Daily market snapshot

• Stocks finish mixed – U.S. equity markets finished near the flatline Wednesday while the TSX was modestly lower, with markets taking a breather after gains on Monday and Tuesday that were fueled by easing geopolitical tensions in the Middle East.* From a leadership perspective, growth-oriented areas of the market led the way, with the information technology and communication services sectors of the S&P 500 among the top performers, while most other sectors traded flat-to-lower.* On the economic front, U.S. new home sales for May came in below expectations, adding to signs of potentially softening U.S. housing-market conditions following Tuesday's weaker-than-expected home price data.* In bond markets, the 10-year GoC yield edged higher to 3.32% while the 10-year U.S. Treasury yield was little changed at just below the 4.3% mark.* 
   
• Key U.S. inflation data ahead – U.S. inflation will return to the spotlight for investors this week, with the release of the Fed’s preferred inflation gauge—personal consumption expenditures (PCE)—for May, due Friday. Expectations are for headline PCE to rise 0.1% month-over-month and 2.3% year-over-year, while core PCE (which excludes food and energy) is also expected to increase 0.1% for the month and 2.6% annually.* Earlier this month, the consumer price index (CPI) for May came in below expectations. Core CPI rose just 0.1% month-over-month and 1.7% on a three-month annualized basis—the lowest since July of last year.* Despite concerns that tariffs might begin to show up in the form of higher prices in the May inflation data, the CPI report appeared to show little evidence of this. Core goods prices were flat for the month and up only 0.3% year-over-year.* We continue to expect that tariffs will lead to a one-time increase in price levels over the coming months. However, with long-term inflation expectations remaining well anchored, we believe the Fed will maintain its easing stance in the second half of the year. Our base-case scenario calls for one to two interest-rate cuts during that period.
   
• Overseas equities shine in the first half – As the first half of 2025 draws to a close, overseas developed large-cap stocks have emerged as one of the top-performing asset classes, with the MSCI EAFE Index up over 12% including dividends through Tuesday’s close.** In fact, overseas developed large-cap stocks are on track to outperform the S&P 500 by approximately 13% in the first half (CAD terms)—marking the widest margin of overseas outperformance since 1993.** Key drivers of this strength include announced fiscal stimulus measures in Germany that have helped provide a boost to sentiment in European equities. While this strong performance underscores the importance of diversification, we believe the more compelling opportunity lies in U.S. equities over the next one to three years. As part of our opportunistic asset-allocation guidance, we recommend a slight underweight to overseas developed equities in favour of U.S. stocks.

Brock Weimer, CFA
Investment Strategy

^{*FactSet **Morningstar Direct
International developed large-cap stocks represented by MSCI EAFE Net Total Return CAD Index.} 

• Stocks close higher as Israel and Iran agree to ceasefire – Equity markets closed higher on Tuesday, with the TSX reaching a new record high, following a ceasefire between Israel and Iran. While there has been some uncertainty on timing, Israel's prime minister Benjamin Netanyahu has commented that the ceasefire is in effect.* Bond yields were mixed, with the 10-year Government of Canada yield up to 3.27% and the 10-year U.S. Treasury yield down near 4.29%.* Technology and financial stocks led markets to the upside, while the energy and consumer staples sectors lagged. In international markets, Asia and Europe finished broadly higher.* The U.S. dollar declined against major international currencies. In commodity markets, WTI oil extended its decline* from yesterday as supply concerns appear to have eased on the Israel-Iran ceasefire. Global oil prices have fallen below the mark when Israel initially launched airstrikes against Iran on June 12. Lower oil prices should help partially offset the impact of tariffs on inflation, in our view. 
   
• CPI inflation holds steady – Canadian consumer price index (CPI) inflation held steady at 1.7% annualized in May, below forecasts pointing to a modest increase to 1.8%*. The shelter component rose at a 3.0% pace, down from a 3.4% increase in April, helping keep the headline measure contained.** Core CPI, which excludes more-volatile food and energy prices, dropped to 3.0%. These readings, though likely not meaningfully impacted by tariffs, indicate that inflation continues to moderate near the Bank of Canada's 2% target. We believe the central bank should be able to cut interest rates at least one more time this year, which would be supportive of the economy and labour market, in our view.
   
• Consumer confidence worsens – The Conference Board's U.S. Consumer Confidence Index declined to 93.0 in June, below forecasts to improve to 99.0. Pessimism about future business conditions and employment prospects were key detractors. Tariffs and their potential impact on the economy and inflation remained top of consumers' minds in write-in responses.*** Inflation expectations for the next 12 months ticked down to 6.0%, from 6.4% in May and 7.0% in April***. Intentions to purchase homes declined, while plans to buy cars held steady. These trends could start to weigh on consumer spending, although further progress in bringing inflation down and clarity on tariffs could help improve sentiment, in our view.

Brian Therien, CFA
Investment Strategy

^{*FactSet **Statistics Canada ***The Conference Board}

• Stocks close higher following U.S. airstrikes on Iranian nuclear facilities – The TSX and U.S. equity markets reversed an early pullback to close higher on Monday following U.S. strikes on Iranian nuclear facilities over the weekend. Bond yields fell, with the 10-year Government of Canada yield at 3.27% and the 10-year U.S. Treasury yield at 4.34%.* Consumer discretionary and real estate stocks posted the largest gains, while the energy sector was a laggard. In international markets, Asia finished mostly lower overnight, though China reversed an early pullback to close positive. Europe was down despite the S&P preliminary Eurozone Services Producer Manufacturing Index (PMI) rising to 50.0 for June, as expected, and manufacturing PMI is holding steady at 49.4, slightly ahead of estimates.* The U.S. dollar declined against major international currencies. In commodity markets, WTI oil was down, paring gains in early trading*, as investors assess the impact of Iran's potential response on crude supply.
   
• U.S. strikes Iranian nuclear facilities – The U.S. carried out airstrikes over the weekend on three Iranian nuclear facilities — Fordow, Natanz and Isfahan — marking an escalation in the Middle East conflict. The U.S. military action follows recent negotiations starting in April 2025, which were the most recent round of a longer history of diplomatic efforts seeking to address Iran's nuclear program. Iran's response or possible retaliatory actions will be a key focus for markets in the near term. Iran's parliament has voted to close the Strait of Hormuz, a key shipping route bordering Iran that transports about 20% of global oil supply. While a final decision would need to be made by the country's national security council, a disruption of the flow of crude could lead to higher oil prices, at least in the near term. Notably, such an action could raise tensions between Iran and neighboring oil-producing countries that rely on the route for crude shipments. In addition, more than 80% of oil transported through the Strait is sent to Asian markets, with the top destination being China**, a key ally of Iran. Saudi Arabia and United Arab Emirates also operate pipelines than can bypass the strait to other shipping channels, though with limited capacity. While Iran's potential response is uncertain, oil supply disruptions could drive crude prices higher, though mitigating factors could limit the impact, in our view. An increase in inflation driven by higher oil prices would add to headwinds the global economy is already facing, including geopolitical risks, trade tensions and tariff uncertainty, which we believe are likely to slow growth.
   
• Preliminary services and manufacturing indexes remain in expansion: The S&P Flash U.S. Services PMI fell to 53.1 in June, missing expectations for a smaller drop to 53.6.* Services exports contracted steeply***, likely impacted by tariffs and trade tensions. Flash manufacturing PMI held steady at 52.0, ahead of estimates calling for a modest decline to 51.5*, benefiting from factory production that rose for the first time since February***. These readings are consistent with recent trends of services remaining above the key 50.0 mark reflecting expansion for more than two consecutive years and manufacturing recovering from contraction at the start of the year*. Resilient, though likely slower, economic growth would be supportive of the healthy labour market and consumer spending, in our view.

Brian Therien, CFA
Investment Strategy

^{*FactSet **U.S. Energy Information Administration ***S&P}

• Stocks rise on new jobless claims and inflation data – The TSX and U.S. equity markets closed higher on Thursday, as jobless claims held steady and producer price inflation met expectations. Utility and technology stocks posted the largest gains, while the communication and consumer discretionary sectors were laggards. Bond yields extended their pullback over the past week, with the 10-year Government of Canada yield at 3.33% and the 10-year Treasury yield at 4.36%. Today's auction for 30-year U.S. Treasury bonds was met with the strong demand, as total bids were about 243% of those accepted, known as the bid-to-cover ratio.** In international markets, Asia finished mostly lower, as investors assessed the reported agreement between the U.S. and China to relax export controls on technology and rare-earth minerals. Europe also declined, led by the leisure and travel sector to the downside following the Air India plane crash this morning*. The U.S. dollar declined against major international currencies. In commodity markets, WTI oil was little changed as markets monitored tensions between Israel and Iran*.
   
• Jobless claims hold steady – U.S. initial jobless claims were roughly unchanged at 248,000 this past week, slightly above estimates pointing to 244,000*. Insured unemployment, which measures the total number of people receiving benefits, rose to 1.95 million from 1.9 million the prior week*. The broader trend for jobless claims has been higher this year, indicating the labour market remains healthy but is cooling from a position of strength, in our view. The unemployment rate remains low at 4.2%, and 7.4 million job openings still exceed unemployment of 7.2 million*. Wage gains should remain above inflation, providing positive real wages to support consumer spending and the economy, in our view.
   
• Producer price inflation lower than expected – The U.S. producer price index (PPI) rose 0.1% in May, below estimates for a 0.2% increase.* On an annual basis, PPI inflation rose to 2.6%, as expected, up from 2.5% the prior month.* Core PPI inflation, which excludes more-volatile food and energy prices, dropped to 3.0% on a year-over-year basis, from 3.2% in April, narrowing the gap with the headline figure.* We believe these readings, though likely not meaningfully impacted by tariffs, indicate that inflation continues to moderate. We expect tariffs to put some upward pressure on inflation, as higher import costs are at least partially passed along to consumers. However, most of this impact should be near-term price hikes that aren't an ongoing driver of inflation, in our view.

Brian Therien, CFA
Investment Strategy

^{*FactSet **U.S. Department of the Treasury}

• Stocks mixed on Fed Day – The TSX closed higher, while U.S. equity markets were down modestly on Wednesday as the Fed concluded its June meeting. Technology and utility stocks posted the largest gains, while the energy and communication sectors were laggards. Bond yields were also mixed, with the 10-year Government of Canada yield down to 3.33% and the U.S. Treasury yield up at 4.39%. In international markets, Asia finished mixed overnight, while Europe was broadly lower, as eurozone CPI inflation for May held steady at 1.9% annualized, below expectations for 2.0%*. The U.S. dollar advanced against major international currencies. In commodity markets, WTI oil traded higher as markets assessed escalating air strikes between Israel and Iran*.
   
• Fed holds interest rates steady, as expected – The Federal Open Market Committee (FOMC) concluded its June meeting today, maintaining the target range for the federal funds rate at 4.25%-4.5%. The FOMC released its updated projection for the federal funds rate, known as the "dot plot", which continues to reflect two rate cuts this year, though the forecast for next year was reduced to one rate cut, down from two in the March forecast**. FOMC dialed back expectations for real GDP growth, while estimates for inflation and unemployment rose**, likely contributing to the slightly slower path of policy-easing over the next few years. The Fed has been on the sidelines this year as it awaits additional data on how tariffs may impact inflation. We expect inflation to rise over the months ahead as higher import costs are at least partially passed along to consumers. However, most of this impact should be near-term price hikes that aren't an ongoing driver of inflation, in our view. We believe the healthy labour market should help give the Fed more time to monitor inflation before cutting interest rates. The bond market is currently pricing in expectations for two Fed interest-rate cuts this year and an additional three next year***, a faster pace than FOMC's projection reflects. We believe the Fed should be able to continue easing toward a more neutral stance over time. Lower interest rates should help reduce borrowing costs for individuals and businesses, which is supportive of continued economic growth and corporate earnings, in our view.
   
• Jobless claims edge lower – Initial jobless claims declined to 245,000 this past week, below estimates pointing to 250,000*. Continuing claims, which measures the total number of people receiving benefits, ticked down to 1.94 million from 1.95 million the prior week*. The broader trend for jobless claims has been higher this year, indicating the labour market remains healthy but is gradually cooling from a position of strength, in our view. The unemployment rate remains low at 4.2%, and 7.4 million job openings still exceed the 7.2 million people that are unemployed*. Wage gains should remain above inflation, providing positive real wages to support consumer spending and the economy, in our view.

Brian Therien, CFA
Investment Strategy

^{*FactSet **U.S. Federal Reserve ***CME FedWatch}