Daily market snapshot

• Stocks pull back following historic rally yesterday – The TSX and U.S. equity markets closed lower today, as energy and technology stocks led to the downside. U.S. President Trump has announced a pause on the new tariffs for 90 days to allow for negotiations to potentially reduce tariffs and other trade barriers. Tariff rates for nearly all countries will move lower to 10%, except for China, for which they will rise to 145%.* Sectoral duties of 25% on steel, aluminum and autos remain in effect as well. In international markets, Asia rose sharply, led by Japan's Nikkei, which was up 9.1%. Europe was up 3% - 4% as well, as the European Union announced it will also pause its countermeasures to U.S. tariffs for 90 days.* Bond yields were up modestly, with the 10-year Government of Canada yield at 3.22% and the 10-year U.S. Treasury yield at 4.40%, but the U.S. benchmark yield remains below yesterday's peak of 4.5%. The U.S. dollar declined against major international currencies. In commodity markets, WTI oil traded lower on demand concerns, as trade tensions between the U.S. and China remain high*.
   
• CPI inflation falls more than expected – U.S. consumer price index (CPI) inflation fell to 2.4% annualized in March, below forecasts calling for 2.6%*. The energy component was down 3.3%** from a year ago, as lower crude oil prices flow through to gasoline and other energy commodities. Core CPI, which excludes more-volatile food and energy prices, dropped to 2.8%, compared with estimates for 3.0%. Shelter inflation slowed to a 4.0% pace, down from 5.6% a year earlier, providing a key driver in moderating inflation.* These readings, though likely not meaningfully impacted by tariffs, indicate that inflation continues to moderate. We expect tariffs to put some upward pressure on inflation, as higher import costs are at least partially passed along to consumers. However, most of this impact should be near-term price hikes that aren't an ongoing driver of inflation, in our view. Bond markets are pricing in inflation of about 2.27% over the next 10 years, indicating that long-term inflation expectations remain well anchored.***
   
• Jobless claims edge higher – U.S. weekly jobless claims rose to 223,000 this past week, slightly below estimates calling for 225,000*. Jobless claims have averaged about 223,000 over the past four weeks, which is about in line with the average for 2024*. While federal government layoffs will likely drive jobless claims higher in the months ahead, we believe these readings, combined with other recent data, indicate that the labor market remains healthy. The unemployment rate is still low at 4.2%, and 7.6 million job openings exceed unemployment of 7.1 million. Wage gains should remain above inflation, providing positive real wages to support consumer spending and the economy, in our view.

Brian Therien, CFA
Investment Strategy

Source: *FactSet **U.S. Bureau of Labor Statistics ***Federal Reserve Bank of St. Louis

• Stocks rebound to close sharply higher as tariff rates are on hold for 90 days – U.S. and Canadian equity markets rallied across the board this afternoon, as President Trump announced a pause on the new tariff rates for 90 days. President Trump announced tariff rates on all countries would move lower to 10%, except for China, whose tariff rate would move higher to 125%*. The administration also clarified that the pause would not apply to sector tariffs, which are currently in place for autos and steel and aluminum. Stock markets rallied 5% to 12% across major indexes, with the tech-heavy Nasdaq leading the way higher*. Meanwhile, Treasury yields also were higher, although lower than recent peak levels. The 10-year U.S. Treasury yield has climbed to around 4.34%, after reaching its low of the year of around 4% last week*. The 10-year Treasury auction today was well-received, supported by strong demand***. In our view, the news on the tariff pause is a welcome de-escalation of the recent global trade tensions. While a 10% average rate (or perhaps higher given Chinese and sector tariffs) will still weigh on economic growth and inflation, this is a scenario we believe where economic and earnings growth can still be positive for the year.
   
• Keep in mind that market volatility can be an opportunity – Historically, when the VIX volatility index reaches extreme highs, like this week when it went up to levels above 50, the 12-month forward return tends to be positive by around 20%*. And it can take time for volatility to return to average levels, about eight months on average*. Nonetheless, remember that historically bear markets do occur once every three years and typically are followed by bull market periods, which tend to be longer and have higher returns. With stocks down close to bear-market levels earlier this week, keep in mind that markets have priced a lot of negative news in already. If, for example, a recession does not materialize, stocks may recover. We continue to recommend portfolio diversification as a key strategy for the year ahead, and remember that time in the market is a better long-term strategy than trying to time yourself in and out of the market. Read our Don't Fear the Bear report for more insights here too: Don’t fear the bear.
   
• Inflation data is up next: U.S. consumer price index (CPI) inflation for the month of March is scheduled to be released on Thursday morning. Expectations are for headline CPI to rise by 2.6% year-over-year, below last month's 2.8% rate. Core CPI is expected to rise by 3%, also lower than last month's 3.1% reading.* Keep in mind that Thursday's CPI reading is unlikely to yet reflect any impact from tariffs, which did move higher on April 9. In our view, the proposed tariffs will likely put upward pressure on inflation in the near term. U.S. importers will face higher costs and are likely to pass on part of this to consumers. However, we don't believe that tariffs represent an ongoing source of inflation that would cause long-run inflation expectations to become unanchored. In fact, the 10-year breakeven inflation rate, which is a market-based measure of inflation expectations over the next 10 years, has declined to below 2.3%, near the average of its three-year range.* We believe this signals that longer-term inflation expectations remain anchored and that the downside risks to economic growth from the proposed tariffs are potentially more acute than the upside risks to inflation. In our view, this will give the Fed flexibility to lower rates if economic growth shows meaningful signs of slowing.

S&P 500 Forward Returns Following a 20% Decline**

Mona Mahajan
Investment Strategy

Source: *FactSet **FactSet, Edward Jones. S&P 500 Price Index. ***U.S. Treasury

• Equities finish lower with tariffs in focus – North American equity markets closed lower on Tuesday, reversing gains at the open, as investors continue to digest the latest tariff headlines. Reports surfaced that the U.S. will impose an additional 50% tariff on imports from China in response to the 34% retaliatory tariffs China announced last week.* The additional 50% duty on imports from China will bring the U.S. tariff rate on Chinese imports to 104%. Markets responded in risk-off fashion with the TSX and S&P 500 closing lower, and the S&P 500 closing roughly 19% below its February 19 all-time high.* At a sector level, commodity sensitive sectors such as energy and materials were among the worst performers while defensive sectors such as utilities fared better.* On the economic front, the U.S. NFIB Small Business Optimism Index declined to 97.4 in March, slightly below the long-run average of 98, and signaling that policy uncertainty is beginning to weigh on sentiment in small businesses.* After a sharp move higher yesterday, bond yields continued their upward trend today with the 10-year U.S. Treasury yield climbing to 4.28% while the 10-year GoC yield rose to 3.1%.*
   

• While never comfortable, volatility is a normal part of investing – As long-term investors, it's important to remember that volatility, while never comfortable, is a normal part of investing. Since 1970, the S&P 500 has declined by 20% or more from an all-time high on eight occasions.** However, in the one, six and 12 months following the day the S&P 500 first declined by 20% from an all-time high, returns were positive on average.
   

  • 1-month: The average return in the S&P 500 one month following a 20% decline from an all-time high was 4.1%.**
  • 6-month: The average return in the S&P 500 six months following a 20% decline from an all-time high was 0.7%.**
  • 12-month: The average return in the S&P 500 12 months following a 20% decline from an all-time high was 10.5%.**
     

  While there is no guarantee history will repeat itself, stocks have tended to rebound after sharp drawdowns. With the U.S. and Canadian economies entering this period from a position of strength and the potential for trade negotiations over the coming weeks to provide relief to markets, we believe investors are best served by maintaining a well-diversified portfolio aligned to their goals, as opposed to making investment decisions driven by emotion.
   

• U.S. inflation data in focus: Key U.S. inflation data will be in focus later this week with the release of March consumer price index (CPI). Expectations are for headline CPI to rise by 2.6% on an annual basis, while core CPI is expected to rise by 3%, both lower than the prior readings.* With the most stringent of the proposed U.S. tariffs not set to take effect until tomorrow, Thursday's CPI reading is unlikely to be meaningfully impacted by tariffs. In our view, the proposed tariffs will likely put upward pressure on inflation in the near-term. U.S. importers will face higher costs and are likely to pass on part of this to consumers. However, we don't believe that tariffs represent an ongoing source of inflation that would cause long-run inflation expectations to become unanchored. In fact, the U.S. 10-year breakeven inflation rate, which is a market-based measure of inflation expectations over the next 10 years, has declined to below 2.2%, near the low end of its three-year range.* We believe this signals that longer-term U.S. inflation expectations remain anchored and that the downside risks to economic growth from the proposed tariffs are potentially more acute than the upside risks to inflation. In our view, this will give the Fed flexibility to lower rates if economic growth shows meaningful signs of slowing.

Brock Weimer, CFA
Investment Strategy

^{Source: *FactSet **FactSet, Edward Jones. S&P 500 Price Index.} 

• Equities close mostly lower, with tariffs weighing on sentiment – Equity markets closed lower on Monday, as markets continue to digest the latest U.S. tariff announcement. On April 5, a 10% duty was levied on all U.S. imports except those from Canada and Mexico, which are subject to tariffs on non-USMCA compliant goods along with targeted goods such as autos, steel and aluminum. Higher levies on countries the U.S. has large trade deficits with will take effect on April 9. Over the weekend, White House officials stated that several countries have reached out to begin negotiations; however, policymakers reiterated that the additional tariffs will not be scaled back before the April 9 start date. Stocks briefly turned positive midmorning following a report that the U.S. was considering delaying tariffs by 90 days. However, reports later surfaced that these claims weren't factual, and North American equity markets responded by finishing lower, with the exception of the tech-heavy Nasdaq, which edged out a modest gain. Overseas, Asian markets were sharply lower, with Japan's Nikkei declining roughly 8% and the Hang Seng Index (Hong Kong) down by over 13%.* After opening the day lower, bond yields reversed course, finishing higher, with the 10-year U.S. Treasury yield closing around the 4.2% mark while the 10-year GoC yield rose to 3.04%.*
   
• Markets remain volatile, but diversification has provided support – The proposed tariffs pose a downside risk to U.S. economic growth, as corporations could see profit margins decline due to higher input costs, while households could be pressured by lower inflation-adjusted incomes. In response, U.S. stocks have declined sharply, with the S&P 500 18% off its mid-February all-time high after today's close. However, investors with well-diversified portfolios have fared better. Despite coming under pressure over the past several trading days, overseas stocks have outperformed U.S. stocks, while Canadian and U.S. investment-grade bonds are higher year-to-date.* We believe diversification will remain a key ingredient for investing success over the remainder of 2025. Incorporating allocations to a variety of different asset classes can help smooth periods of volatility and help investors benefit from periods of rotating leadership. 
  
  As we outlined in our recent Weekly Market Wrap, while recession risks have clearly risen, an economic downturn is not a foregone conclusion. The U.S. economy is entering this period from a position of strength, with real GDP expanding at an above-trend pace over the past two years* and household balance sheets remain healthy. Additionally, last Friday's U.S. jobs report showed that nonfarm payrolls grew by a healthy 228,000, well above expectations for a gain of 130,000.* In Canada, the economy entered 2025 with strong momentum as well, with real GDP expanding at a healthy 2.6% in the fourth quarter.* We believe investors are best served during this time by sticking with an investment strategy aligned to their financial goals as opposed to reacting to headlines.
   

• While never comfortable, volatility is a normal part of investing – As long-term investors, it's important to remember that volatility, while never comfortable, is a normal part of investing. Since 1970, the S&P 500 has declined by 20% or more from an all-time high on eight occasions.** However, in the one, six and 12 months following the day the S&P 500 first declined by 20% from an all-time high, returns were positive on average.
   

  • 1-month: The average return in the S&P 500 one month following a 20% decline from an all-time high was 4.1%.**
  • 6-month: The average return in the S&P 500 six months following a 20% decline from an all-time high was 0.7%.**
  • 12-month: The average return in the S&P 500 12 months following a 20% decline from an all-time high was 10.5%.**
     

  While there is no guarantee history will repeat itself, stocks have tended to rebound after sharp drawdowns. With the U.S. and Canadian economies entering this period from a position of strength and the potential for trade negotiations over the coming weeks to provide relief to markets, we believe investors are best served by maintaining a well-diversified portfolio aligned to their goals, as opposed to making investment decisions driven by emotion.
   

  Brock Weimer, CFA
  Investment Strategy

  ^{Source: *FactSet **FactSet, Edward Jones. S&P 500 Price Index.} 

• Equities close sharply lower as China retaliates with 34% tariffs – Equity markets extended their recent trend lower as China announced 34% tariffs on U.S. goods, starting April 10. The levies are in response to President Trump's hike of U.S. tariffs on products from China to 54%. Nasdaq and U.S. small-cap stocks are now in bear market territory. In international markets, Asia declined, led by Japan's Nikkei, which fell 2.75%, as the country will face higher-than-expected 24% duties on its exports to the U.S. Europe was lower as well, led by banks to the downside, as investors price in slower growth and lower interest rates*. The U.S. dollar advanced against major international currencies but remains down about 5% year-to-date. In commodity markets, WTI oil fell to its lowest price in four years on demand concerns and OPEC+'s production hikes*.
   
• Canada employment misses estimates, U.S. higher than expected in March – Canada employment fell by 33,000 in March, below forecasts pointing to a 22,000 rise, driving the unemployment rate slightly higher to 6.7%. U.S. total nonfarm payrolls grew by 228,000 in March, well above estimates calling for 130,000*. Figures for January and February were revised lower by 48,000, partially offsetting last month's gains. Health care and retail trade were the largest contributing sectors, adding a combined 78,000 jobs. Despite the strong job gains, the unemployment rate rose to 4.2%, as expected. Hourly earnings were up 3.8% annualized, missing forecasts calling for a 4.0% rise*. The upshot is that the labour market remained healthy going into the current trade tensions, providing growing employment and wage gains on average that are comfortably above inflation.
   
• Bond yields drop further - Bond yields were down, with the 10-year Government of Canada yield at 2.86% and the 10-year U.S. Treasury yield at 4.01%. Bond markets are pricing in expectations for four cuts to the fed funds rate this year**, well above the Fed's own "dot plot" forecast, which reflects two cuts***. Markets appear to be reflecting the view that the Fed will need to cut rates in order to support the labour market as the economy slows due to escalation in trade tensions. However, the still-low unemployment rate and job openings exceeding unemployment suggest that the Fed's maximum employment mandate is effectively met. With Personal Consumption Expenditure (PCE) inflation at 2.5%, above the 2% target, we expect the Fed to remain on hold a while longer to gain more clarity on the impact of tariffs on inflation and growth.
   

• Portfolio diversification remains critical – The potential risks to economic growth and corporate profits suggest that after falling into correction (10% decline from highs), the recovery in stocks will take a while to materialize. Patience and investment discipline will be key for investors to navigate the trade headlines, which no doubt will continue to dominate the market narrative. 
   

  Despite the headwinds, the fundamental drivers of market performance remain more supportive than harmful: 1) unemployment is low; 2) the Fed remains in a rate-cutting cycle; 3) corporate profits are still likely to rise this year, though potentially less than the 10% expected before tariffs; and 4) the policy agenda may soon shift to pro-growth measures, such as tax cuts and deregulation.  
   

  The good news for investors with balanced and diversified portfolios is that those portfolios have weathered the pullback better than those with concentrated positions in U.S. large-cap stocks. International stocks are up for the year, U.S. mid-cap stocks have outperformed, and bond prices have rallied, helping smooth out the equity-market volatility. At a sector level, industrials, technology and consumer discretionary could be more exposed to tariffs based on their heavier reliance on imports, while financials, utilities and real estate are more insulated from a trade war. 
   

  While the immediate drawdown in stock markets may be jarring, we recommend that investors stay with their long-term investment strategy, emphasizing diversification and high-quality investments. Avoid making emotionally charged investment decisions, and remember that time in the market has proven to be a better strategy over time than trying to time yourself in and out of the market. (Our Don't Fear the Bear report is a great reminder of this.)
   

Brian Therien, CFA
Investment Strategy

^{Source: *FactSet **CME FedWatch *** Federal Reserve}