Daily market snapshot

• Stocks close lower: North American equity markets closed lower on Tuesday, with the TSX down 0.4% and the S&P 500 declining 0.3%. Leadership was narrow, with the communication services sector of the S&P 500 rising by more than 2% while most other sectors were flat to lower.* Outperformance in communication services was driven by a surge in shares of Alphabet following an announcement the company has developed a chip that will improve its quantum-computing capabilities. In other corporate news, shares of Oracle were under pressure, declining over 6%, following underwhelming earnings results reported after the market close yesterday.* Overseas, European markets traded mostly lower, while Asian markets were mixed overnight. Bond yields were mixed today, with the 10-year GoC yield falling to 3.03%, while the 10-year U.S. Treasury yield ticked higher to 4.23%.*
• Bank of Canada interest-rate decision on the horizon: The Bank of Canada (BoC) will meet for its final time in 2024 tomorrow, with expectations calling for another 0.5% rate cut.** If implemented, a 0.5% cut would bring the BoC target rate to 3.25% compared with a target rate of 5% coming into the year.* At its October meeting, the BoC Monetary Policy report showed officials expected third-quarter CPI inflation of 2.1% and real GDP growth of 1.5%. With real GDP growing by only 1% in the third quarter and headline CPI rising by 2%, we believe the BoC will move forward with another 0.5% cut at tomorrow's meeting. In our view, lower borrowing costs should be supportive to the domestic economy over the coming quarters, leading to improved economic growth.
• U.S. inflation in focus: In addition to tomorrow's BoC interest-rate decision, U.S. inflation and its implications on Federal Reserve policy will be in focus for markets, with consumer price index (CPI) inflation for November out tomorrow. Expectations are for headline CPI to rise by 0.2% for the month and 2.7% on an annual basis.* Core CPI is expected to rise by 0.3% month-over-month and hold steady at 3.3% annually.* More recently, U.S. inflation data has proven stubborn, with the three-month annualized rate of core CPI rising to 3.6%, up from a low of under 2% in July.* In our view, another 0.25% rate cut from the Fed at the December 18 meeting is likely. However, with the U.S. economy on strong footing and inflation above the Fed's 2% target, we expect the Fed will take a more gradual approach to rate cuts in 2025.

Brock Weimer, CFA
Investment Strategy

^{Source: *FactSet **Bloomberg}

Monday, 12/9/2024 p.m.

• Stocks start the week lower – The TSX and major U.S. equity markets closed lower on Monday, with mid-cap stocks trailing large-cap stocks. Most sectors were down, as only health care and real estate stocks posted gains. In global markets, Asia was up on China pledging more stimulus that will include higher government spending and lower interest rates in order to boost growth*. The U.S. dollar advanced versus major currencies. In the commodity space, WTI oil and gold traded higher*.
• Markets focus on key inflation readings this week – The U.S. consumer price index (CPI) for November will be released on Wednesday, with forecasts calling for inflation to rise to 2.7% annualized, up from 2.6% the prior month*. Core CPI, which excludes more-volatile food and energy prices, is expected to hold steady at 3.3%. The modest expected increase in headline inflation is due to lower inflation readings from a year ago rolling out of the year-over-year figure, known as base effects. Importantly, CPI is expected to rise 0.2% month-over-month - about in line with the average over the past three months - which translates to 2.5% inflation annualized. We believe the recent trend and estimates for November reflect inflation that is gradually cooling, though the path will likely be bumpy along the way.
• Bond yields edge higher – Bond yields are up, with the 10-year Government of Canada yield at 3.05% and the 10-year U.S. Treasury yield at 4.19%. U.S. bond yields have risen since the recent low in September, as bond markets have reduced expectations for Federal Reserve (Fed) interest-rate cuts. We expect the Fed to continue cutting interest rates, as moderating inflation should allow monetary policy to be less restrictive, though the path is likely to be slower and shallower than previously expected. With the target range for the fed funds rate currently 4.5%-4.75%, a neutral rate is generally about 1% above inflation. Bond markets are currently pricing in expectations for a 0.25% Fed rate cut next week and another two cuts over the next six months**. The Bank of Canada is also expected to cut interest rates 0.5% on Wednesday of this week. Lower interest rates would reduce borrowing costs for consumers and businesses, which is supportive of continued economic growth and the soft-landing narrative, in our view.

Brian Therien, CFA
Investment Strategy

^{Source: *FactSet **CME FedWatch}

• Stocks hover near records after jobs data – The TSX S&P 500 and the Nasdaq hit yet another record high after the November jobs data pointed to ongoing economic resilience without stocking fresh inflation worries. Jobs gains surprised slightly to the upside, but the unemployment rate ticked higher, keeping the Fed on track to cut rates again in December. Government bond yields fell to a month-and-a-half low, with the Fed-policy-sensitive 2-year rate dropping more than the 10-year. Both small-caps and technology stocks outperformed, while the energy sector led to the downside*. OPEC yesterday delayed its planned output increases from January to April and extended its production cuts until the end of 2026. Despite the delay in adding production, the move highlights the weak supply and demand dynamics, with U.S. producers capturing a bigger share, while China demand remains soft.
• November job gains rebound but unemployment ticks up - Employment jumped 50,500 in Canada, stronger than the 25,000 estimate boosted by a 45,000 rise in public sector jobs. However, because the labour force expanded faster, the unemployment rate rose to 6.8% from 6.5%*. Finally, wage growth slowed sharply to 3.9% from 4.9%, a welcome development for the Bank of Canada, as it looks keep inflation sustainably to target. South of the boarder, the U.S. economy added 227,000 jobs last month, slightly above the 200,000 consensus estimate, while the job gains for the prior two months were revised higher*. This marks a notable rebound from the meager pace of hiring in October, which was impacted by the Boeing strike and the recent hurricanes. Manufacturing employment bounced back, while the health care and leisure & hospitality sectors added the most jobs. Smoothing out the disruptions over the past couple of months, the three-month-average change in payrolls rose to 173,000 from 123,000, pointing to a still healthy labour market*. However, the unemployment rate edged higher to 4.2%, and the labour-force participation rate fell to 62.5%, the lowest since May*. In our view, today's data support the Fed cutting rates in December and following a gradual pace in 2025. The Fed no longer sees the job market as a source of inflation, and today's data are unlikely to change that view. Following the employment data, the odds of December cut rose to 85%, up from 70% prior to this morning's release.
• All eyes on the BoC and U.S. inflation next – Today's stronger-than-expected job gains in Canada lessens the need for an outsized rate cut by the BoC. Yet, the rise in unemployment and slowdown in wage growth still leave an open window for a 0.5% cut when the bank meets next week. We expect the BoC policy rate to decline to a 2.5% - 3% range by the end of next year. In the U.S., consumer and producer prices are the final key datapoints before the Fed's last interest-rate decision for the year on December 18. Expectations are for a 0.3% monthly rise, which would push the year-over-year headline consumer price index (CPI) to 2.7% from 2.6% but keep core CPI (excluding food and energy) stable at 3.3%*. The pace of disinflation has slowed over the past three months, which, in combination with the ongoing economic strength, implies that the Fed has no urgency to accelerate the pace of rate cuts to reach a neutral policy setting. Overall, we expect the trend for inflation rates to remain downward, potentially approaching 2% in 2025. A further moderation in housing costs, as suggested by market-rent measures, and cooling wage growth should help apply downward pressure to price increases. However, the path may be bumpy, and inflation could settle in the 2%–3% range rather than hitting the Fed’s target and staying there.

Angelo Kourkafas, CFA
Investment Strategy

^{Source: *FactSet}

• Stocks close mixed: Equity markets were mixed Thursday, on a quiet day from an economic perspective. The TSX logged a 0.2% gain, while the S&P 500 fell by 0.2%.* After a recent run of outperformance, U.S. small-cap stocks underperformed today, with the Russell 2000 Index lower by roughly 1%.* Overseas, European markets traded mostly higher following eurozone retail-sales data for October that met expectations, while Asian markets were mixed overnight. On the corporate front, domestic bank earnings were in focus, with TD Bank, Bank of Montreal and Canadian Imperial all reporting. BMO reported better-than-expected revenues but missed on earnings, primarily due to higher provision for credit losses, while Canadian Imperial beat on both revenue and earnings.* TD Bank missed on earnings and suspended its medium-term guidance, as the company looks to move forward from investigations into the company's U.S. anti-money laundering program that resulted in fines and is expected to require ongoing remediation.* Bank of Montreal and Canadian Imperial both finished higher by over 4%, while TD Bank was down by roughly 6%.* Bond yields were little changed, with the 10-year Treasury yield closing around the 4.17% mark, while the 10-year GoC yield finished at 3.08%.* In the commodity space, oil prices finished the day roughly flat, while gold was lower by roughly 0.8%.*
• Jobs data in focus this week: A busy week of labour-market data continued today with the release of U.S. initial jobless claims. Today's report showed initial jobless claims were 224,000 for last week, slightly above expectations for 214,000 and above the prior reading of 215,000.* Despite the upside surprise, jobless claims remain well below the 30-year median of 326,000.* The jobless claims data follows yesterday's U.S. ADP employment survey, which showed private employers added 146,000 jobs in November, modestly below expectations for a gain of 158,000 and below last month's downwardly revised reading of 184,000.* Additionally, Tuesday brought a better-than-expected U.S. JOLTS job openings report, which showed job openings increased to 7.7 million in October, 372,000 higher than the prior month and the biggest monthly increase in more than a year.* We'd view this week's data as evidence that labour-market conditions continue to normalize from historically tight levels but remain healthy overall. Perhaps this week's most anticipated releases will be the domestic labour-force survey and U.S. nonfarm-payrolls report on Friday. Expectations are for domestic employment to have grown by 20,000 in November while the unemployment rate is expected to tick higher to 6.6%.* In the U.S., expectations are for nonfarm payrolls to rise by 208,000, well above the prior month's reading of 12,000, which was negatively impacted by the Boeing machinist strike and hurricanes Helene and Milton.* The U.S. unemployment rate is expected to remain unchanged at 4.1%.*
• Performance check-in: As we enter the homestretch of 2024, the S&P 500 is on pace to post a gain of more than 20% for the second year in a row. Including dividends, the index is higher by just over 29% year-to-date, following a gain of 26.3% in 2023.** If the current gains hold, this would be the first time since the mid-'90s that the S&P 500 has posted back-to-back years of 20% or better gains. Looking into the drivers of this year's gains shows that participation has been broad-based, with every sector except health care higher by 10% or more.** Mega-cap tech continues to perform well, with the information technology and communication services sectors each higher by nearly 40%, while consumer discretionary is up by about 30%.** However, financials and utilities have both risen by 30% as well, while industrials and consumer staples are each higher by 20% or better.** Turning to domestic markets, the S&P/TSX Composite has posted a gain of nearly 26% year-to-date, following up a healthy gain of 11.8% in 2023.** At a sector level, information technology has been the top-performing sector of the TSX, up more than 40% year-to-date and aided more recently by a surge in shares of Shopify. The financials, materials and energy sectors have seen strong returns as well, each higher by 27% or better, while each sector of the TSX is higher by 10% or more except communication services. We expect the broadening of leadership to continue to play out in the year ahead, with cyclical and value-style investments performing well alongside growth-style stocks, strengthening the case for portfolio diversification.

Brock Weimer, CFA
Investment Strategy

^{Source: *FactSet **FactSet, total returns in local currency. Return through 12/4/2024.}

• Stocks finish mixed, with economic data in focus: U.S. equity markets finished higher Wednesday, while the TSX was modestly lower, on a busy day from a U.S. economic data standpoint. The U.S. ADP private-employment survey showed private employers added 146,000 jobs in November, representing healthy job growth, but it was below the October reading of 184,000.* Additionally, the ISM services PMI for November fell to 52.1 compared with the prior reading of 56, signaling the services sector of the U.S. economy continues to expand, albeit at a more modest pace than the prior month.* Equity-market leadership was narrow, with growth sectors of the S&P 500 such as technology, communication services and consumer discretionary outperforming, while most other sectors finished flat to lower. Overseas, European markets traded mostly higher despite ongoing political uncertainty in France, while Asian markets were mixed overnight. On the corporate front, shares of Salesforce were higher by over 10% following the company's earnings results after the market close yesterday, which showed sales for the quarter were slightly better than analysts expected.* Bond yields closed lower, with the 10-year U.S. Treasury yield falling to around 4.18% and the 10-year GoC yield declining to 3.09%.*
• Jobs data in focus this week: A busy week of labour-market data continued today with the release of the U.S. ADP Employment survey for November. Today's report showed U.S. private employers added 146,000 jobs in November, modestly below expectations for a gain of 158,000 and below last month's downwardly revised reading of 184,000.* Economically sensitive segments of the economy showed the weakest job growth, with manufacturing jobs contracting by 26,000 and small businesses (those with between 1-50 employees) shedding 17,000 jobs.** Meanwhile, large establishments (those with 500+ employees) and services industries, such as education and health services, produced the strongest gains.** Today's report follows yesterday's better-than-expected U.S. JOLTS job openings report, which showed job openings increased to 7.7 million in October, 372,000 higher than the prior month and the biggest monthly increase in more than a year.* We'd view this week's data as evidence that labour-market conditions continue to normalize from historically tight levels but remain healthy overall. Perhaps this week's most anticipated releases will be the domestic labour-force survey and U.S. nonfarm-payrolls report on Friday. Expectations are for domestic employment to have grown by 20,000 in November while the unemployment rate is expected to tick higher to 6.6%.* In the U.S., expectations are for nonfarm payrolls to rise by 215,000, well above the prior month's reading of 12,000, which was negatively impacted by the Boeing machinist strike and hurricanes Helene and Milton.* The U.S. unemployment rate is expected to remain unchanged at 4.1%.*
• Overseas politics in focus: Overseas politics remain in the headlines, with the French National Assembly voting to remove the government of Michel Barnier.* The move follows the former prime minister's attempt to push through amendments to the budget without seeking parliamentary approval. A new prime minister will need to be appointed, and the government could be forced to rely on emergency financial measures to roll over government spending limits from 2024 until a new budget is created.* The political uncertainty has surfaced mainly through bond markets, with the spread between the 10-year French and 10-year German government bond yields rising to its highest in more than 10 years, reflecting the uncertain situation in France.* French equity markets looked through the turbulence, with the CAC index finishing higher today.* In addition to the uncertainty in France, the South Korean president declared martial law before subsequently reversing the order and now faces the possibility of impeachment. The Korean KOSPI Index finished sharply lower overnight in response to the instability.*

Brock Weimer, CFA
Investment Strategy

^{Source: *FactSet **ADP Private Employment Report for November}