Stock Market - Canada - January 10, 2025

Equity markets slumped this week and have faced some tough sledding to start 2025 amid tariff concerns and rising bond yields. The S&P 500 fell 1.9% on the week, with technology, financials and consumer discretionary underperforming. The TSX gave back 1.2%, as gains in materials and energy weren’t enough to offset declines across all other sectors.

While this week’s political drama (see the announced resignation of Prime Minister Trudeau) didn’t have much impact, the cold reality that tariffs might in fact be coming soon has started to set in. Much will depend on what is chosen, and what the retaliation is (a list of retaliatory measures is getting put together by Canadian policymakers), but let’s just say it’s not looking like a good outcome. We judge that a 25% tariff could pull Canadian growth down by nearly 2 ppts and weigh on the loonie, but monetary and fiscal policy would not stand still. For a quick refresher, check out 25% Tariffs: What If?

Meantime, the data on the ground this week were solid, headlined by a stronger-than-expected 256k increase in U.S. payrolls in December. The jobless rate also fell a tick, to 4.1%, while wage growth was sturdy. That followed still-low jobless claims, a jump in auto sales to a robust 17.2 mln annualized units in December, and an increase in activity measured by the services ISM. Even in Canada, the December employment report was pretty much a blowout with 91k jobs created and a drop in the jobless rate, albeit to a still-lofty 6.7%.

That solid run of data comes alongside looming tariff threats (which could lean inflationary, at least in the near term), questions about U.S. fiscal sustainability and some renewed stubbornness in U.S. core inflation trends. Some Fed speakers were on the trail this week pointing to a pause in the easing cycle and a much more careful rate-cut cadence this year.

Source: Bloomberg

Indeed, the market is now pricing in just over 25 bps of total Fed easing on the year, while 10-year yields have risen to just under 4.8%, up 110 bps from the September low and the highest level since pushing to 5% in October 2023. Interestingly, it’s been an almost one-way trip higher for 10-year yields since the moment the Federal Reserve first cut policy rates last year. For equity investors, this throws a bit of wrench at the valuation calculator, especially for the higher-multiple growth names.

BMO

Paul is a former IBM Customer Success Manager who has deployed over 300 data and AI solutions across industries and geographies for the past 8 years.

Paul is a Financial Planning, Analysis, and Reporting SME working with data including integration of macro and micro indicators as part of the integrated business planning and reporting cycle.

Paul is a Public Policy Expert that has lecture on public finance as well as written numerous blogs on various areas of Public Policy.