGI Asset Management Inc. These views are not to be considered as investment advice nor should they be considered a recommendation to buy or sell. Information contained in this article has been compiled from sources believed to be reliable, but no representation or warranty, express or implied, is made with respect to its timeliness or accuracy. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently, and past performance may not be repeated.

Resources
  • Stay Diversified

  • Advisor tools and calculators

  • Fund reviews

Are you an advisor?
  • Subscribe to our emails

    Get the latest news, insights and webcasts just for advisors right to your inbox.

I understand I can unsubscribe at any time. Sun Life Global Investments will only use your email to provide you with the information you have requested and will not contact you or use your information for any other purpose. Learn more about privacy and how we collect data to provide you with more relevant content.

Learn how we are making environmental, social and governance (ESG) factors a key part of our investment strategy

  • Follow us on Twitter
  • Follow us on LinkedIn
  • Follow us on YouTube

Quick links

  • Advisor sign-in
  • Client sign-in
  • Find a form
  • Newsroom
  • Rates

Regulatory Documents

  • Fund Facts
  • Information folders & contracts and supplements
  • Management Reports of Fund Performance and Quarterly Portfolio Disclosure
  • Simplified Prospectus and Annual Information Form
  • Proxy voting
  • Independent Review Committee report
  • Passive Foreign Investment Company (PFIC)

Plan sponsors, consultants & group advisors

  • Institutional investor site

Contact us

  • For all questions and inquiries, please contact us

Sun Life Global Investments is a trade name of SLGI Asset Management Inc., Sun Life Assurance Company of Canada, and Sun Life Financial Trust Inc., all of which are members of the Sun Life group of companies.

SLGI Asset Management Inc. is the investment manager of the Sun Life family of mutual funds; Sun Life Assurance Company of Canada is the issuer of guaranteed insurance contracts including Annuities, and Segregated Funds.  Sun Life Financial Trust Inc. is the issuer of Guaranteed Investment Certificates.

  • Legal
  • Privacy
  • Security
  • Fraud
  • Accessibility

© SLGI Asset Management Inc., Sun Life Assurance Company of Canada, and their licensors. All rights reserved.