Daily market snapshot

• Nasdaq leads stocks higher – The TSX and U.S. equity markets rose on Friday, as the S&P 500 posted its largest weekly gain since the U.S. election in November*. Sector performance was broad, as consumer discretionary and technology stocks led to the upside, reflecting a risk-on tone. Bond yields were mixed, with the 10-year Government of Canada yield down to 3.3% and the 10-year U.S. Treasury yield up at 4.61%. In global markets, Asia was mixed, as China's fourth-quarter GDP growth beat estimates but U.S. tariff concerns affected the outlook. Europe closed higher, led by materials and auto stocks. The U.S. dollar resumed its advance versus major currencies. In the commodity space, WTI oil and gold traded lower.
• Corporate earnings season off to a solid start – Fourth-quarter earnings season kicked off this week, with the largest banks leading the way. Of companies that reported, 77% beat analyst estimates, with an average upside surprise of 9.3%*. Earnings growth is expected to be broad, with seven of the 11 sectors forecast to report higher earnings year-over-year*. The sectors forecast to have lower earnings – consumer staples, energy, industrials and materials – represent about 19% of the market capitalization of the S&P 500*. Broadening earnings growth has contributed to a rotation in market leadership. Over the past six months, the consumer discretionary, financials, utilities and industrials sectors have each outperformed the technology sector*. We expect market leadership to continue to widen beyond technology stocks as investors look toward investments with more domestic exposure and potential for earnings growth and valuation expansion, strengthening the case for portfolio diversification.
• Housing starts rise more than expected – U.S. privately owned housing starts in December rose to a seasonally adjusted annual rate of 1.5 million**, above estimates of about 1.3 million*. Building permits were issued at an annual pace of about 1.5 million, also exceeding forecasts*. These readings reflect confidence among homebuilders, despite persistently high mortgage rates*. These trends should help bring down shelter price inflation as housing supply and demand come into better balance over time, in our view.

Brian Therien, CFA
Investment Strategy

^{Source: *FactSet **U.S. Census Bureau}

Thursday, 01/16/2025 p.m.

• Stocks finish mixed following U.S. retail-sales data: North American equity markets closed mixed on Thursday following U.S. retail-sales data for December. Headline retail sales rose by 0.4% for the month, while control-group sales posted a healthy 0.7% gain, signaling ongoing momentum in U.S. consumer spending. On the corporate front, fourth-quarter earnings from U.S. financial services companies continue to exceed expectations, with Bank of America and Morgan Stanley reporting better-than-expected fourth-quarter profits.* This follows strong results from JPMorgan, Goldman Sachs, Citigroup and Wells Fargo yesterday.* The positive earnings news has driven the financials sector of the S&P 500 higher by over 5% this week and has helped support broader risk-on sentiment in equity markets. The S&P 500 and Nasdaq posted modest declines, while the TSX eked out a 0.2% gain. U.S. mid-cap stocks outperformed, with the Russell Mid-cap Index gaining close to 1%, reflecting optimism around U.S. economic conditions following today's retail-sales report. Bond yields finished the day lower, with the 10-year U.S. Treasury yield closing around 4.62% and the 10-year GoC yield falling to 3.37%*.
• U.S. consumer-spending trends remain healthy: U.S. retail-sales data for December showed that U.S. consumer-spending trends finished the year strong in 2024. Headline retail sales rose by 0.4% in December, slightly below expectations for a 0.5% gain; however, the November reading was upwardly revised from 0.7% to 0.8%.* Looking into the drivers for December, spending at furniture and home stores, along with sporting goods stores, was strong, each rising by more than 2% and reflecting an appetite for discretionary purchases from consumers. Control-group sales, which excludes spending on more volatile categories, such as auto dealers, gas stations, building materials, office supplies and tobacco stores, rose by 0.7%, above expectations for a 0.4% gain.* Consumer spending has been strong in recent quarters and has been the primary driver behind resilient U.S. economic growth over the past two years. We believe strong household balance sheets, moderating inflation, and healthy labour-market conditions will provide ongoing support to consumer spending in 2025, helping extend the economic expansion. Looking ahead, we'll get a read on domestic consumer-spending trends next Thursday with the release of retail-sales data for November.*
• Choppy start to the year, but the overall backdrop remains supportive: It's been a volatile start to 2025, with the S&P 500 logging four days of moves greater than 1% (two up and two down) in the first nine trading days of the year.* Despite the turbulent start, the S&P 500 is up about 1% year-to-date, with most sectors of the index seeing positive returns. While there will likely be more bumps along the way, we believe the backdrop is supportive for an ongoing expansion in the current bull market. Fourth-quarter corporate earnings are off to a strong start, with several of the largest U.S. banks reporting better-than-expected profits.* Analysts expect the recent earnings momentum to continue into 2025, with S&P 500 earnings expected to grow by about 14% for the year.* Additionally, labour-market conditions remain healthy, and we expect inflation will continue to moderate in 2025, supporting household real incomes and consumer spending. The Atlanta Fed's GDPNow forecast is pointing to fourth-quarter U.S. real GDP growth of 2.7%, while the ISM manufacturing PMI rose to its highest since March last month.* While we expect volatility along the way, we believe these conditions point to an ongoing economic expansion and create a supportive backdrop for U.S. equity markets in 2025.

Brock Weimer, CFA
Investment Strategy

^{Source: *FactSet}

• Stocks surge following key U.S. inflation data: North American equity markets closed sharply higher following U.S. consumer price index (CPI) inflation data that showed core inflation continues to moderate. Headline CPI rose by 2.9% year-over-year in December, slightly above expectations due to a spike in energy prices; however, core CPI rose by 3.2% year-over-year in December, below expectations of 3.3%.* Bond yields closed sharply lower in response, with the 10-year U.S. Treasury yield falling roughly 0.14 percentage points to 4.65%, while the 10-year GoC yield ticked down to 3.42%.* In addition to the encouraging inflation report, several of the largest U.S. banks reported fourth-quarter results this morning, with takeaways broadly positive. JPMorgan Chase, Wells Fargo, Citigroup and Goldman Sachs all exceeded analyst earnings expectations for the quarter.* The strong results from U.S. banks and today's inflation report supported risk-on sentiment, with the TSX gaining 0.9% and the S&P 500 surging 1.8%.*
• U.S. headline CPI ticks higher, but core inflation moderates: U.S. headline CPI rose by 0.4% in December and 2.9% on an annual basis, both of which were slightly ahead of expectations.* The index for energy rose by 2.6% in December and was responsible for over 40% of the monthly increase in headline CPI.*** Encouragingly, core CPI, which excludes food and energy, rose by 0.2% in December and 3.2% on an annual basis, with the 3.2% annual gain below expectations for a 3.3% gain.* The 0.2% monthly gain in core CPI was the lowest since July and brings the three-month annualized change down to 3.3% versus 3.7% in the prior month.* The index for shelter, which has run stubbornly high for the past several years, rose by 0.3% in December, bringing the annual change down to 4.6%, the lowest reading since January 2022.* Paired with yesterday's soft producer price inflation report, today's inflation data provides evidence that the disinflationary trend remains intact. We expect productivity gains, moderating shelter inflation, and normalizing labour-market conditions will lead to ongoing disinflation in 2025, though likely not without bumps along the way. Looking ahead, we'll get a read on domestic inflation trends with December CPI out next Tuesday.
• Corporate earnings in focus: Fourth-quarter earnings season kicked off today, with several of the largest U.S. banks reporting results. Takeaways were broadly positive, with JPMorgan Chase, Wells Fargo, Goldman Sachs and Citigroup all reporting better-than-expected fourth-quarter earnings per share.* JPMorgan CEO Jamie Dimon citied a resilient U.S. economy, healthy labour-market conditions, and strong consumer spending through the holiday season as drivers behind the company's strong fourth-quarter results.** Looking beyond the financials sector, S&P 500 earnings are expected to grow by 11% in the fourth quarter, which, if achieved, would lead to 2024 earnings growth of roughly 8.6%.* Profit growth is expected to accelerate in 2025, with current estimates calling for 14% earnings growth for the S&P 500.* Encouragingly, earnings growth is expected to be positive across all 11 sectors of the S&P 500 in 2025, with the technology, health care and industrials sectors expected to lead the way.* In our view, broad-based earnings growth across both growth- and value-style sectors should support broadening leadership in 2025, strengthening the case for well-balanced portfolios.*

Brock Weimer, CFA
Investment Strategy

^{Source: *FactSet **JPMorgan Chase Q4 2024 Earnings Press Release ***Bureau of Labor Statistics}

• Stocks rise ahead of CPI report – The TSX and U.S. equity markets closed higher on Tuesday, with small- and mid-cap stocks leading to the upside*. Sector performance was mixed, as utility and financial stocks posted the largest gains. Bond yields were mixed, with the 10-year Government of Canada yield up to 3.54%, and the U.S. Treasury yield lower at 4.78%. In global markets, Europe was down lower, led by energy stocks. The U.S. dollar declined versus major currencies. In the commodity space, WTI oil dropped following a new forecast reflecting steady oil demand and rising output for the U.S. over the next two years**.
• Producer price inflation lower than expected – The U.S. producer price index (PPI) rose to 3.3% annualized in December***, below estimates calling for 3.4%*. Year-over-year inflation increased primarily due to lower readings from a year ago rolling out of the figure in what's known as "base effects." Importantly, PPI inflation slowed to 0.2% month-over-month, roughly in line with the average over the past six months, which translates to about 2.5% on an annual basis*. The services component of PPI was flat for the month, which should help reduce consumer services inflation, which remains elevated at about 4.5% year-over-year*.
• Markets turn attention to consumer inflation tomorrow – The consumer price index (CPI) for December will be released on Wednesday, with forecasts calling for inflation to rise to 2.8% annualized, up from 2.7% the prior month*. Core CPI, which excludes more-volatile food and energy prices, is expected to hold steady at 3.3%. While the path will likely be bumpy, we expect inflation to continue to moderate, aided by further shelter-price disinflation and slower wage growth.

Brian Therien, CFA
Investment Strategy

^{Source: *FactSet ** U.S. Energy Information Administration *** U.S. Bureau of Labor Statistics}

• Stocks begin the week mixed as bond yields tick higher – Following last Friday's decline in markets, stocks were mixed on Monday. The Canadian TSX index underperformed the U.S. S&P 500. This comes as government bond yields continue their climb higher. The U.S. 10-year Treasury yield climbed to 4.79%, its highest since October 2023. Meanwhile, the Canadian 10-year government bond yield has climbed to 3.5%, its highest since July 2024. In our view, this move higher in yields has been driven by a combination of expectations of stickier inflation, a shallower central-bank rate-cutting environment, elevated deficits, and an economy that continues to perform better than expectations. While higher yields have put downward pressure on stock markets, keep in mind that the S&P 500 is down just about 4% from its recent highs, while the Canadian TSX is down about 5.3%*. In any given year, corrections in the 5%-15% range are the norm, but we would not expect these corrections to morph into severe or prolonged bear markets, particularly given the current solid economic and earnings backdrop.
• All eyes on inflation data this week – After better-than-expected labour market data last week, investor focus will shift to inflation data in the week ahead. On Wednesday, the important consumer price index (CPI) inflation for the month of December will be released, and the expectation is for inflation to tick higher on a headline basis, driven in part by higher energy prices, although core inflation should remain flat. Headline CPI inflation is expected to be 2.9% year-over-year, versus 2.7% last month, while core inflation (excluding food and energy) is expected to 3.3%, in line with last month*. In our view, the recent labour report pointed to wage gains that were moderating, with average hourly earnings falling from 4.0% to 3.9% year-over-year*. This should support an easing in services inflation as well. More broadly, while we see inflation moderating in the months ahead, policy uncertainty remains a question for investors, particularly in areas like tariffs and immigration reform. Nonetheless, while inflation may fluctuate, we see it remaining contained overall, likely in the 2.0% - 3.0% range, with no signals in the economic data of any meaningful reacceleration to the post-pandemic levels of above 4.0%.
• Uncertainty around policy remains an overhang, but economy is in solid shape – With Inauguration Day in the U.S. about one week away, all eyes continue to remain on what policies the new administration will choose to prioritize – and in what order – including tariffs, immigration reform, taxes, and deregulation. Overall, though, the removal of the policy uncertainty alone may be welcomed by the markets, regardless of the initiatives that are highlighted. While there is ongoing uncertainty in the political backdrop, now is a good reminder that financial markets tend not to be driven by politics and headlines, but by fundamentals. We continue to see the economic and market expansion being supported by three key fundamental factors: A solid labour market, which continues to support consumption; positive S&P 500 earnings growth, which will likely reach over 10% in 2025*; and central banks that will still move policy rates lower from here, albeit perhaps more modestly so. After two back-to-back years of solid gains in the U.S. and Canadian markets and low volatility during this period, we would expect to see some moderation in returns and bouts of increased market volatility ahead. However, we continue to believe that investors can use these pullbacks as opportunities to diversify, rebalance, and add quality investments at better prices across both the growth and value parts of the market.

Mona Mahajan
Investment Strategy

^{Source: *FactSet}