Daily market snapshot

• 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 close mixed following soft U.S. inflation data – The TSX posted a modest gain on Wednesday, supported by higher commodity prices, while U.S. equity markets closed lower despite a lower-than-expected inflation reading for May.* From a leadership perspective, most sectors of the S&P 500 finished the day flat-to-lower with the exception of energy, as rising geopolitical tensions between the U.S. and Iran weighed on sentiment and sent oil prices higher by more than 4% today.* Overseas, markets in Asia were higher overnight, boosted by progress in U.S. – China trade talks, while markets in Europe closed mostly lower.* Canadian bond yields were little changed while U.S. yields traded lower in response to the soft U.S. inflation reading, with the 10-year Treasury yield finishing the day around 4.42%.* 
   
• U.S. inflation data softer than expected for May – U.S. consumer price index (CPI) inflation was lower than expected in May, with headline CPI rising by 0.1% for the month and 2.4% on an annual basis, both below expectations.* Core CPI, which excludes food and energy, was also softer than expected, rising by 0.1% for the month and 2.8% on an annual basis.* Looking into the drivers, core services inflation slowed to a 0.2% monthly gain and rose by 3.6% on an annual basis, matching the April reading for the lowest annual gain since November 2021.* Notably, the May report showed little evidence of tariffs being passed on to consumers in the form of higher prices, with core goods CPI flat for the month and rising by a muted 0.3% on an annual basis.* While the recent downtrend in U.S. inflation has been encouraging, we believe tariffs could put upward pressure on prices in the months ahead. However, with trade tensions de-escalating in recent weeks, businesses could be choosing to absorb higher near-term costs related to tariffs, with the hope that tariff rates will trend lower over time. Under this environment, we expect the Federal Reserve to continue easing monetary policy, but at a measured pace, perhaps delivering one to two interest-rate cuts in the back half of the year. 
   
• U.S. – China trade talks progress – After two days of negotiations in London, U.S. and Chinese policymakers have reached an agreement in principle to bilaterally ease trade restrictions.* While details around the agreed-upon framework remain vague, reports suggest the focus is on the U.S. reducing export controls of technology goods to China in exchange for access to rare-earth minerals.* The official framework will still require approval from U.S. President Donald Trump and Chinese President Xi Jinping before implementation; however, initial reports suggest the U.S. tariff rate on imports from China will be 55%, which is composed of the 30% tariff imposed earlier this year and the existing 25% duties.* While the agreement appears to be focused more on specific products, it fits with the broader trend of de-escalating trade tensions over recent weeks, which has provided a boost to equity markets, with the S&P 500 now roughly 2% off its February 19 all-time high.* In our view, we're likely past peak trade-policy uncertainty, but volatility could resurface over the coming weeks, particularly as we approach the expiration of the U.S. 90-day pause from the April 2 tariff announcement on July 9. However, with peak uncertainty likely behind us, and economic data proving resilient over recent weeks, particularly in the U.S., we believe opportunities remain attractive in equity markets, and we recommend investors consider overweighting equity relative to fixed income, with a focus on U.S. stocks. To view our full suite of opportunistic portfolio guidance, checkout our Monthly Portfolio Brief.

Brock Weimer, CFA
Investment Strategy

^*FactSet 

• Stocks close modestly higher – North American equity markets traded higher on Tuesday, with investors eyeing ongoing U.S. - China trade talks in London. Leadership was broad-based, with most sectors of the S&P 500 finishing the day flat-to-higher and led by the energy and consumer discretionary sectors.* On the economic front, the U.S. NFIB small business index ticked higher in May after declining in four consecutive months, signaling an improvement in business sentiment amid the recent easing in trade tensions.* Overseas, European markets were mixed following an improvement in the eurozone Sentix economic index, while markets in Asia were mixed overnight.* Bond yields were mixed, with the 10-year GoC yield inching higher to 3.35% while the 10-year U.S. Treasury yield closed slightly lower at 4.47%.*
   
• Key U.S. inflation data on the horizon – U.S. inflation will be in focus for investors this week, with consumer price index (CPI) inflation for May out tomorrow. Expectations are for headline CPI to rise by 0.2% for the month and 2.5% on an annual basis, while core CPI is expected to see a monthly gain of 0.3% and rise by 2.9% on an annual basis.* Despite concerns that tariffs would create a short-term boost to prices, there has been little evidence of this happening through April. In fact, the three-month annualized change in U.S. core CPI was 2.1% in April, the lowest reading since July 2024.* Despite the downward trend in inflation in recent months, we believe the impact of tariffs will surface in inflation data over the coming months, primarily through a spike in goods prices. However, we expect tariffs to serve a one-time increase in the level of prices, as opposed to an ongoing source of inflation that would cause long-run inflation expectations to become unanchored. Thus, we believe the Federal Reserve rate-cutting cycle has been delayed, not cancelled, with the Fed likely to deliver another one to two interest-rate cuts in the back half of 2025.
   
• Trade talks remain in focus – Trade policy remains in focus, with U.S. and Chinese policymakers continuing discussions in London on Tuesday. Reports suggest that talks thus far have been productive, with the initial focus on the U.S. potentially easing technology export controls in exchange for rare-earth minerals, although details remain vague.* With the 90-day pause of the April 2 tariff announcement quickly approaching, the S&P 500 has rallied by more than 20% since the April 8 low and is within striking distance of the February 19 all-time high.* The TSX has seen a similarly strong rally, gaining over 17% since April 8.* In our view, uncertainty on trade policy is likely to remain as we approach the expiration date for the 90-day pause from the April 2 tariff announcement on July 9 and the August 12 expiration date of the 90-day tariff pause between the U.S. and China. However, we believe that peak trade-policy uncertainty is likely behind us, which should help create a more conducive environment for businesses to plan for investment spending and hiring, in our view. From an investment perspective, we continue to recommend investors consider overweighting equities relative to fixed income, with a focus on U.S. stocks. To view our full suite of opportunistic portfolio guidance, checkout our Monthly Portfolio Brief.

Brock Weimer, CFA
Investment Strategy

^*FactSet 

• Stocks start the week mixed as trade remains in focus – The TSX traded lower while U.S. equity markets rose on Monday as U.S. and China officials met in London. Trade talks focused on easing tensions around technology and rare earth minerals, with additional negotiations scheduled for tomorrow.* Consumer discretionary and materials stocks posted the largest gains, while the utility and financial sectors were laggards. In international markets, Asia was mostly higher, despite China export growth for May missing expectations. China turned to other markets to offset a 34% drop in shipments to the U.S., the largest monthly decline since the COVID-19 pandemic.* Europe was broadly lower*. The U.S. dollar declined against major international currencies. In commodity markets, WTI oil traded higher, extending gains in recent weeks.*
   
• Bond yields mixed – Bond yields were mixed, with the 10-year Government of Canada yield up to 3.36% and the 10-year U.S. Treasury yield down near 4.48%. Concerns over U.S. government deficits and debt have helped drive bond-market volatility higher in recent months, though yields have pulled back from their late-May peak. Bond markets continue to price in expectations for two Fed interest-rate cuts this year and an additional two next year**, about in line with the Fed's own forecast.*** While the potential for higher inflation over the coming months due to tariffs should keep the Fed on the sidelines a while longer, lower interest rates should help reduce borrowing costs for consumers and businesses, which would be supportive of the economy and corporate profits, in our view.
   
• Markets await CPI inflation this week – U.S. consumer price index (CPI) inflation for May will be released on Wednesday, with forecasts calling for inflation to rise to 2.5% annualized, up from 2.3% through April.* Core CPI, which excludes more-volatile food and energy prices, is expected to tick up to 2.9%, compared with 2.8% the prior month.* While both measures have declined for three consecutive months, estimates pointing to a reversal likely reflect the early impact of tariffs flowing through the supply chain to consumer prices, in our view. 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. Bond markets are pricing in inflation of about 2.31% over the next 10 years, indicating that long-term inflation expectations appear to remain well anchored.****

Brian Therien, CFA
Investment Strategy

^{*FactSet **CME Fedwatch ***U.S. Federal Reserve ****Federal Reserve Bank of St. Louis}

• North American equities rally following healthy jobs data – North American equity markets closed higher on Friday, following better-than-expected payrolls reports in the U.S. and Canada for May. Employment grew by 8,800 in Canada during May, better than expectations of a 1,500 gain, while the unemployment rate rose to 7%.* In the U.S., nonfarm payrolls rose by 139,000 in May, above expectations for a 130,000 gain, while the unemployment rate held steady at 4.2%.* Leadership was broad-based, with all 11 sectors of the S&P 500 finishing the day higher, led by energy and communication services.* Bond yields rose following the jobs data, with the 10-year U.S. Treasury closing around the 4.5% mark, while the 10-year GoC yield ticked higher to around 3.35%.*
   
• Employment growth exceeds expectations; unemployment rate ticks higher – The May labour-force survey showed that Canadian employment rose by 8,800 in May, above expectations for a 1,500 gain and above the April reading of 7,400.* However, the rise in employment was not enough to offset a tick higher in unemployment and labour-force growth, pushing the unemployment rate up to 7%, the highest since 2021.* South of the border, the May U.S. jobs data showed that nonfarm payrolls rose by 139,000 for the month, above expectations for a 130,000 rise.* Despite signs of healthy job growth in May, U.S. payroll growth for April and March were revised lower by a total of 95,000, taking some of the shine off of the better-than-expected May report.** In addition to the payroll data, the U.S. unemployment rate held steady at 4.2% for the third consecutive month, as a decline in the household measure of employment was offset by a decline in the labour force.* Overall, we'd characterize today's reports as evidence that labour-market conditions continue to ease but remain broadly healthy. From a monetary-policy standpoint, we believe today's report gives the Fed and Bank of Canada further reason to hold rates steady in the near term and assess the economic impact of recent policy changes. In our view, both central banks will resume interest-rate cuts in the back half of this year.
   
• Strong first-quarter earnings season winds down – First-quarter earnings season is winding down, with tech-giant Broadcom and athletic-apparel retailer Lululemon among the last companies in the S&P 500 to report first-quarter results yesterday. Both companies modestly exceeded sales and earnings expectations, closing out what's been a strong earnings season for North American companies. The S&P 500 is set to post earnings growth of nearly 13% in the first quarter, marking the third time in the past four quarters the index has seen double-digit earnings growth.* Earnings growth has been strong in Canada as well, with TSX earnings on pace to grow by 13% in the first quarter.* While earnings estimates have been revised lower for the quarters ahead, full-year estimates are still calling for earnings growth of around 9% for the S&P 500 and 8% for the TSX.* In our view, single-digit earnings growth is attainable in 2025, given the resilient economic backdrop, which should offer support to equity markets amid the uncertain policy environment.

Brock Weimer, CFA
Investment Strategy

^{*FactSet **Bureau of Labor Statistics}