Daily market snapshot

• Stocks close higher: The TSX and major U.S. equity markets added to strong gains from last week, as the S&P 500, Nasdaq and Dow Jones Industrial Average reached new record highs. Sector performance was mixed, with consumer discretionary and financial stocks leading markets higher. Bond markets were closed in observance of Remembrance Day in Canada and Veterans Day in the U.S. In global markets, China was lower, as new stimulus measures fell short of market expectations*, while Europe was up. The U.S. dollar advanced versus major currencies. In the commodity space, WTI oil was down, as the China stimulus package raised demand concerns*.
• Markets focus on key inflation readings this week: The U.S. consumer price index (CPI) for October will be released on Wednesday, with forecasts calling for inflation to rise to 2.6% annualized, up from 2.4% the prior month*. The modest expected increase is due to lower inflation readings from a year ago rolling out of the year-over-year figure. Importantly, CPI is expected to rise 0.2% month-over-month, which translates to about 2.4% inflation annualized. We believe these expectations reflect inflation that is gradually cooling, though the path will likely be bumpy along the way, likely allowing the Bank of Canada and Federal Reserve to continue cutting interest rates.
• Corporate earnings season winding down:With 91% of companies reporting, third quarter earnings are on pace for about 5.2% growth year-over-year. Results have been strong relative to expectations, with 74% of companies beating analyst estimates*. Earnings growth has been broad, with eight of the 11 sectors delivering higher earnings*. The three sectors forecast to have lower earnings – energy, industrials and materials – represent less than 15% 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 consumer discretionary, financials and real estate sectors have each outperformed the communication services sector, which led markets higher earlier in the year*.

Brian Therien, CFA 
Investment Strategist

^{Source: *FactSet}

Friday, 11/08/2024 p.m.

• Stocks finish mixed to end the week: U.S. equity markets finished higher on Friday, while the TSX fell by about 0.5%.* The S&P 500 gained over 4.5% this week, the best weekly gain since November 2023.* Despite a lower finish on Friday, the TSX still logged a healthy gain of roughly 2% for the week. At a sector level, leadership was broad-based, with most sectors of the S&P 500 closing higher, led by utilities and real estate.* Overseas, European markets closed lower, while Asian markets were mostly lower overnight. Bond yields were lower on the day, with the 10-year GoC yield falling to 3.18% while the 10-year U.S. Treasury yield fell to 4.3%.* On the economic front, the University of Michigan consumer sentiment survey showed U.S. consumer sentiment improved to its highest since April.* In commodity markets, oil prices finished lower by over 2%, while gold fell by less than 0.5%.*
• Employment modestly rose in October: Today's labour-force survey showed that domestic employment increased by 15,000 in October, below consensus expectations for a gain of roughly 25,000, while the unemployment rate was unchanged from the prior month at 6.5%.* The average monthly gain in employment this year has been 27,000, down from an average of roughly 37,000 per month in 2023.* In our view, this is indicative of a labour market that is cooling from a period of historic strength following the pandemic but remains healthy. Today's report also showed average hourly wages ticked higher, rising by 4.9% on an annual basis in October, following a 4.6% increase in the prior month.** The combination of healthy labour-market conditions, wage growth that's outpacing inflation, and Bank of Canada interest-rate cuts should lead to improving economic activity in the quarters ahead.
• Focus shifts to U.S. inflation in the week ahead: With the FOMC meeting concluding yesterday and resulting in a 0.25% interest-rate cut, market focus will shift to inflation - and its implication on future monetary-policy decisions - in the week ahead. U.S. consumer price index (CPI) inflation for October will be released on Wednesday, and expectations are calling for headline CPI to rise by 2.5% on an annual basis and 0.2% month-over-month.* Core CPI is expected to rise by 3.3% on an annual basis and 0.3% month-over-month.* Inflation has cooled meaningfully from this time last year but still remains above the Fed's 2% target. In yesterday's meeting, Fed Chair Jerome Powell acknowledged that the FOMC believes risks to its goals of achieving maximum employment and inflation near 2% are roughly in balance, and he reiterated that future decisions will be driven by incoming data. In our view, the Fed is likely to cut rates again at its December meeting by 0.25%. However, with the U.S. economy still on strong footing, a higher-than-expected inflation reading on Wednesday could lead the Fed to hold rates steady in December.

Brock Weimer, CFA 
Investment Strategist

^{Source: *FactSet **Statistics Canada}

Thursday, 11/07/2024 p.m.

• Stocks close higher on Fed Day – The TSX and major U.S. equity markets added to strong gains from earlier in the week, driving the TSX, S&P 500 and Nasdaq to new record highs. Sector performance was broad, as communication services and technology stocks led markets higher, reflecting a risk-on tone. Bond yields declined in a reversal of their trend higher over the past several weeks. In global markets, China was up on higher-than-expected exports for October*. Europe also traded higher, as the Bank of England cut interest rates by 0.25%. The U.S. dollar declined versus major currencies. In the commodity space, WTI oil rose on concerns over the possibility of increased sanctions on Iran and Venezuela following the election*.
• Federal Reserve cuts policy rate for a second time – The Federal Reserve's Federal Open Market Committee (FOMC) cut its target range for the fed funds rate by 0.25% to 4.5% - 4.75%, as expected*. The FOMC's statement included a comment that the committee believes its goals of achieving maximum employment and inflation near 2% are roughly in balance**. Bond markets are pricing in expectations for another 0.75% of rate cuts through 2025, which would put the fed funds rate in the 3.75% - 4% range***. We expect the Fed to be able to continue cutting rates, though the pace may start to slow, as FOMC aims to achieve a soft landing for the economy. The Bank of Canada should also be able to continue cutting interest rates, with inflation in the lower half of its target range of 1%-3%. Lower interest rates typically reduce borrowing costs for businesses and consumers, which would be positive for economic growth and corporate profits.
• Jobless claims edge higher: U.S. jobless claims rose to 221,000* this past week, as expected, up from 218,000 the prior week. This reading reflects a labor market that is gradually normalizing from a period of outsized strength, which we believe is supportive of continued growth and the "soft landing" narrative for the U.S. economy. A cooling labor market should also lead to slower wage gains ahead, which typically ease services inflation. Labor productivity increased 2.2% in the third quarter, up from 2.1% the prior quarter but below estimates calling for 2.3%. Rising productivity drives higher production relative to total hours worked, which is also positive for continued economic growth.

Brian Therien, CFA 
Investment Strategist

^{Source: *FactSet **CME FedWatch}

Wednesday, 11/06/2024 p.m.

• Stocks rise to a record after Trump win – North American equity markets finished broadly higher as Donald Trump reclaimed the White House, surpassing the 270 electoral votes needed to win the presidency. The decisive win removed the overhang of an unclear or contested outcome, clearing a source of uncertainty, and triggering a risk-on market reaction. The Senate has already been called for the Republicans, while the House of Representatives is still up for grabs. While Republicans project confidence about controlling the House as well, any majority will likely be slim no matter which party wins.
  
  Over the past couple of months Trump's election prospects have been closely related with higher Treasury yields, a higher U.S. dollar, and outperformance from cyclical stocks, and these were the areas of the market that experienced the biggest moves after the election result. Based on the proposals for tax cuts, deregulation and tariffs, the potential scenario of a Republican sweep is seen as boosting economic growth in the short term, but also leading to higher inflation, government debt and interest rates. Small-cap stocks outperformed, rallying 5.5% on stronger growth hopes, but Treasury bonds were under pressure, with the 10-year yield hitting a four-month high on inflation and fiscal debt concerns*. Over the coming days and weeks investors will likely shift their focus to how many of the campaign promises may be implemented and over what time frame, with the makeup of Congress being a key deciding factor.
• Positive fundamentals offer stability – While the dust may take some time to settle after the election, markets will continue to take their cues from the outlook for economic growth, earnings and Fed policy. These are the long-term determinants of market performance, and they currently suggest that fundamental conditions remain more favorable than hurtful. Starting with growth, the economy has consistently defied expectations for a recession over the last two years, even expanding at an above-average pace. While a moderate slowdown is likely, several indicators remain strong: incomes are rising, jobs are being created, and consumers remain financially healthy. Additionally, lending standards have stopped tightening, and loan growth appears to be bottoming out. This forms a solid foundation for rising corporate profits, with S&P 500 earnings growth projected to accelerate from 0.5% in 2023 to 9% this year and 14% in 2025*. Though next year's estimates may be a bit optimistic, the upward trajectory can help sustain the bull market, which has now entered its third year. On the interest-rate front, the improvement in inflation is allowing the Fed to gradually remove some of its restriction and likely lower interest rates through 2025, including its second rate cut likely this Thursday. The upshot is that positive growth, rising earnings and falling interest rates are consistent with the Fed possibly achieving a soft landing.
• Broadening theme intact, volatility creates opportunities in bonds, but inflation and debt concerns are top of mind - Given the supportive fundamental conditions and the overhang of an uncertain outcome removed, we maintain our positive view on equities. The potential for tax cuts and deregulation may provide an additional tailwind to our theme of broadening market leadership, which has started to take shape in the third quarter. Cyclical sectors, along with small- and mid-caps, have room to catch up as the market rally broadens beyond tech. However, we would also caution that markets historically tend to overact the day after the election, so it wouldn’t be surprising if some of the initial optimism fades in the coming days. On the fixed-income side, a potential Republican sweep may bring fiscal concerns back to the forefront amid growing deficits and elevated debt. However, we think higher yields offer another chance to extend the duration of portfolios ahead of lower rates on cash investments. A slower pace of Fed rate cuts is possible if inflation proves persistent, and this is reflected in today's adjustment to rate expectations, but we think that yields are currently attractive and at the high end of their potential range. Repositioning into intermediate- and long-term bonds where appropriate can help lock in the high yields for longer.

Angelo Kourkafas, CFA 
Investment Strategist

^{Source: *FactSet}

Tuesday, 11/05/2024 a.m.

• Stocks open higher on U.S. Election Day – The TSX and major U.S. equity markets are up this morning, with large-cap stocks leading small- and mid-cap stocks. Sector performance is broad, as technology and industrial stocks are posting the largest gains. Bond yields are continuing their trend higher, with the 10-year Government of Canada yield near 3.27% and the 10-year U.S. Treasury yield near 4.36%. In global markets, Asia was mostly higher, while Europe is mixed*. The U.S. dollar is declining versus major currencies. In the commodity space, WTI oil is adding to gains following the OPEC+ decision to push back its planned production hikes by a month. Gold is also trading higher.
• Markets focus on U.S. presidential election and FOMC meeting – Polls suggest the race between the candidates remains tight, which could lead to a drawn-out process of recounts and no definitive winner on election night. While political uncertainty can drive market volatility in the short term, we'd remind investors that over the long run, markets are driven by the economy and fundamentals, both of which are moderating but remain solidly positive, in our view. The resolution to the election results will remove uncertainty that has been an overhang for markets for several months. On the monetary-policy front, the Federal Reserve's Federal Open Market Committee (FOMC) will conclude its November meeting on Thursday, with markets expecting a 0.25% interest-rate cut**. If the Fed cuts, it would mark the second rate cut of this cycle, bringing the policy-rate target range to 4.5% - 4.75%.* In our view, the Fed is likely to cut rates by 0.25% on Thursday and will likely deliver another 0.25% rate cut at its December meeting.
• Corporate earnings have been strong relative to expectations - With 76% of companies reporting third-quarter earnings, 74% have beaten analyst estimates, resulting in 5.2% earnings growth year-over-year*. 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 less than 15% 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 real estate, financials, utilities and consumer discretionary sectors have each outperformed the communication services sector, which led markets higher earlier in the year*.

Brian Therien, CFA 
Investment Strategist

^{Source: *FactSet **CME FedWatch}