Daily market snapshot

• Stocks start the week higher – The TSX and major U.S. equity markets rose on Monday, regaining some of their losses from last week. Sector performance was broad, as energy and communication services stocks led markets higher. In global markets, Asia was mixed, as markets await the Bank of China's interest-rate decision on Wednesday and inflation data from Japan on Friday. The U.S. dollar declined versus major currencies. In the commodity space, WTI oil was up following an escalation in Ukraine and a production disruption in Europe*.
• Focus turns to NVIDIA results as corporate earnings season winds down – Artificial intelligence (AI) leader NVIDIA will release its third-quarter earnings results on Wednesday, with estimates calling for earnings per share of $0.75. With 92% of companies having reported, earnings are on pace for about 5.4% growth year-over-year. Results have been strong relative to expectations, with 74% of companies beating analyst estimates*. Earnings growth has been broad, with seven of the 11 sectors delivering higher earnings*. The sectors forecast to have lower earnings – energy, industrials, materials and utilities – represent about 17% of the market capitalization of the S&P 500*.
• Bond yields edge lower:

Brian Therien, CFA 
Investment Strategy

^{Source: *FactSet ** CME FedWatch *** Federal Reserve Bank of St. Louis}

• Stocks post a losing week, reversing half of the post-election gains - Major indexes remained on the defensive today, with stocks pulling back after the strong post-U.S. election rally last week. The Fed may take its time to ease policy, and rate-cut expectations have been trimmed, which is driving stock and bond volatility higher. The tech-heavy Nasdaq lagged, while the Dow, the TSX and the utilities sector outperformed. Elsewhere, Asia markets were mixed after China retail sales expanded at their fastest pace in eight months, indicating easing pressures in the economy*. Crude oil was lower and ended the week down almost 5%, as the International Energy Agency is forecasting a surplus in 2025 on robust U.S. production*.
• Cautious Fed messaging pushes yields higher - Treasury yields continue to see upward pressure, as the outlook for the Fed's rate-cutting cycle has been shifting. Jerome Powell signaled yesterday that the Fed is in no rush to cut interest rates, suggesting that policymakers could be open to skipping a meeting before lowering their policy rate again. Stocks yesterday pulled back in response to these comments, and bond markets lowered expectations for another rate cut next month, with the odds falling to less than 60% from roughly 80% a day earlier*. Given the stronger economic and inflation data in recent months, we think that there is no urgency with the pace of rate cuts, especially when considering the potential effect of various pro-growth but potentially inflationary policies coming from the new administration. Nonetheless, because the gap between the fed funds rate and inflation remains wide, we think that there is scope for rates to decline further next year, but possibly toward 3.5% - 4.0% instead of the 3.0% - 3.5% that we previously expected. Next month's decision may be a close call, but there is another set of inflation and employment data before policymakers meet again on December 17-18 that will help inform the decision.
• Canada manufacturing sales weak but likely improving, U.S. retail sales still solid – Manufacturing sales in Canada declined 0.5%, slightly better than the 0.8% drop expected*. While manufacturing has stayed weak, there are tentative signs that activity is potentially bottoming. New orders increased, while the manufacturing PMI is now back into expansionary territory. October U.S. retail sales increased 0.4% month-over-month, while September's number was revised higher to 0.8% from 0.4%. Strong vehicle sales boosted growth, but the underlying trend was more muted, with control-group sales – which exclude autos, gasoline, building materials and food services – falling 0.1% vs. consensus for a 0.3% increase*. While that was weaker than expected, the upward revisions to the prior months still point to strong consumer-spending growth in the last quarter of the year. Falling gas prices, solid income gains, and appreciating asset prices will likely continue to support consumption, which is one key reason why we think the economic expansion and bull market will extend through 2025.

Angelo Kourkafas, CFA 
Investment Strategist

^{Source: *FactSet}

• Stocks close mixed – The TSX closed higher, while major U.S. equity markets were down, taking a break from the post-election rally on Thursday. Sector performance was broadly lower, as only energy and technology stocks posted gains. Bond yields were also mixed, with the 10-year Government of Canada yield down to 3.27% and the 10-year U.S. Treasury yield rising to 4.45%, as Federal Reserve (Fed) Chair Jerome Powell commented that the Fed doesn't need to be in a hurry in cutting interest rates*. In global markets, Asia was mostly lower, while Europe was up. The U.S. dollar advanced versus major currencies. In the commodity space, WTI oil was up following a sell-off in recent days*.
• Key producer inflation measures edge higher – The U.S. producer price index (PPI) inflation rose to 2.4% annualized in October, slightly above estimates for 2.3%. Core PPI, which excludes more-volatile food and energy prices, ticked up to 3.1% on a year-over-year basis, compared with forecasts calling for 3.0%*. We believe these readings are consistent with inflation that continues to moderate gradually, though the path lower will likely be bumpy, at times potentially slower than market expectations. This progress should keep the Fed on track to continue its interest-rate-cutting cycle, though the pace will likely begin to slow as the central bank aims for a soft landing, in our view. The Bank of Canada should be able to continue cutting rates as well, with CPI of 1.6% in the lower half of the bank's 1%-3% target range.
• Jobless claims tick lower: U.S. jobless claims declined to 217,000* this past week, below expectations for about 224,000. We believe this reading reflects a resilient labour market that is gradually normalizing from a period of outsized strength. Employers appear to be slowly pulling back on hiring but not turning to significant layoffs. With unemployment of 4.1%, disposable income should be sufficient to support continued consumer spending going into the holiday season. A cooling labour market should also lead to slower wage gains ahead, which typically help ease inflation.

Brian Therien, CFA 
Investment Strategy

^{Source: *FactSet}

• Stocks modestly higher following U.S. inflation data – Equity markets are ticking higher on Wednesday following U.S. consumer price inflation data that was in line with expectations. Early leadership is balanced, with most sectors of the S&P 500 opening the day flat to higher and led by real estate and consumer discretionary.* After falling by over 1.7% yesterday, U.S. small-cap stocks are outperforming in early trading, with the Russell 2000 Index higher by roughly 0.7%.* Overseas, Asian markets were mostly lower overnight, while European markets are trading lower as well. After a sharp move higher yesterday, bond yields are taking a breather, with the 10-year GoC yield ticking down to 3.24% and the 10-year U.S. Treasury yield falling to 4.38%.*
• U.S. inflation data in line with expectations – Headline consumer price index (CPI) inflation rose by 0.2% in October and 2.6% year-over-year, both in line with expectations.* Core CPI, which excludes food and energy, rose by 0.3% in October and 3.3% year-over-year, also both in line with expectations.* The 0.3% monthly change in core CPI is the third consecutive month with a 0.3% gain and pushes the three-month annualized change in core CPI to 3.6%, up from a low of 1.6% in July.* While we expect that inflation will continue to trend lower over the coming months, recent data shows that the path lower may not be in a straight line. Market expectations are calling for an 80% probability of a Fed rate cut at the December meeting, which we'd view as a reasonable expectation.** However, strong economic growth suggests that there is no need for urgency from the Fed to accelerate the pace of rate cuts. Bond markets have reflected this view and are now pricing in only three 0.25% Fed rate cuts from now until the end of 2025.**
• Focus turns to the consumer - With consumer price inflation in the rearview, market focus will turn to consumer-spending trends, with U.S. retail sales for October out on Friday.* Consensus expectations are for retail sales to rise by a healthy 0.3% month-over-month, a modest downtick from the September reading of 0.4%.* Control-group retail sales - which excludes more volatile components such as spending at auto dealers, gas stations and building-material dealers – is also expected to rise by 0.3% in October.* Despite higher borrowing costs compared with recent history, consumer spending has proved resilient and has been the driving force behind strong U.S. economic growth in recent quarters. In our view, easing but healthy labor-market conditions and strong household balance sheets create a supportive environment for consumers, which should help extend the economic expansion.

Brock Weimer, CFA 
Investment Strategy

^{Source: *FactSet **Bloomberg}

• Stocks finish mixed – The TSX logged a 0.4% gain on Tuesday, while U.S. equity markets finished lower, with the S&P 500 snapping a streak of five consecutive days of positive returns.* U.S. small-cap stocks underperformed today as well, with the Russell 2000 Index shedding over 1.5%, reflecting a risk-off tone in U.S. equity markets.* TSX outperformance was aided by shares of Shopify, which surged over 20% following strong earnings results this morning.* Bond yields finished sharply higher, with the 10-year U.S. Treasury yield rising 0.13 percentage points to 4.43%, while the 10-year GoC yield climbed to 3.27%.* On the economic front, the U.S. NFIB Small Business Index rose to 93.7 in October, below the 30-year average of over 97 but tied with the July reading for its highest since 2022.* In the commodity space, oil prices were little changed, finishing around $68 per barrel, while gold prices fell by roughly 0.4%.*
• Key U.S. inflation data on the horizon – U.S. inflation will be the main focus for markets this week, with October consumer price index (CPI) inflation out tomorrow and the producer price index (PPI) out on Thursday. Economists expect headline CPI to rise by 2.6% on an annual basis, while headline PPI is expected to rise by 2.3%, both higher than the prior month.* Core CPI, which excludes the food and energy components, is expected to hold steady at 3.3% annually.* Markets are currently pricing in a roughly 65% probability of a 0.25% Fed rate cut at its December 18 meeting.** We'd align with consensus that another 0.25% rate cut from the Fed in December is likely. However, given the U.S. economy remains on strong footing, a hotter-than-expected CPI reading tomorrow could lead to a pause at the December meeting.
• Bond yields resume upward trend: After taking a breather in the prior week, bond yields rose again today, with the 10-year U.S. Treasury yield closing just above the 4.4% mark.* Since the Fed first cut interest rates on September 18, the 10-year Treasury yield has risen roughly 0.7%.* Canadian yields have followed suit, with the 10-year GoC yield higher by over 0.3% over the same time.* In response, U.S. investment-grade bonds have struggled, declining by nearly 3% since September 18, while Canadian investment-grade bonds have declined by 0.5%.* In our view, the rise in yields has been attributable to a combination of resilient U.S. economic growth and higher inflation expectations, as measured by the five-year breakeven U.S. inflation rate.* This has led to a subsequent reduction in expectations for Fed interest-rate cuts over the coming year, with markets now expecting the Fed's target rate to end 2025 at roughly 3.9% compared with expectations of 2.9% in early October.** With central banks easing policy, our view is that there will be limited upward pressure on intermediate and longer-term yields. We'd recommend investors consider reducing overweight allocations to cash and short-term bonds and add to intermediate- and longer-term bonds.

Brock Weimer, CFA 
Investment Strategy

^{Source: *FactSet **Bloomberg
U.S. investment-grade bonds measured by the Bloomberg U.S. Aggregate Bond Index.
Canadian investment-grade bonds measured by the Bloomberg Canada Aggregate Bond Index.}