Daily market snapshot

• 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}

• Stocks start the week mixed – The TSX declined modestly, while major U.S. equity markets closed higher on Monday, with the Dow Jones Industrial Average and Russell 2000 small-cap index reaching record highs. The positive market reception to the nomination of hedge fund manager Scott Bessent to be the next U.S. Treasury secretary appears to be supporting strong investor sentiment. Sector performance was broadly higher, as real estate and consumer discretionary stocks led to the upside. In global markets, Asia was mostly higher to start a busy week of economic data, as investors await China industrial output, India third-quarter GDP, and inflation from Australia and Japan. Bond yields declined, with the 10-year Government of Canada yield at 3.31% and the 10-year U.S. Treasury yield near 4.26%. The U.S. yield curve is inverted again, with 2-year yields rising above 10-year yields, as markets have scaled back Federal Reserve (Fed) interest-rate-cut expectations. The U.S. dollar declined versus major currencies. In the commodity space, WTI oil and gold traded lower.
• 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 Fed's 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. 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**.
• Corporate earnings season winding down – With 95% of S&P 500 companies reporting, third-quarter earnings are on pace for about 5.9% growth year-over-year. Results have been strong relative to expectations, with 75% 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*. Broadening earnings have contributed to a rotation in market leadership. Over the past six months, the consumer discretionary, financials, real estate, industrials and utilities sectors have each outperformed the communication services sector, which led markets higher earlier in the year*.

Brian Therien, CFA 
Investment Strategy 

^{Source: *FactSet **CME FedWatch}

• Stocks close higher following domestic retail sales report: Canadian and U.S. stock markets closed higher on Friday. It's been a strong week for equity markets, with the TSX logging a weekly gain of over 2%, while the S&P 500 rose by 1.7%.* On the economic front, domestic retail sales for September matched expectations for a 0.4% gain.* This month's reading brought the three-month annualized change in retail sales up to 7.2%, the best since January 2023.* Additionally, the Statistics Canada advance retail indicator suggests retail sales rose by a healthy 0.7% in October, indicating continued momentum in consumer spending. Overseas, European markets traded higher while Asian markets were mixed overnight, with Japan's Nikkei finishing higher but China stocks sharply lower.* Bond yields were little changed, with the 10-year GoC yield closing around 3.44%, while the 10-year U.S. Treasury yield finished around the 4.4% mark.*
• Focus shifts back to U.S. inflation: U.S. inflation, and its implication on future monetary policy, will be back in focus next week with the release of personal consumption expenditures (PCE) inflation on Wednesday. Market expectations are calling for headline PCE to rise by 2.3% year-over-year, up from the prior months gain of 2.1%.* Core PCE is expected to tick higher as well, with expectations for a 2.8% annual gain, up from 2.7% in the prior month.* U.S. consumer price index (CPI) inflation, which was released earlier this month, suggested the path to the Fed's 2% target could be bumpy. Core CPI rose by 3.3% annually, while the three-month annualized rate of core CPI rose to 3.6%.* Current market expectations are calling for a 60% chance of another 0.25% Fed rate cut at its December 18 meeting.** We'd align with markets that another quarter-point cut at the December meeting is a probable outcome. However, with inflation proving persistent in recent months, the U.S. economy on strong footing, and the potential for inflationary fiscal policy over the coming year, we believe the Fed could take a more cautious approach to rate cuts in 2025.
• PMI data point to weak activity abroad: Preliminary estimates for the November S&P Global Purchasing Manager Index (PMI) point to continued weakness in economic activity abroad. The eurozone composite PMI felt to 48.1 (a reading below 50 signals contraction), the lowest reading since January.* A large driver behind eurozone weakness has been sluggish activity from the region's largest economy, Germany. The German composite PMI fell to 47.3 in today's reading and has been in contraction since June.* Weak manufacturing activity has been a drag on Germany and the broader eurozone. In fact, both the German and eurozone manufacturing PMIs has been in contraction since June 2022.* Eurozone producer price inflation surged in 2022 due to the war between Russia and Ukraine, weighing on profitability for manufacturers. While prices have since started to moderate, headline eurozone PPI is over 30% higher today than at the start of 2021.* Looking around the horn, activity didn't fare much better in the U.K., with the composite PMI falling to 49.9, the first contraction since October 2023, while Japan's manufacturing PMI fell to 49, the fifth consecutive month of contraction.* Contrarily, the U.S. composite PMI rose to 55.3, a 31-month high driven by strength in the services sector.* We continue to favour the relative economic momentum of the U.S. relative to overseas regions. As part of our opportunistic asset-allocation guidance, we recommend investors consider underweighting overseas developed stocks and reallocate toward U.S. stocks.

Brock Weimer, CFA 
Associate Analyst 

^{Source: *FactSet **CME FedWatch Tool}

• Stocks finish higher: Major equity markets closed higher on Thursday, with earnings results from the world's largest company, NVIDIA, in focus. The TSX posted a gain of more than 1%, while the S&P 500 finished higher by roughly 0.5%.* Leadership was broad-based, with most sectors of the S&P 500 finishing higher, led by utilities and financials. Communication services was a laggard, falling by nearly 2% in response to a statement from the Department of Justice on Wednesday that Google should have to sell off its Chrome browser to address the monopolization of the online search market.* Overseas, European markets closed higher, while Asian markets were mostly lower overnight. Bond yields finished higher, with the 10-year GoC yield climbing to 3.45% and the 10-year U.S. Treasury yield ticking up to 4.42%.* In the commodity space, oil prices closed higher by roughly 2%, as concerns about an escalation in the war between Ukraine and Russia remain in focus.
• NVIDIA delivers strong results: With the economic calendar light this week, market focus is centered on earnings results from the world's largest company by market-cap, NVIDIA. NVIDIA announced quarterly earnings per share of $0.81 and revenue of $35 billion after the close yesterday, both of which were better than analyst expectations.* On a year-over-year basis, sales were higher by 94% while earnings per share were up 103%.* Strong performance from the company's data-center segment drove strong results as AI adoption continues to grow. While this quarter indicates ongoing robust demand for NVIDIA's chips, the midpoint for management sales guidance in the current quarter was only 1% above analyst expectations, the lowest since 2022.* After opening the day lower, the stock finished higher by roughly 0.5%.
• Jobless claims data point to healthy U.S. labour-market conditions: U.S. initial jobless claims for the prior week were 213,000, below expectations for 220,000 and below the previous week's reading of 219,000.* After a brief spike to 260,000 in early October, jobless claims have quickly receded and remain well below the 30-year median of 326,000.* With the U.S. labour-market in good shape and the recent U.S. CPI inflation report suggesting the path to the Fed's 2% target could be bumpy, markets are pricing in only a 50% probability of a 0.25% rate cut from the Fed at its December meeting.** In our view, another 0.25% cut from the Fed is likely in December. However, resilient economic activity and inflation running above the Fed's 2% target will likely lead to a shallower rate-cutting cycle in 2025.

Brock Weimer, CFA 
Associate Analyst 

^{Source: *FactSet **CME FedWatch Tool}

• Stocks are little changed as yields and the dollar rise - In the absence of major economic releases and ahead of NVIDIA's earnings, equity-market moves in Canada and the U.S. were muted today. The U.S. consumer sectors were under pressure, with shares of Target down about 20% after the retailer cut its full-year earnings outlook, warning that a flat sales quarter and a buildup in inventory hurt profitability*. The disappointing results are in stark contrast with the strong earnings Walmart reported yesterday. Elsewhere, European stocks were slightly higher, but U.K. stocks lagged after the latest inflation report came in hotter than anticipated, implying fewer Bank of England rate cuts. The U.S. dollar strengthened near the highs for the year against other major currencies, and the 10-year Canada bond yield rose to 3.38%, a four-month high*.
• All eyes on NVIDIA's results - After a nearly 200% gain so far in 2024, NVIDIA has become the world's most valuable company, carrying a $3.6 trillion market capitalization*. Given its outsized importance and influence on key indexes, investors will be closely watching the quarterly earnings results and outlook when the company reports after the market close today. Analysts are expecting another strong quarter driven by robust demand for artificial intelligence, with earnings growing 86% from a year ago*. NVIDIA is the last mega-cap tech company to report, marking the near end of the third-quarter earnings season. About 95% of the S&P 500 companies have reported earnings, with 75% exceeding expectations and delivering 6.6% earnings growth up from the 4.5% expected at the start of the earnings season*. After two back-to-back years of valuation expansion, we think earnings growth will be key in driving further stock-market gains in 2025.
• Key catalysts before year-end - Stocks remain on track for a strong finish to the year, underpinned by solid economic growth, rising earnings, and the start of a rate-cutting cycle. With the holiday season fast approaching, there are a handful of remaining key datapoints left to drive the market narrative. On December 6 investors will be focusing on the jobs reports in Canada and the U.S. to gauge the strength of the labour market. Last month's data was distorted by the hurricanes and strikes, so the upcoming release might provide a clearer picture of the underlying trend. Next will be the December 11 CPI release, the last inflation reading before the Fed's December meeting and rate announcement on December 18. We expect another quarter-point rate cut, bringing the policy rate to 4.5%-4.75%, but we will be looking for hints that the Fed will take a slower approach next year. Resilient economic growth, potentially looser fiscal policy, and an aggressive stance on tariffs and immigration may pose upside risks to inflation, which is why the bond market is looking for a shallower interest-rate-cutting cycle, with potentially two rate cuts in 2025 instead of almost five expected two months ago*. In Canada the BoC will have its last meeting for this year on December 11. Given the slight acceleration in this week's core inflation, we expect a quarter-point cut.

Angelo Kourkafas, CFA 
Investment Strategist

^{Source: *FactSet}