Daily market snapshot

• Stocks modestly higher following U.S. inflation data – Equity markets are ticking higher on Wednesday following U.S. consumer price inflation data that was in line with expectations. Early leadership is balanced, with most sectors of the S&P 500 opening the day flat to higher and led by real estate and consumer discretionary.* After falling by over 1.7% yesterday, U.S. small-cap stocks are outperforming in early trading, with the Russell 2000 Index higher by roughly 0.7%.* Overseas, Asian markets were mostly lower overnight, while European markets are trading lower as well. After a sharp move higher yesterday, bond yields are taking a breather, with the 10-year GoC yield ticking down to 3.24% and the 10-year U.S. Treasury yield falling to 4.38%.*
• U.S. inflation data in line with expectations – Headline consumer price index (CPI) inflation rose by 0.2% in October and 2.6% year-over-year, both in line with expectations.* Core CPI, which excludes food and energy, rose by 0.3% in October and 3.3% year-over-year, also both in line with expectations.* The 0.3% monthly change in core CPI is the third consecutive month with a 0.3% gain and pushes the three-month annualized change in core CPI to 3.6%, up from a low of 1.6% in July.* While we expect that inflation will continue to trend lower over the coming months, recent data shows that the path lower may not be in a straight line. Market expectations are calling for an 80% probability of a Fed rate cut at the December meeting, which we'd view as a reasonable expectation.** However, strong economic growth suggests that there is no need for urgency from the Fed to accelerate the pace of rate cuts. Bond markets have reflected this view and are now pricing in only three 0.25% Fed rate cuts from now until the end of 2025.**
• Focus turns to the consumer - With consumer price inflation in the rearview, market focus will turn to consumer-spending trends, with U.S. retail sales for October out on Friday.* Consensus expectations are for retail sales to rise by a healthy 0.3% month-over-month, a modest downtick from the September reading of 0.4%.* Control-group retail sales - which excludes more volatile components such as spending at auto dealers, gas stations and building-material dealers – is also expected to rise by 0.3% in October.* Despite higher borrowing costs compared with recent history, consumer spending has proved resilient and has been the driving force behind strong U.S. economic growth in recent quarters. In our view, easing but healthy labor-market conditions and strong household balance sheets create a supportive environment for consumers, which should help extend the economic expansion.

Brock Weimer, CFA 
Investment Strategy

^{Source: *FactSet **Bloomberg}

• Stocks finish mixed – The TSX logged a 0.4% gain on Tuesday, while U.S. equity markets finished lower, with the S&P 500 snapping a streak of five consecutive days of positive returns.* U.S. small-cap stocks underperformed today as well, with the Russell 2000 Index shedding over 1.5%, reflecting a risk-off tone in U.S. equity markets.* TSX outperformance was aided by shares of Shopify, which surged over 20% following strong earnings results this morning.* Bond yields finished sharply higher, with the 10-year U.S. Treasury yield rising 0.13 percentage points to 4.43%, while the 10-year GoC yield climbed to 3.27%.* On the economic front, the U.S. NFIB Small Business Index rose to 93.7 in October, below the 30-year average of over 97 but tied with the July reading for its highest since 2022.* In the commodity space, oil prices were little changed, finishing around $68 per barrel, while gold prices fell by roughly 0.4%.*
• Key U.S. inflation data on the horizon – U.S. inflation will be the main focus for markets this week, with October consumer price index (CPI) inflation out tomorrow and the producer price index (PPI) out on Thursday. Economists expect headline CPI to rise by 2.6% on an annual basis, while headline PPI is expected to rise by 2.3%, both higher than the prior month.* Core CPI, which excludes the food and energy components, is expected to hold steady at 3.3% annually.* Markets are currently pricing in a roughly 65% probability of a 0.25% Fed rate cut at its December 18 meeting.** We'd align with consensus that another 0.25% rate cut from the Fed in December is likely. However, given the U.S. economy remains on strong footing, a hotter-than-expected CPI reading tomorrow could lead to a pause at the December meeting.
• Bond yields resume upward trend: After taking a breather in the prior week, bond yields rose again today, with the 10-year U.S. Treasury yield closing just above the 4.4% mark.* Since the Fed first cut interest rates on September 18, the 10-year Treasury yield has risen roughly 0.7%.* Canadian yields have followed suit, with the 10-year GoC yield higher by over 0.3% over the same time.* In response, U.S. investment-grade bonds have struggled, declining by nearly 3% since September 18, while Canadian investment-grade bonds have declined by 0.5%.* In our view, the rise in yields has been attributable to a combination of resilient U.S. economic growth and higher inflation expectations, as measured by the five-year breakeven U.S. inflation rate.* This has led to a subsequent reduction in expectations for Fed interest-rate cuts over the coming year, with markets now expecting the Fed's target rate to end 2025 at roughly 3.9% compared with expectations of 2.9% in early October.** With central banks easing policy, our view is that there will be limited upward pressure on intermediate and longer-term yields. We'd recommend investors consider reducing overweight allocations to cash and short-term bonds and add to intermediate- and longer-term bonds.

Brock Weimer, CFA 
Investment Strategy

^{Source: *FactSet **Bloomberg
U.S. investment-grade bonds measured by the Bloomberg U.S. Aggregate Bond Index.
Canadian investment-grade bonds measured by the Bloomberg Canada Aggregate Bond Index.} 

• Stocks close higher: The TSX and major U.S. equity markets added to strong gains from last week, as the S&P 500, Nasdaq and Dow Jones Industrial Average reached new record highs. Sector performance was mixed, with consumer discretionary and financial stocks leading markets higher. Bond markets were closed in observance of Remembrance Day in Canada and Veterans Day in the U.S. In global markets, China was lower, as new stimulus measures fell short of market expectations*, while Europe was up. The U.S. dollar advanced versus major currencies. In the commodity space, WTI oil was down, as the China stimulus package raised demand concerns*.
• Markets focus on key inflation readings this week: The U.S. consumer price index (CPI) for October will be released on Wednesday, with forecasts calling for inflation to rise to 2.6% annualized, up from 2.4% the prior month*. The modest expected increase is due to lower inflation readings from a year ago rolling out of the year-over-year figure. Importantly, CPI is expected to rise 0.2% month-over-month, which translates to about 2.4% inflation annualized. We believe these expectations reflect inflation that is gradually cooling, though the path will likely be bumpy along the way, likely allowing the Bank of Canada and Federal Reserve to continue cutting interest rates.
• Corporate earnings season winding down:With 91% of companies reporting, third quarter earnings are on pace for about 5.2% growth year-over-year. Results have been strong relative to expectations, with 74% of companies beating analyst estimates*. Earnings growth has been broad, with eight of the 11 sectors delivering higher earnings*. The three sectors forecast to have lower earnings – energy, industrials and materials – represent less than 15% 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 and real estate sectors have each outperformed the communication services sector, which led markets higher earlier in the year*.

Brian Therien, CFA 
Investment Strategist

^{Source: *FactSet}

Friday, 11/08/2024 p.m.

• Stocks finish mixed to end the week: U.S. equity markets finished higher on Friday, while the TSX fell by about 0.5%.* The S&P 500 gained over 4.5% this week, the best weekly gain since November 2023.* Despite a lower finish on Friday, the TSX still logged a healthy gain of roughly 2% for the week. At a sector level, leadership was broad-based, with most sectors of the S&P 500 closing higher, led by utilities and real estate.* Overseas, European markets closed lower, while Asian markets were mostly lower overnight. Bond yields were lower on the day, with the 10-year GoC yield falling to 3.18% while the 10-year U.S. Treasury yield fell to 4.3%.* On the economic front, the University of Michigan consumer sentiment survey showed U.S. consumer sentiment improved to its highest since April.* In commodity markets, oil prices finished lower by over 2%, while gold fell by less than 0.5%.*
• Employment modestly rose in October: Today's labour-force survey showed that domestic employment increased by 15,000 in October, below consensus expectations for a gain of roughly 25,000, while the unemployment rate was unchanged from the prior month at 6.5%.* The average monthly gain in employment this year has been 27,000, down from an average of roughly 37,000 per month in 2023.* In our view, this is indicative of a labour market that is cooling from a period of historic strength following the pandemic but remains healthy. Today's report also showed average hourly wages ticked higher, rising by 4.9% on an annual basis in October, following a 4.6% increase in the prior month.** The combination of healthy labour-market conditions, wage growth that's outpacing inflation, and Bank of Canada interest-rate cuts should lead to improving economic activity in the quarters ahead.
• Focus shifts to U.S. inflation in the week ahead: With the FOMC meeting concluding yesterday and resulting in a 0.25% interest-rate cut, market focus will shift to inflation - and its implication on future monetary-policy decisions - in the week ahead. U.S. consumer price index (CPI) inflation for October will be released on Wednesday, and expectations are calling for headline CPI to rise by 2.5% on an annual basis and 0.2% month-over-month.* Core CPI is expected to rise by 3.3% on an annual basis and 0.3% month-over-month.* Inflation has cooled meaningfully from this time last year but still remains above the Fed's 2% target. In yesterday's meeting, Fed Chair Jerome Powell acknowledged that the FOMC believes risks to its goals of achieving maximum employment and inflation near 2% are roughly in balance, and he reiterated that future decisions will be driven by incoming data. In our view, the Fed is likely to cut rates again at its December meeting by 0.25%. However, with the U.S. economy still on strong footing, a higher-than-expected inflation reading on Wednesday could lead the Fed to hold rates steady in December.

Brock Weimer, CFA 
Investment Strategist

^{Source: *FactSet **Statistics Canada}

Thursday, 11/07/2024 p.m.

• Stocks close higher on Fed Day – The TSX and major U.S. equity markets added to strong gains from earlier in the week, driving the TSX, S&P 500 and Nasdaq to new record highs. Sector performance was broad, as communication services and technology stocks led markets higher, reflecting a risk-on tone. Bond yields declined in a reversal of their trend higher over the past several weeks. In global markets, China was up on higher-than-expected exports for October*. Europe also traded higher, as the Bank of England cut interest rates by 0.25%. The U.S. dollar declined versus major currencies. In the commodity space, WTI oil rose on concerns over the possibility of increased sanctions on Iran and Venezuela following the election*.
• Federal Reserve cuts policy rate for a second time – The Federal Reserve's Federal Open Market Committee (FOMC) cut its target range for the fed funds rate by 0.25% to 4.5% - 4.75%, as expected*. The FOMC's statement included a comment that the committee believes its goals of achieving maximum employment and inflation near 2% are roughly in balance**. Bond markets are pricing in expectations for another 0.75% of rate cuts through 2025, which would put the fed funds rate in the 3.75% - 4% range***. We expect the Fed to be able to continue cutting rates, though the pace may start to slow, as FOMC aims to achieve a soft landing for the economy. The Bank of Canada should also be able to continue cutting interest rates, with inflation in the lower half of its target range of 1%-3%. Lower interest rates typically reduce borrowing costs for businesses and consumers, which would be positive for economic growth and corporate profits.
• Jobless claims edge higher: U.S. jobless claims rose to 221,000* this past week, as expected, up from 218,000 the prior week. This reading reflects a labor market that is gradually normalizing from a period of outsized strength, which we believe is supportive of continued growth and the "soft landing" narrative for the U.S. economy. A cooling labor market should also lead to slower wage gains ahead, which typically ease services inflation. Labor productivity increased 2.2% in the third quarter, up from 2.1% the prior quarter but below estimates calling for 2.3%. Rising productivity drives higher production relative to total hours worked, which is also positive for continued economic growth.

Brian Therien, CFA 
Investment Strategist

^{Source: *FactSet **CME FedWatch}