Daily market snapshot

• Stocks start the month mixed – The TSX closed lower, while major U.S. equity markets were up on Monday, with large-cap stocks leading small- and mid-cap stocks. Sector performance was mixed, as communication services and consumer discretionary stocks posted the largest gains. In global markets, Asia was up on China's manufacturing purchasing managers index (PMI) for November rising to 51.5, reflecting expansion and beating estimates calling for 50.5*. Europe was also higher, as the eurozone unemployment rate for October held steady at 6.3%, as expected. Bond yields were also mixed, with the 10-year Government of Canada yield down to 3.07% and the 10-year U.S. Treasury yield up to 4.19%. The U.S. dollar advanced versus major currencies. In the commodity space, WTI oil traded higher, while gold was down*.
• Market to focus on the labour market this week – U.S. job openings will be released on Tuesday, with estimates pointing to a modest decline to 7.42 million in October, down from 7.44 million the prior month. Job openings have remained higher than total unemployment of about 7.0 million, although the excess has been steadily narrowing**. Total nonfarm payrolls for the U.S. will be released on Friday, with forecasts calling for 200,000 in November, up from just 12,000 that was impacted by weather and labor strikes in October. The unemployment rate is expected to tick up to 4.2%, from 4.1%*. These forecasts, if realized, reflect a resilient labour market that is gradually cooling, which is supportive of continued moderation in inflation and the soft-landing narrative, in our view.
• Manufacturing readings beat estimates – The Markit Manufacturing Purchasing Managers' Index (PMI) rose to 49.7 in November, above forecasts calling for 48.8. The Institute for Supply Management (ISM) Manufacturing Index also rose to 48.4 November, beating estimates pointing to 47.5. PMI and ISM are diffusion indexes, with readings above 50.0 reflecting expansion. While both readings still reflect modest contraction, the trend has improved in recent months, which is supportive of resilient economic growth, in our view.

Brian Therien, CFA
Investment Strategy

^{Source: *FactSet ** U.S. Bureau of Labor Statistics}

• Stocks finish higher, capping a strong month: Equity markets finished higher on Friday and capped off a strong month of performance, with the TSX and S&P 500 higher by roughly 6% in November.* Leadership was broad-based today, with most sectors of the S&P 500 finishing higher, led by information technology and consumer discretionary.* Overseas, Asian markets were mixed overnight, while European markets were mostly higher following a lower-than-expected eurozone inflation report.* On the economic front, domestic real GDP grew at a 1% annualized pace in the third quarter, modestly below expectations for a 1.1% gain.* Bond yields finished lower, with the 10-year GoC yield falling to around the 3.14% mark, while the 10-year U.S. Treasury yield closed around 4.19%.* In the commodity space, oil prices ended lower, with WTI crude oil just below $69 per barrel, while gold was up roughly 0.7%.*
• Third-quarter GDP slightly below expectations: The first estimate of third-quarter real GDP showed the Canadian economy grew at a 1% annualized rate in the third quarter, slightly below expectations of growth for 1.1%.* Today's reading is a step down of the 2%-plus growth rates achieved in the first two quarters of the year, but nonetheless represents improvement from 2023 when GDP grew by less than 1% in each of the final three quarters of the year.* Looking into the drivers of growth in the third quarter, household spending rose by a strong 3.5% annualized rate, the highest since the first quarter of 2023.* Additionally, household spending per capita rose at a 1% annualized clip after declining in six of the previous eight quarters.* Weakness in business investment, inventories and net trade were factors that weighed on growth in the third quarter. With household consumption growing at a healthy clip, we'd view today's report as stronger than the headline number suggests.
• Busy economic week ahead: The week ahead will be a busy one from an economic perspective. We'll get a read on U.S. economic activity with the release of the ISM services and manufacturing PMI's, as well as a look into recent labour-market trends, with all eyes focused on Friday's domestic labour-force survey and U.S. nonfarm-payroll report for November. On the growth front, the ISM manufacturing PMI is expected to improve to 48 but remain in contraction (reading below 50), while the ISM services PMI is expected to remain well into expansion at 55.4.* Turning to the labour market, expectations are for domestic employment to grow by 20,000 in November, while the unemployment rate is expected to tick higher to 6.7%.* In the U.S., nonfarm payrolls are expected to rise by 200,000, well above the prior months 12,000 gain, which was negatively impacted by the Boeing machinist strike and hurricanes Helene and Milton.* The U.S. unemployment rate is expected to tick higher to 4.2%, up from 4.1% in October.* We expect labour-market conditions to remain healthy over the coming year, providing support to consumer spending and helping to extend the economic expansion.  

Brock Weimer, CFA
Associate Analyst

^*FactSet

U.S. Thanksgiving Holiday

Wednesday, 11/27/2024 p.m.

• Stocks finish mixed: Major equity markets finished mixed on Wednesday with the TSX closing modestly higher while the S&P 500 fell by roughly 0.4%.* Real estate and health care were the top performing sectors of the S&P 500 while technology was a laggard following mixed earnings results from Dell Technologies after the market close yesterday.* Overseas, European markets traded lower while Asian markets were mixed overnight with Japan's Nikkei logging a modest decline while equity markets in China were higher.* On the economic front, the second preliminary estimate for third-quarter U.S. GDP growth was in-line with expectations and unchanged from the initial estimate of 2.8%.* U.S. inflation data was in focus today as well with personal consumption expenditures (PCE) inflation in-line with expectations for both core and headline PCE. Bond yields finished lower with the 10-year GoC yield falling to 3.22% and the 10-year U.S. Treasury yield ticking down to 4.25%.*
• U.S. inflation data in-line with expectations: U.S. inflation data was back in focus today with the release of October personal consumption expenditures (PCE) inflation. Headline PCE rose by 0.2% in October and 2.3% over the past 12-months, both of which were in-line with expectations. Core PCE rose by 0.3% in October and 2.8% over the past 12-months, which were also both in-line with expectations. Markets are pricing in a 66% probability of another 0.25% rate cut at the Fed's December 18 meeting.*** In our view, another 0.25% cut in December is likely, however with the U.S. economy on strong footing and the potential for inflationary fiscal policy down the road, the Fed will likely take a more gradual approach to rate cuts in 2025.
• The past 12-months have seen strong returns across multiple asset classes: The past 12-months have seen above-average returns across a variety of different asset classes and regions, building on strong performance in 2023. Canadian large-cap stocks have gained roughly 30% over the past 12-months, well above the 20-year annualized growth rate of roughly 8%.** U.S. large-cap stocks have seen impressive returns as well, rising by more than 37% over the same time, while U.S. small- and mid-cap stocks have gained over 38%. Despite underperformance more recently, overseas stocks have managed healthy returns, with overseas developed large-cap stocks higher by roughly 14% and emerging-market stocks up roughly 17%.* Additionally, Canadian investment-grade bonds have posted a gain over 8% in the past 12-months despite a spike in yields more recently. While it will be difficult to replicate the strong performance of the past 12-months, we see broad leadership as a theme that continues to play out in the months ahead, emphasizing the importance of maintaining a well-diversified portfolio aligned to your long-term goals.

Brock Weimer, CFA 
Associate Analyst

^{*FactSet **Morningstar Direct. Total Return in CAD. ***CME FedWatch Tool}

• Stocks rise as tariff rhetoric heats up – The TSX and major U.S. equity markets closed higher on Tuesday, with the S&P 500 and Dow Jones Industrial Average reaching record highs. Social media posts from President-elect Trump call for 25% tariffs on goods from Canada and Mexico, as well as an additional 10% tariff on products from China. The tariffs on the Canada and Mexico are modestly higher than the 10%-20% previously proposed, while the China tariff is lower than up to 60% mentioned during the campaign. Raising tariffs on Canada and Mexico would likely face legal hurdles as trade with these countries is subject to the U.S.-Mexico-Canada Agreement (USMCA), which was negotiated during Trump's first term and entered into in 2020. Tariffs on goods from China may be more likely to be imposed as they benefit from bi-partisan support in Congress. In global markets, Europe was down as markets assessed the global implications of potentially higher U.S. tariffs. The U.S. dollar is advancing versus major currencies. In the commodity space, WTI oil traded lower as Israel and Lebanon reportedly agreed to a ceasefire*.
• Markets focus on key inflation readings this week – The personal consumption expenditure (PCE) index for October will be released on Wednesday, with forecasts calling for inflation to rise to 2.3% annualized, up from 2.1% the prior month*. This estimate is in line with the Federal Reserve's (Fed) full-year projection for 2024. The Fed's preferred inflation measure, core PCE, which excludes food and energy prices, is expected to tick up to 2.8%. We believe these expectations reflect inflation that is gradually cooling, though the path will likely be bumpy along the way. With the target range for the fed funds rate currently 4.5%-4.75%, monetary policy is restrictive, as a neutral rate is generally considered to be about 1% above inflation. We expect the Fed to continue cutting interest rates, though the pace is likely to slow. Bond markets are currently pricing in expectations for 0.75% of Fed rate cuts over the next 12 months**. We believe the Bank of Canada is likely to remain in its rate-cutting cycle as well, with CPI inflation at 2.0% in the middle of the central bank's target range of 1%-3%.
• Rising short-term yields briefly invert yield curve – Short-term Treasury yields have risen in recent months as markets have scaled back Fed interest-rate-cut expectations. The 2-year Treasury yield has risen about 75 basis points (0.75%) in recent months, briefly surpassing 10-year yields on Monday, known as an inverted yield curve. The yield curve is now slightly positive, with the 10-year Treasury yield at 4.30% and 2-year yield at 4.25%. In our view, this bond market signal does not reflect recession concerns but rather is the result of adjusting expectations to a slower pace and shallower path of Fed rate cuts. Bond yields in Canada declined, with the 10-year Government of Canada yield at 3.27%.

Brian Therien, CFA 
Investment Strategy 

^{Source: *FactSet **CME FedWatch}