Daily market snapshot

Brian Therien

Friday, 01/10/2025 p.m.

Stocks drop on higher bond yields – The TSX and U.S. equity markets closed lower on Friday, as bond yields rose in reaction to the strong jobs report, which gives the Fed a reason to pause its rate cuts in the near term. Interest-rate-sensitive small-cap stocks traded sharply lower. Most sectors were down, as real estate and financial stocks posted the biggest declines. Despite today's broad weakness and the uptick in volatility over the past month, the S&P 500 remains 22% higher from a year ago, supported by solid fundamentals, which today's jobs report highlights. In global markets, Asia was down on continued weakening in China's yuan currency. Europe was also lower, impacted by higher bond yields. The U.S. dollar advanced versus major currencies. In the commodity space, WTI oil traded higher on the possibility of additional sanctions on Russia and Iran disrupting supply*.
Employment reports show faster job growth – Canada employment rose by about 91,000 in December, beating expectations for 20,000, driving the unemployment rate down to 6.7%*. Total U.S. nonfarm payrolls grew by 256,000 in December, the strongest pace since March, and above estimates for 153,000*. Job gains were broad-based, with strength in the private services sector**, pushing the unemployment rate down to 4.1%. Hourly earnings were up 3.9% annualized, below estimates for a 4.0% rise*, but still supportive of consumer spending and consistent with the Fed's inflation target given recent productivity trends. The upshot is that a strong labour market is positive for the economy and corporate profits, but argues that there is no urgency for the Fed to cut rates, pressuring yields. Also contributing to today's inflation worries was that consumer sentiment ticked down to 73.2, modestly below forecasts, impacted by near-term inflation expectations that rose to 3.3% from 2.8% the prior month. Long-term consumer inflation expectations also rose to 3.3%, the highest since 2008*.
Bond yields tick higher on revised Fed expectations – Bond yields were up as markets assessed the implications of a resilient labour market for inflation. The 10-year Government of Canada yield is at 3.45%, and the 10-year U.S. Treasury yield is at 4.76%, its highest since 2023*. Bond markets have dialed back expectations for cuts to the fed funds rate, as disinflation has slowed and the labor market has stabilized. Today's data make the case for a longer pause in rate cuts, with markets now pricing in the next cut to be delivered in September from March that was expected previously. Despite the slower pace of easing, we still expect the Fed to be able to cut interest rates toward a more neutral stance over time as inflation stays contained. The shelter component of PCE inflation remains elevated at 4.8% annualized but should continue to moderate as it catches up to other housing-price measures, such as the S&P CoreLogic Case-Shiller U.S. National Home price index, which is up 3.6% over the past 12 months***. Further shelter-price disinflation and slower wage growth should help bring down overall inflation.

Brian Therien, CFA
Investment Strategy

^{Source: *FactSet **U.S. Bureau of Labor Statistics ***S&P}

Stocks rise amid higher bond yields – The TSX and U.S. equity markets rose on Wednesday, with large-cap stocks leading small- and mid-cap stocks. Sector performance was broadly higher, as health care and materials stocks posted the largest gains. In global markets, Asia was mixed as China's yuan currency dropped to a 16-month low versus the U.S. dollar, driven by lower bond yields and tariff concerns. Europe was mostly lower as economic confidence for December missed estimates. The U.S. dollar extended its rise versus major currencies. In the commodity space, WTI oil dropped on higher U.S. fuel inventories*.
Bond yields mixed – Bond yields rose in Canada with the 10-year Government of Canada yield at 3.31%, while U.S. yields took a pause from their recent trend higher, with the 10-year U.S. Treasury yield at 4.68%. The U.S. benchmark yield briefly reached 4.72% this morning, its highest since 2023 and more than 100 basis points (1.0%) above the recent low in September 2024*. Bond markets have dialed back expectations for cuts to the fed funds rate as disinflation has slowed, with core personal consumption expenditure (PCE) inflation at about 2.8%, above the Fed's target of 2.0%. We expect the Fed to be able to cut interest rates, though at a slower pace, as shelter inflation should continue to moderate gradually throughout 2025.
New labor market data shows slower job growth, fewer unemployment claims – The ADP employment survey showed that U.S. private sector employment (excluding government workers) grew by 122,000 in December, below estimates for 140,000* and the average monthly gain of about 150,000 over the past 12 months*. Annual pay was up 4.6% year-over-year**. Initial jobless claims dropped to 201,000 this past week, below estimates calling for about 215,000*. Continuing claims, which measure the number of people receiving unemployment benefits, ticked up to 1.87 million, above expectations for 1.85 million, indicating that people are staying on unemployment slightly longer. These readings reflect a resilient labour market that is normalizing, as employers appear to be slowly pulling back on hiring but not turning to significant layoffs, in our view. We believe this is supportive of economic growth and the soft-landing narrative.

Brian Therien, CFA
Investment Strategy

^{Source: *FactSet ** ADP}

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}

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The Investment Policy Committee (IPC) defines and upholds Edward Jones investment philosophy, which is grounded in the principles of quality, diversification and a long-term focus.

The IPC meets regularly to talk about the markets, the economy and the current environment, propose new policies and review existing guidance — all with your financial needs at the center.

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