Daily market snapshot

• Stocks end mixed but break the losing streak - Major indexes slid in early morning trading after FedEx and Nike saw their stock prices drop after reporting earnings but recovered most of their losses late in the day. FedEx lowered its full-year guidance citing inflation and uncertain demand for shipments, while Nike signaled declines in profitability, in part due to US tariffs on products from China and Mexico*. On the flip side, shares of Boeing rose following news that the company won a contract to build the US’s next generation fighter jet. After entering correction territory declining 10% from the highs last week, stocks have stabilized and manage to eke out a gain this week after four consecutive weeks of losses*. The key theme of a rotation across sectors, investment styles, geographies and asset classes continues, but today it was tech’s turn to outperform after having lagged so far this year*. Elsewhere, Germany's massive fiscal spending package successfully cleared its final legislative hurdle and is a key driver behind the outperformance of European equities, although they took a breather today. On the economic front January retail sales declined 0.6% and 0.2% excluding gasoline sales and autos. This decline partly reflects the reversal of the boost from the December GST sales holiday. However, StatCan's advanced estimate showed retail sales declined 0.4% in February potentially signaling that households are getting more cautious due to the tariff-related uncertainty.
   
• Trade policy developments remain center stage - The lack of any new tariff-related headlines this week has helped markets stabilize, but sentiment remains fragile ahead of the upcoming April 2 reciprocal tariff announcement. Details of the plan are still being worked out, but the Trump administration is planning to unveil its new trading policy centered around tariffs on imported goods based on assessments of each trading partner's policies. Trade worries are a known unknown at this point and may keep volatility elevated in the weeks and months ahead. Given the changes in market leadership that are underway, we think that portfolio diversification will be critical for investors to navigate this year's twists and turns. Historically, stocks have experienced a correction, defined as a 10% or more decline from highs, about once a year. But the current pullback doesn’t have to turn into something worse. The private sector continues to add jobs at a healthy pace, corporate profits are rising, and the Fed is not considering rate hikes any time soon. 
   
• Fed is waiting for more clarity but is still eyeing rate cuts - Given the uncertain impact of the new administration's policies, the Fed is taking a wait-and-see approach after having cut rates by one percentage point. This week the Federal Open Market Committee maintained the benchmark interest rate range of 4.25%- 4.5% while slowing the pace of quantitative tightening. Policymakers continue to project two rate cuts for this year but adjusted their estimates for growth and inflation. GDP growth expectations were revised lower from 2.1% to 1.7% and inflation estimates were revised up from 2.5% to 2.8% (core PCE). However, the inflation projections for 2026 and 2027 were left unchanged implying that the Fed sees the effect of tariffs as transitory. Fed Chair Powell mentioned in his press conference policymakers will be monitor inflation expectations closely to see if they remain anchored. The key takeaway in our view is that the Fed is waiting for greater clarity and will likely stand pat for now based on the still solid economic data (despite the negative sentiment). However, they have a bias to cut and are likely going to view any near-term tariff-induced rise in prices as a one-time increase instead of an ongoing source of inflation. We remain comfortable with our view that the Fed policy rate will settle in the 3.5%-4% range by the end of the year.
   

Angelo Kourkafas, CFA
Investment Strategist

^{Source: *FactSet}
 

• Stocks close lower as post-Fed rally fades – The TSX and U.S. equity markets closed lower on Thursday, with materials and consumer staples stocks leading to the downside. In global markets, Asia was mixed, as China's central bank held its policy rate steady at 3.1% as expected. Europe was down, with banks and autos posting the largest declines, as the Bank of England left interest rates unchanged at 4.5%, also in line with forecasts. Bond yields were mixed, with the 10-year Government of Canada yield up to 3.0% and the 10-year US. Treasury yield down near 4.24%. The U.S. dollar advanced versus major currencies but remains about 5% below its January peak. In the commodity space, WTI oil traded higher as the U.S. issued new sanctions on crude from Iran*.
   
• Jobless claims edge higher, as expected - U.S. initial jobless claims rose to 223,000 this past week, slightly below estimates calling for 224,000*. Jobless claims have averaged about 227,000 over the past four weeks, modestly above the weekly average of 223,000 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. With the unemployment rate still low at 4.1% and job openings exceeding unemployment, wage gains should remain above inflation, providing positive real wages to support consumer spending and the economy.
   
• Leading economic index ticks lower – The Conference Board's U.S. Leading Economic Index (LEI), which is intended to provide an early indication of significant turning points in the business cycle and where the economy is heading in the near term, fell 0.3% to 101.1 in February. Weaker consumer expectations for business conditions and lower manufacturing new orders were the largest drivers of the decline, while higher weekly hours worked for manufacturing and the recent rise in the S&P 500 were the main positive contributors. Importantly, LEI's six-month change, while still negative, remained on its upward trend and does not signal recession risk**. These readings indicate that growth is slowing amid policy uncertainty but do not point to a recession. Pro-growth policies, such as deregulation and tax cuts, should help accelerate the economy later this year, in our view.
   

Brian Therien, CFA
Investment Strategy

^{Source: *FactSet **The Conference Board}
 

• Stocks rise post Fed meeting: Equity markets closed higher on Wednesday, following the Fed's decision to hold interest rates steady and slow the pace of balance sheet reduction, known as quantitative tightening (QT). In addition to the interest rate and QT decision, today's meeting provided updated economic projections which pointed to 0.5% of interest-rate cuts in 2025 and modestly higher inflation.** The positive reaction from markets likely reflects some relief that despite the potential for tariffs to drive inflation modestly higher, Fed Chair Powell reiterated that they believe the inflationary impact of tariffs will be transitory as opposed ongoing source of inflation. Leadership was broad-based with all eleven sectors of the S&P 500 finishing higher. Growth sectors such as technology and consumer discretionary along with cyclical sectors such as energy were among the top performers.* Overseas, Asian markets were mixed overnight while European markets were mostly higher following a lower-than-expected inflation reading from the euro zone.* Bond yields closed lower with the 10-year U.S. Treasury yield closing around the 4.25% mark while the 10-year GoC yield fell to around 3%.* 
   
• Fed holds rates steady while projections suggest two rate cuts in 2025: The Fed opted to hold the target range for the federal funds rate steady in today's meeting at 4.25%-4.5%. In addition to holding the policy rate steady, the Fed announced it will slow the pace of reducing its Treasury securities holdings beginning in April. The slower pace of QT should support liquidity conditions in financial markets. The FOMC also provided updated economic projections at today's meeting. Updated projections showed no changes to expectations for rate cuts in 2025, with the median expectations still calling for two quarter-point rate cuts this year.** On the inflation front, the 2025 projection for core PCE inflation moved up from 2.5% last December to 2.8%, with tariffs cited as part of the reason for the rise.** In his commentary Fed Chair Jerome Powell stated that the Fed's base case is that tariffs would create a one-time increase in the level of prices as opposed to an ongoing source of inflation which could de-anchor long-term inflation expectations. As such, the year-end core PCE projection for 2026 & 2027 were left unchanged from the December projections. On the growth front, the 2025 FOMC real GDP projection declined from 2.1% in December to 1.7%, reflecting softer but still healthy economic growth. 
   
• Perspective on pullbacks: On last Thursday, the S&P 500 closed 10.1% below the mid-February all-time high, marking the first 10% pullback since 2023.* While never comfortable, pullbacks are a normal part of investing. Since 1971, the S&P 500 has posted 43 years of positive returns including dividends.*** However, even in years with positive returns, the S&P 500 has on average posted a max drawdown of 9.7%.*** Additionally, there have been nine years in which the S&P 500 declined by 10% or more and still went on to post double digit returns for the year.*** In our view, volatility could persist until there is greater clarity on the policy front. However, we believe underlying economic conditions remain healthy which should be supportive to markets over the coming months. For this reason, we recommend investors maintain a long-term focus through pockets of volatility and look for opportunities to add to quality investments in line with their goals.
   

Brock Weimer, CFA
Investment Strategy

^{Source: *FactSet **December 2024 FOMC Summary of Economic Projections 
***Morningstar Direct, Edward Jones. S&P 500 Total Return Index. Total return in USD.}

• Stocks decline following Canadian inflation: North American equity markets traded lower on Tuesday, giving back part of the gains from the previous two sessions. Domestic consumer price index (CPI) rose by 2.6% year-over-year in February, above the January reading of 1.9% and the highest reading since last June.* From a leadership perspective, growth sectors of the market such as technology and communication services were among the laggards while value sectors such as energy and health care fared better.* Overseas, markets in Asia were higher overnight while European markets traded higher as well following a jump in German economic sentiment to the highest level since 2022.* Additionally, policymakers in Germany voted to pass a fiscal package that will permit higher defense and infrastructure spending.* The spending package will need to receive approval from another branch of the German government on Friday before going into effect. South of the border, industrial production rose by 0.7% in February, above expectations for 0.2%.* The better-than-expected read on U.S. industrial production is consistent with recent survey data which has suggested the manufacturing sector of the U.S. economy has been gaining momentum over recent months. Bond yields were little changed on Tuesday with the 10-year U.S. Treasury yield finishing just below the 4.3% mark while the 10-year GoC yield finished the day around 3.02%.* 
   
• Canadian inflation ticks higher: Canadian consumer price index (CPI) inflation rose by 2.6% year-over-year in February, above the January reading of 1.9%.* Part of the higher inflation in February was due to the expiration of the goods and services tax (GST)/harmonized sales tax (HST) break which expired in the middle of the month. Since the taxes were reapplied to certain products included in the CPI basket, this put upward pressure on the February inflation reading.*** However, the Bank of Canada's (BoC) preferred measures of inflation, CPI-trim and CPI-median, both accelerated in February as well. Both CPI-trim and CPI-median rose by 2.9% in February, up from readings of 2.7% in January.* The higher-than-expected February readings brought the average three month annualized change in CPI-trim and CPI-median up to 3.3%, above the BoC's target range for inflation of 1-3%.* In our view, the higher than expected inflation reading could lead the BoC to take a more gradual approach to rate cuts over the coming months. The BoC has already lowered its target rate to 2.75%, within the banks estimate of a neutral interest rate in the range of 2.25% - 3.25%. However, with potential U.S. tariffs posing a downside risk to the Canadian economy, we'd expect the BoC to stand ready to ease policy further if economic growth meaningfully slows from the impacts of tariffs. 
   
• Fed in focus: Today marks the beginning of the March FOMC meeting, with an interest rate decision and updated economic projections expected tomorrow afternoon. Markets are expecting the Fed to maintain the fed funds target range at 4.25%-4.5% tomorrow. A hold at tomorrow's meeting would be consistent with recent comments from Fed Chair Powell that because the U.S. economy remains in good shape, the Fed can be patient with further rate cuts. With consensus expectations for the Fed to remain on hold, market focus will likely center on updated FOMC economic projections. In the most recent projections, FOMC members expected two 0.25% rate cuts in 2025 and real GDP growth of 2.1% for the year.** With signs of softening economic growth in recent weeks, markets will look to whether FOMC members believe this will translate into lower GDP growth for the year and potentially more than two rate cuts. We'd align with market expectations that the Fed will hold its policy rate steady at tomorrow's meeting and expect Fed Chair Powell to reiterate that the U.S. economy remains on strong footing, allowing the Fed to be patient with further rate cuts. 
   

Brock Weimer, CFA
Investment Strategy

^{Source: *FactSet **December 2024 FOMC Summary of Economic Projections 
***Statistics Canada} 

• Stocks move higher for a second day – U.S. and Canadian equity markets were higher on Monday, following a strong rebound on Friday. The S&P 500 was up about 0.85%, while the Canadian TSX was up about 1%. Investors were encouraged to see a rebound in U.S. retail sales for February, which climbed 0.2% for the month, after falling 0.9% last month*. Markets will also be awaiting the Federal Reserve interest rate decision this month, with investors expecting the Fed to keep rates steady at 4.25% to 4.5%*. More broadly, after averting a government shutdown on Friday, and now anticipating further tariff developments on April 2, markets are largely in wait-and-see mode in the weeks ahead. This may provide some relative calm in markets after a period of volatility and 10% correction in the S&P 500 since mid-February. 
   
• All eyes turn to the Federal Reserve – The Federal Reserve will hold its March FOMC meeting on Tuesday and Wednesday this week, with an interest rate decision and updated set of economic projections expected on Wednesday afternoon. In our view, the Fed will likely keep rates on hold at 4.25% to 4.5%, but the key takeaway will lie in the new "dot plot," which shows the best guess of the path of interest rates going forward. In December, the median Fed dot plot pointed to 2 rate cuts in 2025*, and investors will be watching to see if this is updated to reflect potentially 3 rate cuts, in-line with the current market expectation. In December, the Fed also saw U.S. economic growth for 2025 at 2.1% year-over-year*. Given the recent slew of softer economic data, markets will be focused on whether the Fed will downgrade this forecast for the year ahead. In our view, Powell and team will aim to strike a balance, underscoring that the economy and labor market currently remain in good shape, with inflation moving in the right direction, but the uncertainty around policy keeps them on hold until the economic impacts are better known.
   
• Diversification remains a key theme for 2025 – The Federal Reserve will hold its March FOMC meeting on Tuesday and Wednesday this week, with an interest rate decision and updated set of economic projections expected on Wednesday afternoon. In our view, the Fed will likely keep rates on hold at 4.25% to 4.5%, but the key takeaway will lie in the new "dot plot," which shows the best guess of the path of interest rates going forward. In December, the median Fed dot plot pointed to 2 rate cuts in 2025*, and investors will be watching to see if this is updated to reflect potentially 3 rate cuts, in-line with the current market expectation. In December, the Fed also saw U.S. economic growth for 2025 at 2.1% year-over-year*. Given the recent slew of softer economic data, markets will be focused on whether the Fed will downgrade this forecast for the year ahead. In our view, Powell and team will aim to strike a balance, underscoring that the economy and labor market currently remain in good shape, with inflation moving in the right direction, but the uncertainty around policy keeps them on hold until the economic impacts are better known.
   

Mona Mahajan
Investment Strategy

^{Source: *FactSet}