Daily market snapshot

• Stocks rise on Thursday, adding to the week's gains - Equity markets closed higher on Thursday, extending Wednesday's turnaround, when stocks reversed a sharp midday sell-off to finish in positive territory. Yesterday's and today's lift was powered by a rebound in the technology sector, as the recent pullback in mega-cap tech names (tech darling NVIDIA was down as much as 18% coming into this week), along with some renewed optimism around the AI theme, has sparked some new buying. The TSX saw an additional boost today, rising by roughly 1%, thanks to big gains in gold and oil prices that helped the resource sectors. Interest rates were little changed, with the benchmark 10-year Government of Canada bond yield holding near 2.9%, having been at 3.2% a month ago. We've seen a return of daily market volatility recently, as markets assess the evolving economic and political landscape. But it's been encouraging (and warranted, in our view) that bouts of weakness have been rather mild and short-lived, with the broader – and still positive – fundamental backdrop supporting rebounds, as reflected in the better-than-17% year-to-date gain in the S&P 500 and 12% rise in the TSX, despite temporary pullbacks in April, August, and the start of September.*
   
• Employment and inflation combo in the spotlight – Markets are taking their cues from the progressing balance between the economy and inflation. Wednesday's U.S. consumer price index (CPI) report was a fresh and important data point in this story, indicating that the rate of inflation remains in an overall downtrend, but at not quite as rapid or consistent a pace as desired. At the same time, signs of a softening labour market in recent months have brought concerns of a weakening economy into the investment conversation. We received fresh data on both fronts Thursday morning, with the release of the latest U.S. initial jobless claims and August producer price index (PPI) reports. Initial claims came in at 230,000, a shade above the previous week, but below the six-week average and the second-lowest since the start of June. This is helpful news, given the growing anxiety within the markets that the consumer was on the ropes amid a weakening employment picture. U.S. PPI also provided some overarching comfort, as input prices appear to remain on a path of gradual moderation, rising 0.2% versus the prior month, which should be sufficient to help keep consumer prices on a favourable path lower.
   
• The Fed is on deck following the latest inflation data – All eyes will now turn to the Fed's upcoming policy meeting on Tuesday and Wednesday of next week. We think it's all but assured that the Fed will announce a rate cut, and we maintain our view that it will be a 25-basis-point (0.25%) reduction. Wednesday's market swing was, in our view, driven in part by a collective realization that, given the lack of an accelerated decline in CPI, any investors hoping for a larger 50-basis-point cut next week are likely to be disappointed. We believe a quarter-point cut would be good news for three reasons:
  1. It marks the start of less restrictive monetary-policy settings, as we believe this will commence an extended (though not methodical) rate-cutting cycle. We don't think this will tip into stimulus territory, but the Fed seeking to get its policy rate back to more of a neutral setting is a broadly positive development;
  2. it signals that the Fed isn't seeing something more concerning in the economy to warrant a more dramatic response at this stage; and
  3. it reflects a level of prudence from the Fed, aimed at limiting the risk of moving too soon or too aggressively that could stoke renewed upward pressure on inflation.

Craig Fehr, CFA
Investment Strategy

^{Source: *FactSet}

• Stocks close higher in volatile trading session – The TSX and major U.S. equity indexes closed higher on Wednesday, reversing losses from earlier in the day, with large-cap stocks leading small- and mid-cap stocks. Sectors were mixed, as technology and consumer discretionary stocks led to the upside, reflecting a risk-on tone. In global markets, Asia was lower, while Europe was mixed. The U.S. dollar advanced versus major currencies. In the commodity space, WTI oil was up, breaking a sell-off over the past several days, and gold traded lower.
   
• Key inflation measure edges lower - The U.S. consumer price index (CPI) rose 2.5% on a year-over-year basis in August, below estimates and the lowest reading since February 2021. Core CPI, which excludes more-volatile food and energy prices, held steady at 3.2%, as expected**. Shelter inflation remained persistent, up 5.2% on an annualized basis. Average hourly earnings were up 3.8% annualized, outpacing inflation and in line with estimates*. The headline CPI reading provides additional confirmation that inflation continues to moderate, which should keep the Federal Reserve (Fed) on track to start its rate-cutting cycle next week, in our view. We expect the Bank of Canada to continue cutting interest rates as well.
   
• Bond yields edge higher - Bond yields rose, with the 10-year Government of Canada yield at 2.91% and the 10-year U.S. Treasury yield at about 3.66%. As inflation has moderated, the Fed's focus is turning to its other mandate - maximum employment – as the labor market cools. We believe the Fed is on track to start a rate-cutting cycle next week that will likely continue for several meetings. Bond markets are currently pricing in expectations for 2.5% of Fed interest-rate cuts over the next 12 months, which would put the fed funds rate below 3%***. Lower interest rates should help reduce borrowing costs for businesses and consumers, which would be positive for economic growth and corporate profits.

Brian Therien, CFA
Investment Strategy

^{Source: *FactSet **U.S. Bureau of Labor Statistics ***CME FedWatch}

• Stocks finish mixed ahead of tomorrow's U.S. inflation report: Equity markets finished mixed on Tuesday, with markets awaiting tomorrow's U.S. consumer price index (CPI) inflation report. The S&P 500 and Nasdaq both logged modest gains on the day, while the TSX finished lower by roughly 0.3%.* At a sector level, technology, real estate and consumer discretionary were the top performers in the S&P 500, each gaining more than 1%.* The financials sector was a notable laggard, down by about 1%, following cautious commentary from several U.S. financial service companies on the outlook for profits. Energy was another laggard, finishing down by roughly 2%, driven by slumping crude oil prices resulting from sluggish Chinese import growth and downward revisions to OPEC's estimates for global oil demand in 2024 and 2025.* Bond yields finished lower, with the 10-year GoC yield falling to 2.9%, while the 10-year U.S. Treasury yield declined to around the 3.65% mark.* On the macroeconomic front, the U.S. NFIB small business optimism index fell by 2.5 points to 91.2 in August, marking the 32nd consecutive month below the 30-year average of 97.6, signaling that elevated borrowing costs continue to weigh on small businesses.* In addition to key inflation data, politics will be in the spotlight, with the U.S. presidential debate between Vice President Kamala Harris and former President Donald Trump this evening.
   
• U.S. inflation in focus: U.S. inflation data will be front and centre for markets this week, with the release of August CPI inflation tomorrow and producer price index (PPI) inflation on Thursday. Expectations are for headline CPI to rise by 2.6% on a year-over-year basis, while core CPI is expected to rise by 3.2%, unchanged from the prior month.* Headline PPI is expected to rise by 1.8% on a year-over-year basis, while core PPI is expected to rise by 2.5%.* With U.S. inflation moderating in recent months and signs of softness in the labour market, the question has shifted from whether the Fed will cut rates at its meeting on September 18 to how much will the Fed cut rates. Futures markets are pricing in a roughly 73% chance of a 25-basis-point (0.25%) rate cut and a 27% chance of a 50-basis-point (0.5%) rate cut.** We'd align with the view that a 25-basis-point cut at this month's meeting is a more likely outcome given that despite signs of easing labour market conditions, U.S. economic growth has remained steady. Looking ahead, we'll get a read on domestic inflation trends next Tuesday with the release of August CPI data.*
   
• Sector leadership has broadened, with mega-cap tech no longer the only game in town: While 2023 equity-market performance was best characterized as narrowly led, with the technology, communication services and consumer discretionary sectors responsible for a large part of the 26% gain in the S&P 500, 2024 has been a year of broadening leadership. While technology and communication services have seen strong returns year-to-date, utilities and financials are the top-performing sectors of the S&P 500 through yesterday's close, each higher by over 20% this year.* Recently, the rotation away from mega-cap tech has been more pronounced, with technology and communication services each lower by over 6% since the beginning of July.* Contrarily, defensive and interest-rate-sensitive sectors, such as utilities, real estate and consumer staples, have all gained over 9.5%.* In domestic equity markets, we've seen a similar broadening of leadership. After gaining nearly 70% in 2023, the technology sector of the TSX has risen by only 2.4% this year, while the materials and financials sectors have led the way, each higher by roughly 17%.* We continue to see a case for broad participation across sectors in the months ahead. As part of our opportunistic equity sector guidance, we recommend clients overweight utilities and industrials, with offsetting underweights in financials and materials, as appropriate with their long-term goals.*

Brock Weimer, CFA
Associate Analyst

^{Source: *FactSet **CME FedWatch Tool}

• Stocks finish higher: Equity markets closed higher on Monday as stocks rebounded following a risk-off week. The S&P 500 declined by more than 4% and the TSX declined by more than 2% last week, as softer-than-expected labour market data raised economic growth concerns. Markets recovered some of last weeks losses today with the TSX and S&P 500 both finishing higher by more than 1%.* From a leadership standpoint, most sectors of the S&P 500 finished higher with the industrials, financials and consumer discretionary sectors among the top performers.* Overseas, Asian markets were mostly lower overnight while European markets finished the day higher with markets focused on Thursday's European Central Bank interest-rate decision. Bond yields were mixed with the 10-year GoC yield ticking up to around 3.01% while the 10-year U.S. Treasury yield ticked lower to about 3.7%.* In the commodity space, oil prices rebounded, rising to about $69 per barrel after declining by over 7% last week.* Looking ahead, inflation will be in focus for markets with the release of U.S. consumer price index (CPI) inflation on Wednesday.
   
• Softening labour market led to a risk-off move in markets last week – The S&P 500 declined by more than 4% last week, marking the largest weekly decline in more than a year.* Softer-than-expected labour-market data was a primary culprit behind last weeks move lower, with Friday's U.S. nonfarm payrolls report the highlight of the week. Friday's report showed that U.S. nonfarm payrolls rose by 142,000, below expectations for a gain of 160,000 and below the prior twelve-month average of 202,000.* Additionally, nonfarm payroll growth for June and July were both revised lower in Friday's report by a cumulative 86,000 jobs.* The silver lining to Friday's report was that the unemployment rate ticked lower in August to 4.2% versus 4.3% in July.* The domestic labour force survey released last Friday showed that domestic employment conditions continue to ease as well, with employment growing by 22,000 in August versus expectations for 25,000, while the unemployment rate ticked higher to 6.6%.* In our view, last weeks data points to a labour market that is clearly cooling but not collapsing. While perhaps less of a tailwind to consumer spending as in recent months, we believe labour-market conditions remain broadly supportive to household consumption.
   
• September has historically been a weak month for stock performance: While over the long-run, we believe it is the economic backdrop and fundamentals that drive stock performance, not the calendar, it is worth acknowledging that September has historically been a weak month for stock returns. Since 1970 the S&P 500 has declined by about 0.7% on average in September, with returns positive only 50% of the time.** This compares with an average return of roughly 1% for all months with returns positive 64% of the time.** Encouragingly, despite September being a historically weak month for stock performance, the fourth-quarter of the year has been particularly strong, with returns positive roughly 75% of the time since 1970 in both November and December.** While there's no guarantee history will repeat itself this year, entering a period of favourable seasonality combined with a healthy economic backdrop should offer long-term investors confidence in the months ahead. We'd recommend investors use pockets of weakness to add to quality investments in-line with their long-term goals.

Brock Weimer, CFA
Associate Analyst

^{Source: *FactSet **Morningstar Direct, S&P 500 Total Return Index, and Edward Jones}