Daily market snapshot

Published June 25, 2024
 Woman on couch looking at laptop

Tuesday, 6/25/2024 a.m.

  • Equities start the day mixed – After a generally mixed session on Monday, the TSX is trading lower on Tuesday in response to the latest consumer price data, while U.S. stocks are little changed in early Tuesday trading. Cyclical and defensive areas outperformed yesterday, but leadership today is coming from a rebound in technology, a rather common theme in 2024. NVIDIA, which briefly became the largest market-cap company in the world last week, has fallen more than 15% from that peak, weighing on market performance in recent days. That said, enthusiasm around AI has been a powerful driver of market gains over the last several months, with the Nasdaq up 17% and the S&P 500 rising more than 14% year-to-date, while the TSX has logged a more tepid 4% increase. Looking across markets, global equities are largely trading lower on the day, while commodities are seeing modest moves, with gold flat and oil prices down a bit at just above $80 per barrel. Bonds are slightly lower, with the 10-year Government of Canada bond yield moving up toward 3.4%, spurred by a hotter-than-expected inflation report this morning. *
  • Sector check shows shifting leadership – The case for sector diversification remains strong, as leaders and laggards have rotated amid the progressing outlook for economic growth and central-bank policy moves. Year-to-date, the best performers are technology (+26%), communication services (+25%), utilities, financials and energy (each up roughly 11%). This reflects the significant momentum behind the AI trend while also demonstrating a broadening of leadership into both cyclical and defensive sectors, consistent with our view coming into the year that gains would widen beyond just mega-cap tech (the "Magnificent 7"). Performance over the last month reflects a shift in the macroeconomic landscape, as data have shown some emerging softness, notably in consumer activity. Over the last month, a pullback in tech has narrowed its lead, with real estate, consumer discretionary, communication services and health care also making up the best sector performers. Cyclicals, like financials and industrials, have lagged a bit in June as markets adjust to the prospects of slower economic growth. Nevertheless, equity markets continue to perform well of late, as the signs of moderating consumer demand also bring the prospects of slowing inflation and support for an upcoming Fed rate cut, and potentially further rate cuts from the Bank of Canada.  **  
  • May inflation comes in hotter than anticipated – Consumer prices rose 0.3% in May versus April, a larger-than-expected increase in the seasonally adjusted measure that pushed the annual rate of inflation up to 2.9%, compared with a consensus expectation of 2.5% and the prior month's reading of 2.7%. Upward pressure came from areas like travel services, food and rent. The first is likely to subside as seasonal factors progress, but the last is likely to prove to be a challenge, as overall shelter prices have been a persistent factor for overall inflation, and as mortgage interest costs will remain a pain point. The upshot is that this CPI reading complicates the Bank of Canada's job in terms of orchestrating further rate cuts in the coming months. We don't think this dramatically changes the broader path, as we anticipate the BoC will seek to lower its policy rate over the coming year. However, we do think this makes the case for the BoC to pause in July, as cutting rates again without confirmation that this is more of a one-off CPI hiccup would appear out of sync with the central bank's inflation mandate. Additional inflation readings that show CPI remains in a downtrend would likely be the catalyst for additional rate cuts from the BoC this year.

Craig Fehr, CFA
Investment Strategy

*FactSet ** FactSet, S&P 500 GICs level 1 sector total returns.

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