- 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
- Rally loses steam – Major US equity indexes closed lower today, with stocks more than reversing a 1% rally seen early in the trading session that had been ignited by encouraging tech earnings reports*. Pharmaceutical companies were among the worst performers after President Trump sent letters to CEO's urging them to slash drug prices, with real estate and materials also weak spots**. This follows a mixed tone in international equities overnight, and Canadian stocks were also lower over the session**. Government bond yields and the dollar were broadly flat ahead of tomorrow's important nonfarm payrolls data, while oil prices fell, reversing some of the gains seen over the course of this week.
- Bullish AI sentiment – Earnings reports continue to build optimism around AI. Meta exceeded sales projections over Q2 and provided more bullish forecasts for Q3 activity, with robust growth in its advertising business helping underpin aggressive AI investment plans*. Microsoft, meanwhile, outlined plans to spend $30bn in the current quarter on AI data centers, with analysts seeing evidence in its results that these investments have been boosting sales*. By contrast, Ford reported that its profits would fall sharply this year due to higher tariffs*, and we continue to see headlines pour in on trade policy. President Trump announced a now familiar 15% tariff rate on South Korea but slapped a higher 25% levy on trade from India, while deals were reported to be in the pipeline for Taiwan, Thailand and Cambodia*. Otherwise, the President announced that refined copper – the biggest category of this metal – would be exempt from a planned 50% tariff, sparking a collapse in US copper future prices*. Further trade announcements are likely over the next 24 hours as we reach the administration's August 1st deadline for trade deals to be agreed. The President announced a 90 day extension to current tariff rates on Mexico, but we are still waiting for news on its USMCA trade partner Canada*.
- All eyes on payrolls – Economic data continue to roll in, with US personal consumption up just 0.1%m/m in June, representing a subdued rebound from the 0.2% decline seen in May, as households remain cautious in the face of slowing income growth and tariff uncertainty*. Core PCE inflation meanwhile was up 0.3%m/m, as expected, with core goods prices now up 3.7% annualized over the past three months as tariff hikes start to be felt in consumer prices**. Otherwise, initial unemployment insurance claims remain reassuringly low, although a large spike in planned job cuts according to the July Challenger survey pose a risk that these might accelerate in coming weeks*. Of course, the big event on the macro calendar this week will be tomorrow's payrolls report, especially with Fed Chair Powell signaling that the central bank was watching the labour market carefully for signals of stress***. A weak report would add to expectations that the Fed might cut rates in September, with markets currently pricing a 40% chance of a 25bps move at this meeting*.
Investment Strategy
Source: *Bloomberg, **Factset, Federal Reserve Board***
Wednesday, 07/30/2025 p.m.
- Stocks move lower after Fed decision – U.S. and Canadian stock markets were slightly lower on Wednesday, with the technology-heavy Nasdaq outpacing the S&P 500 and Canadian TSX. This comes as the Bank of Canada (BoC) held rates steady on Wednesday at 2.75%, but left the door open for interest-rate cuts down the road. In our view, the BoC is likely to cut rates one or two times more this cycle. Meanwhile, government bond yields in Canada were relatively flat, with the 10-year government bond yield higher by about 0.01%*. Meanwhile, the U.S. Federal Reserve kept rates steady at 4.25% to 4.5%, although we would expect one or two Fed rate cuts by year-end.
- Fed holds interest rates steady – Like the Bank of Canada, the Federal Reserve held interest rates steady today, at 4.25% - 4.50%. Fed Chair Jerome Powell noted that while interest rates are currently moderately restrictive, the FOMC will seek more information on the impact of tariffs in the months ahead. Powell outlined that the Fed's base-case scenario is that tariffs will pose a one-time price increase, and inflation should moderate beyond that. If we do see inflation data come in no worse than expected or jobs data deteriorate in the coming months, a September cut is possible, with Powell potentially alluding to this at the Fed's annual Jackson Hole meeting on August 21-23. We expect one to two cuts in the second half of 2025, followed by additional easing in 2026 as the Fed moves slowly toward a neutral rate (around 3%-3.5%)*.
- U.S. growth rebounds but underlying activity softer – The preliminary estimate of U.S. GDP increased 3% annualized in the second quarter, registering a bounce-back from the 0.5% contraction reported in the first quarter*. This swing largely reflected an unwind in the frontrunning of imports seen early in the year, which had weighed on growth, as U.S. corporates looked to front-run potential tariffs. Excluding the large contributions from net trade and inventories, underlying domestic demand was up a more modest 1.1% annualized over the quarter, the weakest reading seen since 2022*. This downshift from the 1.5% gain in the first quarter reflected softer business investment and cautious consumer spending*. Growth is likely to remain subdued over the second half of 2025, as we see a more pronounced impact from tariffs on corporate margins and household purchasing power. However, robust balance sheets and supportive financial conditions should provide some ballast, in our view, as should potential interest-rate cuts from the Fed later this year.
Mona Mahajan
Investment Strategist
Source: *FactSet