Daily market snapshot

• Stocks surge on tariff relief for automakers: North American equity markets finished higher on Wednesday following an announcement that the U.S. will exempt autos from the 25% tariffs that were implemented yesterday on imports from Canada and Mexico for one month. The tariff relief provided a boost to sentiment, with the TSX and S&P 500 each finishing higher by 1.1%.* Overseas, stocks in Asia were higher overnight, while markets in Europe surged following news that Germany will exempt military and defense spending from its strict fiscal-spending rules, allowing the country to increase its defense spending. Additionally, Germany announced plans to launch a 500 billion euro fund to finance infrastructure spending.* The German parliament is expected to vote on these measures next week. It was a busy day on the economic calendar, with the ADP private-employment survey showing that U.S. private payrolls rose by 77,000 in February, below expectations of roughly 145,000.* Additionally, the ISM Services PMI rose to 53.5 in February, above expectations, signaling that the services sector of the U.S. economy appears to be holding up, despite a string of softer-than-expected economic data over recent weeks.* Bond yields finished the day higher, with the 10-year U.S. Treasury yield closing around 4.28%, while the 10-year GoC yield rose to 2.95%.* 
   
• Trade uncertainty is an overhang, but fundamentals remain supportive: Trade policy uncertainty has stoked bouts of volatility in equity markets this year, first in early February and again yesterday, as the U.S. imposed 25% tariffs on goods imported from Canada and Mexico (Canadian energy imports are subject to a 10% tariff). An additional 10% tariff on goods imported from China was implemented as well, adding to the 10% tariff that was imposed in February. Canada and China announced retaliatory measures, while Mexico pledged to retaliate by March 9. Equity markets are stabilizing today following comments from U.S. Commerce Secretary Howard Lutnick, which hinted at a potential deal to reduce levies on Canada and Mexico. The future path of trade policy is a known unknown, and we expect trade policy uncertainty to remain in the headlines, potentially stoking bouts of volatility as the year progresses. As we outlined in our Market Pulse, sustained tariffs could create a meaningful headwind to Canadian economic growth, as goods exports to the U.S. represent roughly 20% of Canadian GDP.* However, based on its sector composition, the impact on the TSX could be less pronounced than the impact on the economy. Given the fluidity of the situation and the number of moving pieces, we recommend investors resist the urge to react to headlines, and instead maintain well-diversified portfolios aligned to their goals.  
   
• U.S. private-payroll growth lower than expected: The ADP private-employment survey showed that U.S. private employers added 77,000 jobs in February, below economist expectations for 145,000 and below the prior month's reading of 186,000.* The slowdown in hiring likely reflects a combination of policy uncertainty and signs of slowing economic growth over recent weeks, potentially leading business owners to delay hiring plans. In our view, we could see the U.S. economy go through a soft patch in the first half of the year; however, we believe the fundamental backdrop remains supportive. Corporate profits are rising, and labour-market conditions remain broadly supportive despite today's softer-than-expected report, which should provide support to the economy and markets in 2025. Economist estimates are calling for U.S. real GDP growth in 2025 of 2.2%, modestly above estimates of long-term trend growth of roughly 2%.* Looking ahead, labour-market data will remain in the spotlight this week with the release of the domestic labour-force survey and U.S. nonfarm-payrolls report on Friday. Expectations are for Canadian employment to grow by 15,000 and the unemployment rate to tick higher to 6.7%, while U.S. nonfarm payrolls are expected to rise by 160,000 in February, while the unemployment rate is expected to hold steady at 4%.*

Brock Weimer, CFA
Investment Strategy

^{Source: *FactSet}  

• Stocks close lower amid new tariffs: The TSX and U.S. equity markets closed lower in a volatile trading session on Tuesday, as new U.S. tariffs took effect. Sectors were broadly lower, with financial and industrial stocks leading to the downside. In international markets, Asia dropped as China announced new tariffs on U.S. agricultural products, raising concerns of escalating trade tensions. Europe was down as well, with automakers posting the largest declines. The U.S. dollar dropped versus major currencies. In the commodity space, WTI oil traded lower, as OPEC remains on track to boost output in April and as new U.S. tariffs were implemented on Canadian oil*.
   
• U.S. tariffs on Canada, Mexico and China now in effect: U.S. tariffs of 25% on goods imports from Canada and Mexico, with the exception of Canadian oil and gas that will be taxed at 10%, and an additional 10% on products from China, are now in place. In response, Canada announced 25% tariffs on certain U.S. exports, which take effect immediately on C$30 billion worth of goods, and in 21 days on an additional C$125 billion of products. While Canadian countermeasures represent an escalation in trade tensions, they should have limited impact, as they apply to less than 0.5% of U.S. GDP of more than $29 trillion. China also announced new duties of 10%-15% on U.S. agricultural products. Mexico indicated that new tariffs on U.S. goods will be announced this weekend. While tariff uncertainty is weighing on consumer sentiment, the eventual impact on inflation could be partially offset by currency exchange rates if the U.S. dollar strengthens relative to other currencies, making imported products less expensive. In addition, manufacturers may not be willing or able to fully pass along tariffs to customers, narrowing profit margins, which can also help mitigate price increases. The economic effect of tariffs could also be mitigated by pro-growth policies, such as tax cuts and deregulation.
   
• Bond yields mixed: Bond yields were mixed today, with the 10-year Government of Canada yield down to 2.84%, which is about 70 basis points (0.70%) below its January peak, and the 10-year U.S. Treasury yield up at 4.21%. Although the broader trend for the U.S. has been lower, with the benchmark yield dropping about 60 basis points (0.60%) from its January peak. Slower growth expectations and risk-off sentiment have driven bond prices higher and yields lower. Rising bond prices are supporting stronger performance, with Canadian investment-grade bonds, measured by the Bloomberg Canada Aggregate Bond Index, up 2.82% year-to-date on a total-return basis. Markets have also raised expectations for Fed interest-rate cuts to two or three this year, which would bring the Fed funds rate to the 3.5% - 4.0% range**. In our view, the Fed's preferred inflation measure, personal consumption expenditure (PCE) inflation, which was 2.5% annualized through January, should continue to slow toward the Fed's 2% target. Moderating inflation should allow the Fed to continue removing restriction from monetary policy as it moves toward a more neutral stance. With Canada CPI at 1.9% annualized in January, below the Bank of Canada's 2% target, the central bank is likely to cut rates two or three times as well this year, which could bring its policy rate to the 2.25% - 2.5% range.

Brian Therien, CFA
Investment Strategy

^{Source: *FactSet **CME FedWatch} 

• Nasdaq leads stocks lower ahead of new tariffs: The TSX and U.S. equity markets closed lower on Monday, as the S&P 500 reversed its gains for the year. Despite its recent decline, the TSX remains positive for the year. Most S&P 500 sectors were down, with technology and energy stocks posting the largest declines. In international markets, Asia closed mostly higher as China is reportedly considering countermeasures to U.S. tariffs. Europe was up as well, led by defense stocks following meetings among leaders in the region to discuss bolstering military spending. Bond yields dropped, with the 10-year Government of Canada yield at 2.84% and the 10-year U.S. Treasury yield at 4.16%, down more than 60 basis points (0.6%) from its January peak. The U.S. dollar declined versus major currencies. In the commodity space, WTI oil traded lower as OPEC remains on track to boost output in April*.
   
• Manufacturing indexes reflect continued expansion: The final S&P U.S. Manufacturing Purchasing Managers Index (PMI) for February rose to 52.7, above estimates and the highest reading since 2022. The figure reflected an acceleration in manufacturing-sector expansion for the second consecutive month. Higher prices in anticipation of tariffs were a key contributor. Output and new orders rose as well, though some of the activity may have been driven by advance purchases ahead of price increases and possible supply disruptions related to tariffs**. The Institute for Supply Management (ISM) Manufacturing PMI for February declined to 50.3, below expectations for 50.5. The price component rose significantly to 62.4, a key contributor to the manufacturing PMI remaining above the key 50.0 mark that reflects growth. Declines in new orders and employment were the main detractors driving the overall figure below forecasts***. Overall, we view these readings positively, as the recovery of the manufacturing sector is an important contributor to broader support for the economy and more sustainable growth. S&P Canada Manufacturing PMI declined to 47.8 in February, reflecting contraction, despite higher prices in response to anticipated tariffs. Output and new orders declined, largely due to market uncertainty related to tariff concerns.
   
• Tariffs set to take effect Tuesday: U.S. tariffs of up to 25% on exports from Canada and Mexico and an additional 10% on those from China are set to go into effect tomorrow. While tariff uncertainty is weighing on consumer sentiment, the eventual impact on inflation could be partially offset by currency exchange rates if the U.S. dollar strengthens relative to other currencies, making imported products less expensive. In addition, manufacturers may not be willing or able to fully pass along tariffs to customers, narrowing profit margins, which can also help mitigate price increases. The economic effect of tariffs could also be partially offset by pro-growth policies, such as tax cuts and deregulation.

Brian Therien, CFA
Investment Strategy

^{Source: *FactSet **S&P ***Institute for Supply Management} 

• Stocks rally to end the week: North American equity markets closed higher on Friday following U.S. inflation data that matched consensus expectations, while Canadian fourth-quarter GDP growth was better than expected. The S&P 500 rose by 1.6% while the TSX gained 0.6%.* Despite today's rally, U.S. stocks were mostly lower for the week, driven primarily from weakness in mega-cap technology stocks, with the Nasdaq positing its worst week since September of last year.* The TSX, which carries a lower weight in technology stocks, edged out a modest gain for the week.* Overseas, markets in Asia were sharply lower overnight following yesterday's comments from President Trump that the U.S. will impose an additional 10% tariff on goods imported from China next week.* Bond yields finished the day lower, with the 10-year U.S. Treasury yield falling to 4.21% while the 10-year GoC yield declined to around the 2.91% mark.* 
   
• Fourth-quarter GDP exceeds expectations: Canadian fourth-quarter real GDP rose at a 2.6% annualized rate in the fourth quarter of 2024, above expectations for 1.7% growth.* On an annual basis, real GDP rose by 1.5% in 2024, matching 1.5% growth in 2023.* Looking into the drivers of the better-than-expected fourth-quarter growth, household spending increased at a 5.6% annualized rate, the strongest since 2022.* Additionally, residential investment surged by 16.7%, while nonresidential investment in structures, machinery and equipment rose by 8%, signaling that businesses could be responding favourably to the lower-interest-rate enviornment.* The Statistics Canada advance estimate for January GDP growth suggested that the economy expanded at a 0.3% rate for the month, signaling that the economic momentum from the fourth quarter carried over into the new year.** On Tuesday next week, U.S. tariffs on Canadian goods are expected to take effect, with U.S. President Donald Trump reiterating yesterday that these measures will go into effect as scheduled. In our view, tariffs could serve as a headwind to the recent economic momentum in Canada. Check out our Market Pulse report for detailed views on how tariffs could impact the Canadian economy and markets. 
   
• U.S. inflation matches expectations; futures markets point to 0.5% of Fed rate cuts in 2025: U.S. inflation data is in focus today with the release of personal consumption expenditures (PCE) inflation for January. Headline PCE rose by 0.3% in January and 2.5% on an annual basis, both of which were in line with expectations.* Core PCE, which is the Fed's preferred measure of inflation and excludes food and energy, rose by 0.3% in January and 2.6% on an annual basis, also both in line with expectations.* Looking into the drivers of January inflation, goods prices rose by 0.5% for the month, the highest since February of last year, while services inflation posted a more muted 0.2% gain.* Economic momentum has shown signs of slowing in the U.S. over recent weeks following softer-than-expected PMI data last week and an uptick in initial jobless claims yesterday.* While these are trends worth monitoring, we believe the U.S. economy remains on solid footing and is more likely to be normalizing from a period of above-trend economic growth as opposed to heading for a recession. The silver lining to the slowing economic momentum is that it has revived expectations for Fed rate cuts. Futures markets are now pricing in two quarter-point cuts in 2025, which could serve as a counterbalance to any slowdown in economic growth. In our view, 0.5% of Fed rate cuts in 2025 is a reasonable expectation; however, tariffs could pose an upside risk to U.S. inflation and keep the Fed on hold.

Brock Weimer, CFA
Investment Strategy

^{Source: *FactSet **Statistics Canada} 

• Stocks turn lower, with earnings in focus: North American equity markets closed lower on Thursday, with earnings from technology-giant NVIDIA and several Canadian banks in focus. NVIDIA reported better-than-expected earnings per share and revenue after the market close yesterday, while TD Bank, Canadian Imperial and Royal Bank of Canada all reported better-than-expected earnings and revenue this morning.* Despite the strong results from NVIDIA, shares were down by roughly 8%, highlighting the high bar of expectations for the company. Trade policy was also in focus, with U.S. President Donald Trump reiterating that tariffs on Canada and Mexico will go into effect on March 4 and that an additional 10% tariff on imports from China will be levied at this time. In response, the tech-heavy Nasdaq closed lower by over 2.5%, while the S&P 500 declined by 1.6%.* Canadian stocks were relative outperformers, with the TSX declining by 0.6%.* On the economic front, the second estimate of U.S. fourth-quarter GDP growth was unchanged at 2.3%, while U.S. initial jobless claims were higher than expectations. U.S. bond yields closed higher, with the 10-year Treasury yield finishing around 4.28%, while the 10-year GoC yield was little changed at just below 3%.* 
   
• Corporate earnings in focus: Corporate earnings are in focus today, with technology giant NVIDIA reporting quarterly results after the market close yesterday and TD Bank, Royal Bank of Canada and Canadian Imperial announcing results this morning. NVIDIA announced earnings per share of $0.89 and revenue of $39.3 billion for the quarter, both exceeding analyst expectations.* Additionally, NVIDIA CEO Jensen Huang provided upbeat commentary about demand for the companies chips despite the DeepSeek breakthrough in late January. Huang stated that reasoning models could require significantly more computing power than older models, which is seen as a positive for demand of NVIDIA's high-performance chips.* Despite the better-than-expected results and positive outlook from NVIDIA, shares closed sharply lower, highlighting the high bar of expectations for the company. On the domestic front, TD Bank, Royal Bank of Canada and Canadian Imperial all reported better-than-expected earnings per share and revenue for the quarter.* At an index level, roughly 68% of companies in the S&P/TSX Composite have announced fourth-quarter results, with earnings on pace to grow by 9%.* In the U.S., roughly 95% of companies in the S&P 500 have reported fourth-quarter results, and earnings are on pace to grow by roughly 18%.* We believe continued strength in corporate profit growth will be a necessary ingredient in sustaining the current bull market. 
   
• U.S. jobless claims rise but remain low relative to history: U.S. initial jobless claims for last week rose to 242,000, above the prior week's reading and consensus expectations for 220,000.* The jump in jobless claims to 242,000 is the highest since December; however, the number of claims remains low by historical standards. Over the past 30 years, the median reading for U.S. initial jobless claims has been 325,000, signaling that labour-market conditions remain broadly supportive relative to history.* Additionally, U.S. nonfarm-payroll growth has averaged over 200,000 over the past three months, the highest since June of last year, while the U.S. unemployment rate remains low at 4%.* In our view, labour-market conditions should remain supportive to household spending throughout 2025, helping extend the economic expansion.

Brock Weimer, CFA
Investment Strategy

^{Source: *FactSet}