Daily market snapshot

Angelo Kourkafas

Friday, 11/01/2024 p.m.

Stocks rise to kick off November – Canadian and U.S. equity markets finished higher on Friday, helped by tech earnings and expectations that the Fed will cut interest rates next week. A weak but also noisy jobs report that was impacted by the hurricanes and the Boeing strike initially drove yields lower, but the move later reversed, and the 10-year GoC yield finished at a three-month high*. On the corporate front, shares of Amazon climbed 6% after the company reported better-than-expected profitability, and shares of Intel rose roughly 8% on positive guidance*. On the flip side, Apple's earnings were met with some skepticism after a modest disappointment in revenue guidance. Overall, sentiment was positive to start the new month, with all major indexes higher, while the traditionally defensive sectors underperformed. Elsewhere, oil prices were marginally higher, as investors digested headlines about potential Iran retaliation to last weekend's airstrikes.
Storms and strike drive soft U.S. jobs report – The U.S. economy added 12,000 jobs in October, missing consensus expectations for a 100,000 increase, and the slowest pace of hiring since 2020. Health care and government continued to drive the hiring, while manufacturing employment decreased by 46,000 jobs, largely due to the Boeing strike*. The two recent hurricanes also likely had an impact, as the number of workers who reported they couldn’t be at work due to bad weather surged, creating additional noise in the data. Nonetheless, the prior two months' job gains were revised downward, indicating that the September report was not as strong as it first appeared, providing more confidence that the Fed will continue to cut rates in its two remaining meetings of the year. The rate of unemployment held steady at 4.1%, and the hourly wage gains held steady at 4%*. The key takeaway, in our view, is that temporary disruptions had a discernible impact on the labour market last month, but, when trying to isolate these factors, the trend of a gently cooling labour market likely persists, allowing the Fed to continue removing its restriction in the months ahead.
Higher yields and election uncertainty weighed on October sentiment – After five months of gains, stocks posted a modest decline last month, as a rally in Treasury yields and next week's U.S. election uncertainty provided reasons for caution. October was the worst month for government bonds in two years, driven by a combination of stronger-than-expected economic and inflation data that led to a shift in Fed expectations*. Concerns over U.S. debt also added to the recent bond volatility. Next week the market will be focused on the presidential election, which may trigger a knee-jerk reaction. Yesterday's rise of the volatility index (VIX) to the highest since August is consistent with the historical pattern of bigger price fluctuations around Election Day*. Despite the near-term uncertainty, the fundamental environment remains supportive. Yields appear to be rising for the right reasons, with the economy resilient, as indicated by this week's GDP data, and recession probabilities have dropped. We would view any election-driven pullback opportunistically, and we don't expect much further upside in yields as the Fed gradually cuts interest rates further through 2025.

Angelo Kourkafas, CFA
Associate Analyst

^{Source: *FactSet}

Thursday, 10/31/2024 p.m.

Stocks dragged lower by tech weakness – The major averages closed notably lower on Thursday, as investors digested a mix of incoming economic and earnings data – the theme of which has been "good but short of expectations." Wednesday's U.S. GDP report showed the economy grew by 2.8% last quarter, a healthy pace, but shy of the 3% mark that consensus expectations were looking for, leading to a modestly lower close for the stock market. The script was similar today, in this case with quarterly earnings results from Meta and Microsoft failing to hurdle the bar of high expectations. Bond yields edged a touch lower on the day, with the 10-year Government of Canada bond yield just above 3.2%, having been below 3% one month ago. With markets primarily guided by the evolving balance between the labour market, inflation and central-bank policy, it was a big day on the data calendar, with the tone being set by the release of U.S. initial jobless claims alongside the latest reading on consumer prices. The next several days will be chock full of influential events, including Friday's September U.S. payrolls report, followed by the U.S. presidential election and the Fed interest-rate decision next week.*
Inflation data showing some stickiness – The release of the U.S. personal consumption expenditures deflator (a measure of consumer-price inflation that the Fed prefers) showed that the month-on-month rate moved higher, driven by firmer core services prices (excluding housing). This left the annualized rate of inflation at 2.7% for the third consecutive month. There are a few ways we interpret this data: 1) The path ahead for inflation is likely to be choppier, compared with the steadier pace of moderation over the last 18 months. 2) The pace of inflation is sufficiently cool that the Fed does not need to rethink its broader approach to policy easing, but it is still high enough that the Fed will need to be more measured from here, potentially taking pauses between rate cuts to assess the trend in consumer prices. And 3) The source of stickiness (services prices) is a reflection of the ongoing strength in the economy, particularly in consumer spending. While we'll need to see further progress on core inflation, the fact that economic resilience is accompanying this next leg of disinflation is (assuming inflation does continue to moderate) a broad positive for financial markets, in our view.
Employment trends remain supportive – This week includes a bevy of labour-market readings, the most important of which will come on Friday morning with the release of the U.S. nonfarm-payrolls report (Canada's September jobs report will be released next week). The appetizer today was the read on U.S. initial jobless claims, which declined from the previous week and fell to its lowest since May. This measure of employment bounces around week to week, but the overall trend in jobless claims remains rather favourable and consistent with a labour market that is softening but not deteriorating. Markets will take their larger cues from tomorrow's payroll report, though we suspect there will be a fair bit of noise in the coming jobs data given the impact of the recent hurricanes. Nevertheless, employment conditions continue to provide broad support to consumer spending, which will be particularly helpful heading into the holiday shopping season, as the economy looks to close out 2024 will another quarter of above-trend GDP growth.

Craig Fehr, CFA
Associate Analyst

^{Source: *FactSet}

Wednesday, 10/30/2024 p.m.

Stocks finish modestly lower: Equity markets finished lower Wednesday following a mixed finish on Tuesday, which saw the S&P 500 and Nasdaq finish higher on strength in mega-cap tech while the TSX was flat. It was a busy day in terms of U.S. economic data, with the preliminary estimate for third-quarter real GDP showing the U.S. economy expanded at a 2.8% clip, while the ADP Employment report showed U.S. private employment grew by 233,000 in October, the highest since July 2023.* On the corporate front, shares of Alphabet closed higher after the company announced better-than-expected earnings results after the market close yesterday. Corporate earnings will remain in the spotlight, with Microsoft and Meta scheduled to report after market close today.* Bond yields were mixed, with the 10-year GoC yield falling to 3.24% while the 10-year U.S. Treasury yield rose slightly to 4.28%.*
U.S. economy expands at a strong pace in the third quarter: The preliminary reading for third-quarter GDP suggests that the U.S. economic engine continues to hum along. Real GDP grew by 2.8% annualized in the third quarter, better than economist expectations for 2.6% growth, but below the Fed's GDPNow estimate of over 3%.** Household spending was the primary culprit behind the strong third-quarter growth, with personal consumption expenditures growing by 3.7% in the quarter. Spending on goods was particularly strong, growing by 6%, the strongest rate in more than a year. Net trade was a modest detractor from growth, with imports growing 11.2%, outpacing export growth of 8.9%.** Today's reading suggests the U.S. economy remained on solid footing throughout the third quarter. In our view, easier monetary policy and healthy labour-market conditions should help extend the economic expansion in the quarters ahead.
U.S. labour-market data in focus: U.S. labour-market data has been front and centre for markets this week. Yesterday brought the Job Openings and Labour Turnover Summary (JOLTS) for September, which showed U.S. job openings declined to 7.4 million, the lowest since early 2021.* The decline in job openings signals that demand for labour has cooled from a period of historic strength. However, job openings still exceed the number of people unemployed (6.8 million in September), highlighting that labour-market conditions remain healthy.* This morning brought the ADP Employment Report for October, which provided further evidence of a healthy U.S. labour market. Private employment grew by 233,000 in October, more than double expectations for a 108,000 gain.* The job gains in October were broad-based, with both goods-producing and services industries seeing job growth.* Perhaps the most anticipated report for this week will be on Friday with the release of the nonfarm-jobs report for October. Expectations are for nonfarm payrolls to rise by 120,000, well below the prior reading of 254,000, as recent strikes and hurricanes potentially weighed on job growth. The unemployment rate is expected to hold steady at 4.1%. Our view is that labour-market conditions are easing from a period of historic strength but will likely remain supportive to household spending in the months ahead.

Brock Weimer, CFA
Associate Analyst

^{Source: *FactSet. **FactSet. All references to real GDP growth are quarterly growth at a seasonally adjusted annualized rate.}

Tuesday, 10/29/2024 p.m.

Stocks closed mixed on Tuesday: The S&P 500 and technology-heavy Nasdaq closed higher on Tuesday, while the Dow Jones and Canadian TSX closed lower. Stocks broadly have had a strong year, with the S&P 500 up over 22% this year. The Nasdaq is up over 24%, the Canadian TSX is up about 17%, and the Dow Jones index is up about 12%*. Meanwhile, despite today's move lower in yields, Treasury bond market returns have come under pressure in recent weeks, as Treasury yields have climbed. The 10-year Treasury yield is now over 4.25%, well above its recent September lows of around 3.6%*. For investors with balanced or diversified portfolios, returns will likely be a blend of higher equity performance and more modest bond-market returns this year thus far.
Corporate earnings season continues, with mega-cap tech on deck: About 40% of S&P 500 companies have reported third-quarter earnings thus far, with results that have been modest overall. The year-over-year earnings growth rate has been about 4.1%, in line with lowered estimates at the start of the quarter, and well below last quarter's growth rate of around 11%.* This week, a slew of mega-cap companies will report earnings, including Apple, Amazon, Alphabet (Google) and Meta. Investors will be listening for updates on spending plans around artificial intelligence (AI) and data-center capacity, as well as any progress made toward AI use cases across sectors.
U.S. labour-market report due on Friday: Investors will be paying close attention to Friday's U.S. nonfarm-jobs report for October. Expectations are for total jobs added to fall to 120,000, well below last month's 254,000 jobs added, in part driven by recent strikes and natural disasters.* The unemployment rate is expected to stay steady at 4.1%, which would remain below the highs of this year of 4.3%.* The wage-gains figures, or average hourly earnings, are expected to tick modestly lower to 0.3% month-over-month, versus last month's 0.4% gain.* This easing in wage growth would be a welcome sign of less pressure on services inflation, which is in large part driven by labour costs. Overall, we believe the labour market may be gradually normalizing from a period of outsized strength after the pandemic period, but signs point to a healthy U.S. jobs market overall.

Mona Mahajan
Investment Strategist

^{Source: *FactSet}

Monday, 10/28/2024 p.m.

Stocks close higher: The TSX and major U.S. equity markets started the week higher, with small- and mid-cap stocks leading large-cap stocks. Sector performance was broad, as financial and materials stocks posted the largest gains. Bond yields continued their trend higher, with the 10-year Government of Canada yield at 3.26%, up about 40 basis points (0.4%) from its recent low in September. In global markets, Asia was up, as Japan's ruling political coalition lost its majority in the election, bolstering the view that the resulting uncertainty could further delay interest-rate hikes by the Bank of Japan*. The U.S. dollar advanced versus major currencies. In the commodity space, WTI oil traded lower, as Iran's energy infrastructure was not damaged in Israel's strikes over the weekend.
Markets focused on the labour market and inflation this week: The U.S. core personal consumption expenditures (PCE) price index – the Federal Reserve's (Fed) preferred inflation measure – will be released on Thursday, with forecasts calling for 2.6% annualized inflation through September, down from 2.7% the prior month. Headline PCE is expected to decline to 2.0%, from 2.2% in August. Continued progress toward the 2% target for core inflation should keep the Fed on its rate-cutting path for the next several months, in our view. CPI inflation of 1.6% in Canada – in the lower half of the 1%-3% target range - should keep the Bank of Canada on track to continue cutting interest rates as well. The U.S. jobs report for October will be released on Friday, November 1, with expectations for 125,000 new jobs created, down from 254,000 in September, which was well above estimates. Unemployment is forecast to hold steady at 4.1%, well below the long-term average of about 5.7%**. We believe the labour market is gradually normalizing from a period of outsized strength, which should be supportive of the soft-landing outcome for the economy.
Corporate earnings season in full swing: With 37% of companies reporting third-quarter earnings, 74% have beaten analyst estimates, with an average upside surprise of 5.8%*. Earnings growth is expected to be broad, with eight of the 11 sectors forecast to report higher earnings year-over-year*. The three sectors forecast to have lower earnings – industrials, energy and materials – represent about 14% of the market capitalization of the S&P 500*. Broadening earnings have contributed to a rotation in market leadership. Over the past six months, the utilities, real estate, financials, consumer discretionary and industrials sectors have each outperformed the communication services sector, which led markets higher earlier in the year*.

Brian Therien, CFA
Investment Strategist

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

Friday, 10/25/2024 p.m.

Stocks close mixed: Equity markets closed mixed on Friday, with the technology-heavy Nasdaq moving higher, while the broader S&P 500 and Canadian TSX moved modestly lower. From a sector perspective, in the U.S., technology and consumer discretionary stocks led the way higher. The laggards on Friday included cyclical parts of the market, like financials and utilities. Treasury yields also added to recent gains, with the 10-year Treasury yield up about 0.04% to around 4.24%*. Yields are well above their September low levels of about 3.61%*. This climb in yields comes as recent U.S. economic data has exceeded expectations, putting some upward pressure on yields and some downward pressure on stock markets, particularly interest-rate-sensitive sectors like real estate. Investors will look toward next Friday's U.S. jobs report for the next signal on the health of the labour market and broader consumer demand.
Earnings season delivers modest results thus far: About 36% of S&P 500 companies have reported third-quarter earnings so far, and the results have been mixed. Among these companies, 74% have beaten earnings expectations, which is in line with the 10-year average but below the five-year average of 77%. In addition, earnings growth thus far is on track for about 3.4% year-over-year, which is somewhat below the 4.1% expected at the beginning of the quarter*. The sectors that have had the biggest upside surprises in earnings include financials and utilities, in addition to consumer discretionary stocks. This underscores the recent broadening of market leadership that has been playing out in the stock markets. Next week, however, large-cap technology companies, including Apple, Microsoft, Alphabet (Google) and Amazon all report earnings, which should provide a good read into the state of corporate spending and artificial intelligence. In our view, over the next few quarters, the contribution to earnings growth is likely to come from both tech and nontech parts of the market, which should be supportive of further broadening of market leadership in stock markets.
All eyes shift to U.S. labour market next week: The U.S. nonfarm-jobs report for October will be released on Friday, November 1, which will be the last reading on the health of the labour market ahead of the U.S. elections and the November 7 Federal Reserve meeting. Expectations are for the total number of jobs added to moderate to about 100,000, down from last month's 223,000*, in part driven by the recent natural disasters and strikes at firms like Boeing. However, the unemployment rate is expected to remain steady at 4.1%, well below the long-term U.S. average unemployment rate of 5.5% - 6%*. Average hourly earnings are also expected to tick lower, from 0.4% month-over-month to 0.3% in October*, which would be a welcome signal of lower services inflation. Overall, while the U.S. labour market has shown signs of softening, with lower job openings and quit rates, we see this as moderation from a period of outsized strength in the post-pandemic period, rather than a deep or prolonged downturn.

Mona Mahajan
Investment Strategist

^{Source: *FactSet}

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