Daily market snapshot

• Stocks waver on strong U.S. economic data: Equity markets finished lower on Tuesday, reversing gains at the open, following a batch of strong U.S. economic data that sent bond yields higher. The U.S. ISM services PMI for December was 54.1, better than expectations of 53 and signaling ongoing strength in the services sector of the U.S. economy.* The fly in the ointment from today's report was that the prices subindex rose to a near two-year high of 64.4, raising concerns on the future path of U.S. inflation. JOLTS job openings also exceeded expectations, with job openings for November rising to 8.1 million versus expectations for 7.7 million, signaling that demand for labour remains strong.* In response, bond yields surged higher, with the 10-year Treasury yield climbing to nearly 4.7%, while the 10-year GoC yield rose to 3.3%.* Stocks declined, with the S&P 500 lower by roughly 1.1% while the tech-heavy Nasdaq closed down by 1.9%.* The TSX fared better, declining by roughly 0.5% and was supported by strength in the energy sector.* On the political front, there has been little development following Justin Trudeau's announcement of his intent to resign as prime minister yesterday. Early reports suggest that former Minister of Finance Chrystia Freeland and former Bank of Canada Governor Mark Carney are considered top contenders to replace Trudeau.*
• Jobs data in focus: A busy week of labour-market data began this morning with the release of JOLTS job openings for November. Job openings for November were 8.1 million, above expectations for 7.7 million and above the October reading of 7.8 million.* While well below the peak of 12 million job openings in March of 2022, 8.1 million job openings are still above pre-pandemic numbers.* Additionally, U.S. job openings exceed the number of unemployed (7.1 million), which, in our view, suggests that while labour-market conditions have moderated from historically strong levels, they remain healthy.* Perhaps the most anticipated data will come on Friday with the release of the domestic labour-force survey, U.S. nonfarm payrolls, and the unemployment rate for December. The Canadian economy is expected to have added 23,000 jobs in December, while the unemployment rate is expected to hold steady at 6.8%.* In the U.S., expectations are for nonfarm payrolls to rise by 160,000 in December, while the unemployment rate is expected to hold steady at 4.2%.* Healthy labour-market conditions have been a source of strength for the U.S. and Canadian economies over the past two years. In our view, labour-market conditions will remain broadly supportive in 2025, supporting healthy economic growth.
• We expect balanced performance between growth and value stocks in 2025: Growth-style stocks outperformed value stocks for the second consecutive year in 2024, with the Russell 1000 Growth Index rising by 33% including dividends, versus 14% for the Russell 1000 Value Index.* Robust earnings growth and enthusiasm around the potential of artificial intelligence has driven the outperformance in growth stocks in recent years. While we acknowledge reason for optimism in growth stocks, we believe opportunities are emerging that could lead to more balanced performance between growth- and value-style stocks in 2025. Specifically, profit growth is expected to not only be strong in mega-cap tech stocks (which comprise a large portion of the Russell 1000 Growth Index), but also in value-style stocks. Analyst expectations are for earnings in the Russell 1000 Value Index to grow by roughly 12% in 2025, which, if achieved, would be the strongest earnings growth since 2021.* Additionally, value stocks tend to generate a higher share of their revenue from the U.S. compared with growth stocks.* This could make value stocks less sensitive to trade-policy uncertainty over the coming months. In our view, this should lead to balanced performance between growth- and value-style stocks over the coming year.

Brock Weimer, CFA
Investment Strategy

^{Source: *FactSet 
Growth stocks represented by the Russell 1000 Growth Index. 
Value stocks represented by the Russell 1000 Value Index. 
Sector references are GICS sectors of the S&P 500.}

• Stocks mixed following Trudeau's resignation: North American equity markets were mixed on Monday following Prime Minister Justin Trudeau's decision to resign as prime minister once a new leader is selected by the Liberal Party. The TSX posted a modest decline of 0.4%, while the S&P 500 gained roughly 0.6%, supported by strength in mega-cap tech shares.* Overseas, Asian markets were lower overnight, while European markets traded higher following reports surfacing that President-elect Trump's universal tariff proposal could be limited to critical industries such as steel and aluminum.* This contrasts with initial talks that the universal tariffs would be applied to all imported goods. However, shortly after the news surfaced, Trump disputed the report on social media, saying it was wrong. Despite Trump's dispute, the Canadian dollar gained against the U.S. dollar in response to the potential for dialed-back U.S. tariffs. Bond yields closed higher, with the 10-year U.S. Treasury yield back above the 4.6% mark, while the 10-year GoC yield finished around 3.24%.*
• Prime Minister Justin Trudeau announces resignation: Prime Minister Justin Trudeau announced his intent to resign as prime minister and Liberal Party leader at a press conference on Monday morning. Trudeau stated that he will stay on as prime minister until a new leader is chosen by the Liberal Party. Tensions have been building in the Liberal Party following the resignation of previous minister of finance Chrystia Freeland in December. Additionally, polling data suggested for several months that the Conservative Party has held a commanding lead in the upcoming election, which is due by October. While the Canadian political landscape will likely remain uncertain in the near term, we don't believe today's decision will meaningfully impact markets or the economy over the coming months. We'd remind investors to not play politics with their portfolios and to instead maintain a well-diversified mix of investments aligned with their long-term goals. We expect another year of healthy economic growth, rising corporate profits, and a continued normalization of central-bank policy, all of which can support the ongoing bull market.
• Busy week of labour-market data ahead: Labour-market data will be front and centre for markets beginning tomorrow with U.S. JOLTS job openings for November. Expectations are for job openings to remain roughly unchanged at 7.7 million.* While well below the peak of 12 million job openings in March of 2022, 7.7 million job openings are still above pre-pandemic levels.* Wednesday will bring the U.S. ADP Employment Survey for December, where expectations are for private employers to have added 140,000 jobs for the month.* Perhaps the most anticipated data will come on Friday with the release of the domestic labour-force survey, U.S. nonfarm payrolls, and the unemployment rate for December. The Canadian economy is expected to have added 23,000 jobs in December, while the unemployment rate is expected to hold steady at 6.8%.* In the U.S., expectations are for nonfarm payrolls to rise by 160,000 in December, while the unemployment rate is expected to hold steady at 4.2%.* Healthy labour-market conditions have been a source of strength for the U.S. and Canadian economies over the past two years. In our view, labour-market conditions will remain broadly supportive in 2025, supporting healthy economic growth.

Brock Weimer, CFA
Investment Strategy

^{Source: *FactSet 
Sector references are GICS sectors of the S&P 500.} 

• NASDAQ leads stocks higher – The TSX and U.S. equity markets closed higher on Friday, as the S&P 500 and NASDAQ broke their losing streak. Sector performance was broad, as consumer discretionary and technology stocks posted the largest gains, reflecting a risk-on tone. In global markets, Asia was down on continued growth concerns in China. Europe was also lower, led by automotive stocks as some electric vehicle (EV) models failed to qualify for U.S. tax credits under new, stricter rules. The U.S. dollar declined versus major currencies. In the commodity space, WTI oil traded higher, while gold was down*.
• Manufacturing reading beats estimates – The Institute for Supply Management (ISM) U.S. Manufacturing Purchasing Managers' Index (PMI) rose to 49.3 in December, above forecasts calling for 48.4*. PMI is a diffusion index, with readings above 50.0 reflecting expansion. While December's figure still shows modest contraction, the trend has improved in recent months, rising from the recent low of 46.5 in October. In addition, services PMI, which represents the majority of the economy, reflects expansion. This is supportive of resilient economic growth and the soft landing narrative, in our view.
• Bond yields mixed – The 10-year Government of Canada was down at 3.20%, while the 10-year U.S. Treasury yield was higher at 4.60%. U.S. yields extended their broader trend higher over the past few months. The U.S. benchmark yield has risen more than 90 basis points (0.9%) from the recent low in September as bond markets** and the Federal Reserve*** have reduced expectations for cuts to the fed funds rate. Markets are now pricing in just one additional Fed interest rate cut in 2025 as disinflation has slowed and labour markets remain resilient. With the BoC policy rate at 3.25%, and the central bank's preferred measures of core CPI around 2.6%, which is within the 1% - 3% target range, we believe there is room to bring rates down to a less restrictive stance, with the rates perhaps settling in the 2.25% to 2.75% range. The Fed funds rate is now around 4.5%, and core personal consumption expenditure (PCE) inflation at about 2.8%, which should allow the Fed to lower rates to 3.5% to 4%. Lower rates should reduce borrowing costs for business and consumers, which is typically favourable for the economy.

Brian Therien, CFA
Investment Strategy

^{Source: *FactSet **CME Fedwatch ***U.S. Federal Reserve}

• Stocks mixed to start the year – The TSX closed higher, while U.S. equity markets were down on Thursday, reversing gains from earlier in the day. In global markets, Asia was lower on new data for December showing that manufacturing slowed in China. Europe was mostly higher, led by energy stocks. Bond yields were mixed, with the 10-year Government of Canada yield up at 3.23% and the 10-year U.S. Treasury yield down to 4.56%. The U.S. dollar continued its rise versus major currencies. In the commodity space, WTI oil and gold traded higher*.
• Jobless claims tick down: U.S. initial jobless claims dropped to 211,000 this past week, below estimates calling for about 220,000*. Weekly jobless claims averaged about 223,000 over the past month, which is about in line with the weekly average for 2024, indicating that the trend appears to be stable. In addition, continuing claims, which measure the number of people receiving unemployment benefits, declined to 1.84 million, below expectations for 1.89 million. We believe these readings, combined with other recent data, reflect a resilient labour market that is gradually normalizing, as employers appear to be slowly pulling back on hiring but not turning to significant layoffs. With unemployment of 4.2%, well below the long-term average of about 5.7%*, disposable income should be sufficient to support consumer spending. A cooling labour market should also lead to slower wage gains ahead, which typically help ease inflation.
• Manufacturing readings beat estimates – The Markit U.S. Manufacturing Purchasing Managers' Index (PMI) rose to 49.4 in December**, above forecasts and the preliminary reading, both of which were about 48.3*. PMI is a diffusion index, with readings above 50.0 reflecting expansion. While December's figure still shows modest contraction, the trend has improved in recent months, rising from the recent low of 47.3 in September. In addition, services PMI, which represents the majority of the economy, reflects expansion, which is supportive of resilient economic growth and the soft landing narrative, in our view.

Brian Therien, CFA
Investment Strategy

^{Source: *FactSet **S&P Global}

• Stocks finish mixed on final trading day of 2024: North American equity markets were mixed on Tuesday with the TSX gaining 0.4% while the S&P 500 fell by 0.4%.* From a leadership standpoint, energy was the top performing sector of the S&P 500, supported by a spike in oil prices, while growth sectors such as technology and consumer discretionary were among the laggards.* Despite volatility in the final trading days of the year, the TSX gained 18% in 2024 while the S&P 500 gained 23%, marking the second consecutive year with a 20% or more return.* Overseas, Asian markets were mostly lower overnight while European markets traded higher. U.S. bond yields ticked higher with the 10-year U.S. Treasury yield rising to 4.57% while the 10-year GoC yield ticked lower to 3.23%%.* In the commodity space, oil prices rose by over 1% while gold finished higher by 0.8%.*
• Bonds deliver positive returns in 2024: Canadian investment-grade bonds are on pace for another year of positive returns in 2024, with the Bloomberg Canada Aggregate Index higher by 3.8% through yesterday's close.** This year's return follows a healthy 6.5% return in 2023, however the index remains roughly 5% below its all-time high achieved in August 2020.* In our view, elevated yields relative to history should lead to healthy returns from investment-grade bonds in the years ahead. Looking around the horn, international bonds are set for 2.4% gain in 2024 while cash is on pace to close higher by 4.9%.** Lower-quality issuers have been the top performers in 2024, international high-yield bonds higher by 19.2%, as healthy economic trends have supported lower quality issuers, particularly in the U.S.**
• U.S. housing price data in focus: U.S. housing-market data was back in focus on Tuesday with a read on home price trends in October. The S&P/Case-Shiller National Home Price Index rose by 0.3% in October and 3.6% on an annual basis.* The FHFA Home Price Index rose by 0.4% in October and 4.5% on an annual basis.* Despite higher borrowing costs, home prices have proven resilient with both the S&P/Case-Shiller and FHFA Indexes at all-time highs. In our view, this has been in part due to low inventory levels of existing homes for sale as U.S. homeowners have been reluctant to sell their homes and forfeit a mortgage rate which was locked in prior to 2022. Additionally, healthy labour-market conditions and strong household balance sheets have likely helped put a floor on housing demand over the past two years, supporting prices. We'd expect U.S. home prices to continue to rise at a pace roughly consistent with wage growth over the coming years, perhaps in the 3%-4% range.

Brock Weimer, CFA
Investment Strategy

^{Source: *FactSet **Morningstar Direct, Total return in CAD through 12/30/2024.}