Daily market snapshot

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}

• Stocks finish mixed: Equity markets finished mixed on Thursday, with the S&P 500 and Nasdaq logging gains while the TSX and Dow finished lower. The consumer discretionary sector of the S&P 500 outperformed on the day, gaining more than 3%, while most other sectors finished flat to lower.* The outperformance in consumer discretionary was driven by strong earnings results from automobile manufacturer Tesla after the market closed yesterday, which sent the stock higher by more than 20% today.* Overseas, Asian markets were mixed overnight, while European markets finished the day modestly higher. After a sharp move higher in recent weeks, bond yields took a breather today, with the 10-year GoC yield ticking lower to 3.24% and the 10-year U.S. Treasury yield ticking lower to around 4.21%.* 
   
• U.S. jobless claims tick lower: U.S. initial jobless claims declined to 227,000 on Thursday, below expectations for 241,000 and below the prior reading of 242,000.* Today's reading of 227,000 is well below the 30-year median of over 300,000, signaling that while U.S. labour-market conditions have eased from historically tight levels, they remain healthy. U.S. labour-market data will remain in focus in the week ahead with nonfarm payrolls and unemployment data for October out next Friday. In our view, healthy labour-market conditions should provide support to consumer spending in the months ahead and help extend the economic expansion.
   
• U.S. PMI data shows services continues to shine: Preliminary S&P Global Purchasing Manager Index (PMI) data for October showed that the services sector of the U.S. economy continues to expand at a healthy clip while manufacturing continues to lag.* The U.S. services PMI reading for October was 55.3 (reading above 50 signals expansion), which was slightly above expectations for 55.1.* The U.S. manufacturing PMI remained in contraction with a reading of 47.8, although today's reading was modestly higher than the September reading of 47.3.* With services making up the lion's share of the U.S. economy, today's reading suggests the U.S. economy continues to expand at a healthy clip.

Brock Weimer, CFA
Associate Analyst

^{Source: *FactSet}

• Stocks close lower following Bank of Canada rate cut: Equity markets finished lower on Wednesday following the Bank of Canada's decision to lower its policy rate by 0.5%, bringing the target rate to 3.75%.* The TSX finished lower by 0.7% while the S&P 500 fell by about 0.9%.* Growth sectors of the S&P 500 lagged with information technology and consumer discretionary falling by over 1.5%.* Utilities and real estate were the only sectors of the S&P 500 to finish the day higher.* Overseas, Asian markets were mixed overnight, with Japan's Nikkei posting a modest decline while markets in China were mostly higher.* Bond yields finished higher again on Wednesday, with the 10-year GoC yield closing around 3.26%.* The 10-year U.S. Treasury yield ticked higher as well, finishing around 4.24%, its highest since July.*
   
• Bank of Canada delivers a 0.5% rate cut: The Bank of Canada (BoC) lowered its target rate by 0.5% on Wednesday morning, marking the fourth interest-rate cut from the BoC this year and the first 0.5% cut since the midst of the pandemic.* The policy rate now stands at 3.75%, the lowest since December 2022. A combination of softer-than-expected inflation and weaker-than-expected economic growth led the BoC to cut rates by 0.5% at today's meeting. Headline consumer price index (CPI) inflation averaged 2% in the third quarter, below the BoC's estimate of 2.3% published in its July Monetary Policy Report.** On the growth front, soft economic data led the BoC to revise its third quarter real GDP growth estimate lower from 2.8% in July to 1.5% in today's Monetary Policy Report.** With inflation easing and lackluster economic growth, the BoC will likely continue to lower interest-rates over the coming months. This should be supportive to economic growth, as lower borrowing costs help stimulate household spending and business investment.
   
• Third-quarter earnings take the spotlight: In addition to the BoC interest-rate decision, third-quarter earnings results are in focus for markets. Roughly 20% of companies in the S&P 500 are slated to report earnings this week, headlined by results from Tesla, out after the market close today. Canadian earnings will ramp up over the coming weeks, with only three companies in the TSX scheduled to report this week and only 4% of the TSX having reported third-quarter results thus far. Roughly 24% of companies in the S&P 500 have reported third-quarter results, with 77% exceeding earnings expectations.* Estimates are calling for S&P 500 earnings growth of roughly 2% for the third quarter.* At a sector level, information technology and communication services are expected to lead the way, with estimates calling for double-digit earnings growth.* Looking ahead to 2025, expectations are for the S&P 500 to grow earnings by 15%, and for all 11 sectors to see positive earnings growth.* Analysts also expect roughly 13% earnings growth for the TSX in 2025.* While these estimates could prove overly optimistic, we believe the macroeconomic backdrop should remain favourable to support corporate profit growth in the quarters ahead, which should help sustain the bull market.

Brock Weimer, CFA
Associate Analyst

^{Source: *FactSet **Bank of Canada July 2024 Monetary Policy Report}