Daily market snapshot

Thursday, 08/07/2025 p.m.

• Stocks closed mixed on Thursday – Stocks markets closed mixed on Thursday, as the technology-heavy Nasdaq was slightly positive, while the S&P 500 and Canadian TSX closed modestly lower. This comes as the U.S. administration officially implemented its August 1 tariff rates globally. However, the administration has also granted a number of exceptions to tariffs, including to companies like Apple, if the corporations build manufacturing capacity in the United States. Meanwhile bond yields were mostly flat, with the 10-year Treasury yield at around 4.24%*. The 10-year yield has fallen sharply in the last two weeks given the softening outlook for the U.S. labor market and the rising probability of a Fed rate cut in September.* However, despite slowing job gains in the U.S., labour productivity continues to come in above expectations, with second-quarter U.S. productivity growth of 2.4% annualized, above forecasts of 2.0%*.
   
• New tariffs on semiconductors – The U.S. administration announced tariff rates of 100% on semiconductor imports to the U.S. this week, although there would be exemptions to the new tariffs. If companies commit to manufacture in the U.S., they will be spared the outsized tariff rates. Companies like Apple, Samsung, and TSMC have all pledged investments in the U.S. and have been exempt from the new semiconductor tariff rate. The Trump administration also has signaled upcoming tariffs on the pharmaceutical sector, perhaps in the 150% to 250% range*. But there appears to be growing optimism that exemptions to the pharma tariffs may also be put in place, similar to the semiconductor tariffs. Overall, the average tariff rate in the U.S. has climbed from about 2.3% to around 18.3%, according to the Yale Budget Lab, which may put upward pressure on goods inflation in the months ahead. Nonetheless, with a growing list of exemptions in place, markets have welcomed the notion that the worst-case scenario on tariffs will likely be avoided.
   
• Second-quarter earnings continue to deliver – Corporate earnings season is well underway, with about 87% of S&P 500 companies having reported second-quarter earnings. Among these, 82% have beaten analyst estimates, with an average upside surprise of 8.1%*. As a result, forecasts for earnings growth of S&P 500 companies have been revised higher to about 10%, from about 4% at the start of the year*. S&P 500 earnings growth has been led by the communications and technology sectors, while earnings are down, on average, for energy and materials companies. Earnings growth is on pace to be high single digits in 2025, and to reaccelerate to double-digit earnings growth in 2026.* While there may be some uncertainty in the coming quarters given elevated tariff rates, overall corporate earnings have surprised to the upside this year, which has helped support better market sentiment.

Mona Mahajan 
Investment Strategy

^{Source: *FactSet}  

Wednesday, 08/06/2025 p.m.

• Stocks close higher on continued solid corporate earnings – Equity markets rose on Wednesday, with the TSX and Nasdaq reaching record highs. Walt Disney Company and McDonald's posted quarterly earnings this morning that were ahead of estimates.* Consumer discretionary and consumer staples stocks posted the largest gains, while the health care and energy sectors lagged. In international markets, Asia finished mostly higher overnight as India's central bank held its policy rate steady at 5.5%, as expected*. Europe was little changed as retail sales in the euro area grew 3.1% year-over-year in June, above forecasts pointing to a 2.0% rise.* Auto fuel and nonfood products were key drivers, both up more than 4.0% from a year earlier.** The U.S. dollar declined against major international currencies.* In commodity markets, WTI oil extended its recent decline, reaching its lowest price since early June as markets assess the possibility of changes to U.S. sanctions on Russian oil*.
   
• Bond yields rise on U.S. Treasury auction – Bond yields were up, with the 10-year Government of Canada yield at 3.37% and the 10-year U.S. Treasury yield at 4.23%. The U.S. Treasury auctioned $42 billion of 10-year notes, drawing somewhat weaker demand, with overall bids as a multiple of those accepted, known as the "bid to cover ratio", dipping to 2.35, compared with the year-to-date average of 2.57***. Despite today's rise, the U.S. benchmark yield has fallen from its July peak near 4.50%, especially following last week's nonfarm-jobs report that showed a slowdown in the labour market in recent months. U.S. bond markets have raised expectations for cuts to the fed funds rate to two or three this year and an additional two next year****, above the Fed's own projection for three cuts through 2026.***** Lower interest rates should reduce borrowing costs for consumers and businesses, which would be supportive of the economy and corporate profits, in our view.
   
• Earnings season outlook improves on solid results – Corporate earnings season is in full swing as Walt Disney Company and McDonald's announced quarterly earnings this morning that exceeded estimates.* Importantly, Walt Disney's revenue was about in line with forecasts, while that of McDonald's beat expectations, providing data points that consumers appear to remain resilient overall despite the cooling labour market. With 80% of S&P 500 companies reporting, 82% have beaten analyst estimates, with an average upside surprise of 7.6%.* As a result, forecasts for earnings growth of S&P 500 companies have been revised higher to 8.8%, from 3.8% at the end of the quarter.* Earnings growth has been led by the communications and technology sectors, while earnings are down, on average, for energy and consumer discretionary companies.* Earnings growth is forecast to slow over the quarters ahead, combining for 10.0% growth for 2025, aided by the first quarter's strong 12.8% rise.* While we believe earnings growth could slow further as tariffs likely weigh on corporate profit margins, earnings should be sufficient to support stock prices over time, in our view.

Brian Therien, CFA 
Investment Strategy

^{Source: *FactSet **Eurostat ***U.S. Department of Treasury ****CME FedWatch *****U.S. Federal Reserve}  

• Market bounce stalls – U.S. stocks wiped out early gains to close the day lower after a weak services ISM report pointed to slowing activity and rising price pressures in this important sector*. The S&P 500 fell by 0.5%, led by declines in utilities, tech and communication services, and undermining some of the rebound seen at the start of the week*. Small-cap equities fared better, with the Russell 2000 index up 0.6% over the session, and now 2.2% over the week thus far, while north of the border Canadian equities rallied hard as investors played catch-up following Monday's Civic Holiday market close. The 10-year U.S. Treasury yield was flat over the session and continues to trade close to three-month lows following the sharp rally after Friday's weak nonfarm-payrolls report*. The dollar was broadly stable against a trade-weighted basket of currencies, and oil prices fell again as the market continues to parse OPEC supply announcements and the prospect of weaker U.S. growth*.
   
• Fed to the rescue? – Rising expectations for Fed interest-rate cuts helped support the rebound in equities at the start of this week, in our view. Markets had been pricing around 30 basis points (0.30%) of cuts through the rest of this year after the FOMC meeting last week, but in the wake of disappointing payrolls data this bet has doubled to around 60 basis points (0.60%), with the odds on a 25 basis points (0.25%) move in September seen at around 90%*. The reaction from FOMC members to the labour report has been mixed, with Williams, Bostic and Hammack all playing down the softness in July, although a more alarmed Daly speculated that "more than two rate cuts" might be needed this year*. Certainly, there is important data to come ahead of the Fed's September meeting, including another payrolls report and two monthly inflation readings, all of which will be critical in shaping the central bank's next step, in our view. We continue to expect the Fed to cut rates one to two times this year, and another soggy payrolls report in August would likely seal the deal on a September move.
   
• Signs of stagflation emerging - Trade data this morning confirmed the tightening in the U.S. deficit reported in June, with imports down sharply, reversing the surge seen earlier this year as firms looked to front-run tariffs*. This swing was visible in Canadian trade data released this morning too, which showed a rise in the trade deficit in June, in part due to weak exports to its largest trade partner south of the border*. Otherwise, signs of disruptions from trade policy are starting to emerge in U.S. survey data, with the services ISM reporting the most acute price pressures in the sector since 2022 and that growth had slowed to a near standstill*. Meanwhile, trade policy headlines continue to roll in, with President Trump indicating that an agreement to extend the trade truce with China beyond August 12 was close, and that tariffs on semiconductor and pharmaceutical imports were coming in the next week or so*. Outside of trade, the president commented that Treasury Secretary Bessent does not want to be nominated to be the next Fed chair and that he intends to nominate a new head for the U.S. Bureau of Labor Statistics this week **. 
   

Investment Strategist

^{Source: *Bloomberg, ** Wall Street Journal}

• U.S. stocks rebound sharply to start the week - Equity markets were closed in Canada in observance of the Civic Holiday. Meanwhile, U.S. stocks surged on Monday, recovering most of Friday’s losses following softer jobs data and new tariff announcements. While today’s news flow was relatively light, growing optimism around potential interest-rate cuts helped stabilize investor sentiment. The 10-year Treasury yield fell to 4.20%, its lowest level in three months*. Small-cap stocks and mega-cap tech names led the rebound, while energy was the only sector to close lower, weighed down by a 1.8% drop in oil prices*. Over the weekend, OPEC+ announced a significant output increase, fully reversing the voluntary production cuts implemented in 2023. On the corporate front, shares of Berkshire Hathaway declined a little over 3% after reporting an earnings decline and a $3.8 billion impairment related to its Kraft Heinz stake*.
   
• Labour-market softening in focus - The spotlight remains on the labour market following Friday’s underwhelming data, which not only triggered a shift in rate expectations but also led to the firing of the head of labour statistics. The U.S. economy added 73,000 jobs last month, missing the 100,000 forecast*. More notably, sharp downward revisions to May and June — totaling 258,000 fewer jobs — brought the three-month average to just 35,000, marking the slowest pace of hiring since 2020*. Despite the slowdown, the unemployment rate remains historically low, ticking up slightly to 4.2% from 4.1%, and timely jobless-claims data show no meaningful pickup in layoffs*. Still, cracks in the labour market are becoming more visible, and we expect the Fed to resume rate cuts in September. Bond markets are now pricing in a 90% chance of a September cut, with another expected by December — in line with our outlook for the remainder of the year*.
   
• Quieter week ahead - After a week packed with key developments, including new tariff announcements, a Fed meeting, fresh labour data, and a wave of second-quarter earnings, markets are likely to spend this week digesting the news. Tomorrow brings ISM services data, expected to tick higher, while Thursday features second-quarter productivity figures and initial jobless claims. On the central-bank front, five Fed officials are scheduled to speak, potentially offering their views of the weaker jobs report. Meanwhile, President Trump announced plans to nominate a new Fed governor and a new head of labour statistics in the coming days. On the corporate side, last week marked the peak of second-quarter earnings season. With 27% of S&P 500 companies still to report, earnings are on track to grow 8% — a slowdown from the prior quarter but double the 4% growth expected at the start of the season*. We believe rising earnings, lower rates, and fiscal support in 2026 provide tailwinds for the bull market to continue into the second half of the year, though some volatility is likely as stocks digest their 25% gain since April 8*.
   

Angelo Kourkafas, CFA 
Investment Strategist

^{Source: *Bloomberg} 

• Stocks drop as White House rolls out new tariffs and as U.S. job gains miss – Global equity markets were under pressure today as investors reacted to U.S. President Trump’s newly announced tariff rates targeting a range of countries. The 35% tariff for Canada would only apply to non-USMCA compliant goods, which are estimated to be around 20% of Canada exports to the U.S., helping mute somewhat the downside effect on the economy. While the updated rates are expected to generate additional tariff revenue for the U.S., they appear to have also reignited concerns about potential economic headwinds, especially as markets have recently rallied to new highs. Elsewhere, the U.S. mega-cap tech stocks didn't help provide support today as they did earlier in the week. Amazon shares dropped 8% following a disappointing profit outlook, while Apple gave up earlier gains despite reporting better-than-expected sales*.  Adding to the cautious sentiment was a weaker-than-expected U.S. employment report. Job gains fell short of expectations, and downward revisions to the prior two months suggest a notable cooling in the labour market. This slowdown may prompt the Federal Reserve to consider rate cuts as early as September. The U.S. dollar is trading lower against major currencies and the loonie amid rising rate-cut expectations, while bond yields fell across the curve*. 
   
• Newly announced tariffs push average rate on global goods higher - The White House has released updated tariff rates ahead of today’s deadline extension, impacting imports from several countries. Rates range from the 10% global minimum to as high as 41%. Among the hardest hit are Switzerland (39%), Canada (35%), South Africa (30%), and Taiwan (20%). Generally, a 10% tariff applies to countries with which the U.S. maintains a goods trade surplus. A 15% rate is applied to countries that have reached agreements and with which the U.S. runs a modest trade deficit. Higher rates target countries that have not struck deals and with which the U.S. runs significant trade deficits. Additionally, a 40% tariff will be imposed on imports transshipped through third countries to circumvent tariffs. The new tariffs will take effect next Friday, allowing a brief window for further negotiations. Several countries have indicated interest in seeking reduced rates through ongoing bilateral talks.
  
  Based on today’s announcement, the effective average tariff rate is expected to rise to approximately 18%, a sharp increase from last year’s 2.5% but still below the previously proposed 25% rate from April 2*. While the country-specific rates help reduce uncertainty around the tariff regime, new sector-specific tariffs—particularly in semiconductors, pharmaceuticals, and other key industries—are anticipated in the coming weeks. In our view, the higher tariffs may temporarily elevate inflation and act as a drag on economic growth. However, the recently passed tax bill could provide a partial offset, as tariff revenues are expected to be recycled into the economy through tax cuts. For Canada, the USMCA can act as a buffer against the increased tariff of 35%, as the exemptions will keep the effective rate relatively low.
   
• Softer U.S. jobs data boost Fed rate-cut bets - The U.S. economy added just 73,000 jobs last month, falling short of the 100,000 expected. Additionally, sharp downward revisions to May and June figures—totaling 258,000 fewer jobs—bring the three-month average to just 35,000, marking the slowest pace of hiring since 2020*. Despite the slowdown, the unemployment rate remains historically low, ticking up slightly to 4.2% from 4.1%. Wage growth continues to outpace inflation, offering some support to household spending. Health care remains the primary driver of job creation, while the manufacturing sector shed jobs for the third consecutive month. From a market perspective, the softer data may prompt a pause in equity momentum while strengthening the case for Federal Reserve rate cuts in the coming months. Bond markets are now fully pricing in two rate cuts by year-end, with the probability of a September cut surging from 40% to 94%*. We expect the U.S. economy to slow—but not stall—in the second half of the year, with a reacceleration likely in 2026 as lower interest rates and tax cuts begin to take effect.

Angelo Kourkafas, CFA 
Investment Strategist

^{Source: *Bloomberg}