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 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}

• Stocks close lower on rising Middle East tensions – North American equity markets traded lower on Tuesday, with geopolitical tensions back in focus amid the rising possibility of U.S. involvement in the Israel-Iran conflict.* The ramp-up in geopolitical tension fed through markets via higher oil prices, with crude oil up by roughly 4% on Tuesday, while North American equity markets were broadly lower.* Additionally, U.S. bond yields declined, while the DXY U.S. dollar index finished higher, reflecting flight-to-safety positioning in markets amid the geopolitical tension. As we mentioned in last week's Weekly Market Wrap, while the human element of geopolitical conflicts should not be dismissed, historically, they've had limited lasting impact on market performance. On the economic front, U.S. headline retail sales were below expectations for May, while control-group retail sales expanded at a healthy 0.4% clip, matching expectations.* Overseas, Asian markets were mixed overnight after the Bank of Japan left its policy rate unchanged at 0.5%, while European markets closed mostly lower.* 
   
• Consumer check-in – U.S. consumer spending trends were in focus Tuesday, with retail sales for May printing below expectations. Headline retail sales fell by 0.9% in May, below expectations for a 0.7% decline, driven by softness in spending on building materials and motor vehicles, with the latter likely reflecting some give-back after motor vehicle sales surged in March as consumers looked to front-run tariffs.* In addition to the lower-than-expected May reading, retail-sales growth in April was revised down from a 0.1% gain to a 0.1% decline.* In our view, the silver lining to the May data is that control-group retail sales, which excludes spending on more volatile categories such as gasoline stations, motor vehicles and building materials, fared better, rising by 0.4% for the month, in line with expectations.* Additionally, spending on discretionary categories, such as furniture and clothing, expanded at healthy clips in May*, signaling a willingness to spend from households. In our view, healthy U.S. household balance sheets and labour-market conditions should help support U.S. consumer spending and economic growth throughout 2025. 
   
• Fed meeting on the horizon – Today marks the beginning of the FOMC's June meeting, with an interest-rate decision and press conference with Fed Chair Jerome Powell scheduled for tomorrow afternoon. Expectations are for the Fed to hold its policy rate steady on Wednesday at 4.25% - 4.5%.* In addition to the decision on interest rates, Wednesday's meeting will also provide an updated set of economic projections, with investors likely watching to see whether expectations for rate cuts have changed since the March meeting, which signaled two quarter-point cuts from current levels in 2025.** With inflation surprising to the downside in recent months and labour-market conditions showing signs of cooling, we expect the Fed to continue easing monetary policy later this year. Our base-case scenario remains that the Fed will cut interest rates one to two times in the second half of 2025, which should help provide moderate support to economic growth through lower borrowing costs, in our view.

Brock Weimer, CFA
Investment Strategy

^{*FactSet **March FOMC Summary of Economic Projections} 

• Equity markets stabilize on Monday – North American equity markets traded higher on Monday, with markets stabilizing after a volatile trading session on Friday that saw the S&P 500 decline by over 1% and oil spike by more than 7%, following escalating geopolitical tension between Israel and Iran. While the human element of the conflict should not be dismissed, markets stabilized on Monday, with reports suggesting that there has been limited disruption thus far to the global energy supply chain.* Growth segments of the market were among the top performers, with the technology, consumer discretionary and communication services sectors of the S&P 500 all gaining over 1%.* Bond yields finished slightly higher, with the 10-year GoC yield finishing the day around 3.4% and the 10-year U.S. Treasury yield climbing to 4.46%.* 
   
• U.S. consumer-spending trends and Fed decision in focus to begin the week – U.S. household spending and monetary policy will be front and centre for investors this week, with U.S. retail sales for May out tomorrow and the June FOMC meeting concluding on Wednesday. On the consumer side, expectations are for headline retail sales to post a modest decline in May, while control-group sales, which exclude spending on more volatile categories, such as building materials, gasoline stations and motor vehicles, are expected to post a 0.2% gain.* U.S. consumer spending has continued to expand in 2025, albeit at a slower rate than in previous years, with real personal consumption expenditure growing by 1.2% annualized in the first quarter.* We expect healthy U.S. labour-market conditions and household balance sheets to help support consumer spending throughout 2025. On the monetary-policy side, expectations are for the Fed to hold its policy rate steady on Wednesday.* In addition to the decision on interest rates, Wednesday's meeting will also provide an updated set of economic projections, with investors likely watching to see whether expectations for rate cuts have changed since the March meeting, which signaled two quarter-point cuts from current levels in 2025.** Our base-case scenario remains that the Fed will cut interest rates one to two times in the second half of 2025, which should help provide moderate support to economic growth through lower borrowing costs, in our view. 
   
• Performance check-in – While 2025 has had its fair share of volatile markets, most asset classes are higher as we near the halfway point for the year. Despite falling by 13% from January 30 to April 8, the S&P/TSX Composite has gained 8.5% including dividends in 2025.* At a sector level, the materials sector has been the top performer, gaining more than 30%; however, nine of the 11 sectors of the TSX are positive year-to-date.* In the U.S., the S&P 500 is higher by roughly 2% year-to-date in U.S. dollar terms, reversing losses from earlier this year.* Looking outside of North America, equity-market performance has been strong, with overseas developed large-cap stocks higher by roughly 11% and emerging-market stocks up by roughly 6%.* In our view, fiscal stimulus measures in the eurozone have helped support sentiment in overseas developed large-cap stocks, while strong performance in Chinese technology companies has helped provide a boost to emerging-market stocks*. Despite recent underperformance, we believe opportunities remain most attractive in U.S. equities relative to overseas and Canadian equities over a one- to three-year time horizon, and we recommend investors consider overweighting U.S. stocks as part of our opportunistic asset-allocation guidance.

Brock Weimer, CFA
Investment Strategy

^{*FactSet **March FOMC Summary of Economic Projections
Overseas developed large-cap stocks represented by MSCI EAFE. Total return in CAD.
Emerging-market stocks represented by MSCI EM. Total return in CAD.} 

• Markets react to Israel's strikes against Iran - Escalating tensions in the Middle East drove a risk-off sentiment today, with the S&P 500 down 1.1% and the TSX down a more modest 0.5%. Overnight, Israel targeted Iran's nuclear-program sites and military capabilities, and Iran retaliated with drone and missile strikes, sending oil prices 8% higher*. The heightened geopolitical risks in the region are triggering fears over potential supply disruptions, and because of that, investors appear to be gravitating toward safe-haven assets, like gold, which was up 1.5%*. Government bonds were not part of that flight to safety, as the 10-year yield rose modestly to 3.38%, potentially reflecting inflation concerns*. Elsewhere, European and Asian markets were also broadly lower, but the declines were contained, and major indexes are still up year-to-date*.
   

• Stocks have a long history of overcoming geopolitical shocks - Israel's series of airstrikes and Iran's retaliation bring geopolitical risks back to the forefront for investors. A widespread conflict could result in potential supply disruptions in the energy markets, though that is not the case thus far. Nonetheless, investors appear to be adding a risk premium to oil prices, which posted their biggest weekly gain since 2022*. The flight-to-safety and equity market pullback shouldn't be dismissed but require perspective.

  Even with today's spike, at around $74, oil is 5% below last year's level and in the middle of its three-year range*. As shown in the table below, past disruptions have resulted in short-term market weakness, but they have not lasted long or triggered a widespread market downturn. Historically, the knee-jerk reaction is for stocks to decline the day of the geopolitical event and for performance to be lackluster over the following week, as investors have a natural aversion to uncertainty. But the impact on returns usually proves temporary, as equities were higher in most cases six months and one year later. The upshot is that history suggests geopolitical risks and the associated shock in confidence tend to be short-lived as markets gravitate toward the more sustainable drivers for returns.

  
   

• Volatility may persist in the summer, but fundamentals remain supportive - From geopolitical risks and potential trade developments to evolving fed policy and fiscal debates, the months ahead may test the market's recent momentum. However, we don't think the 20% rally in global equities since the April 8 lows is built on sand. Trade tensions have eased, U.S. policy focus has shifted toward tax cuts, and economic data remain resilient. Also, corporate profits continue to grow at a healthy pace. We think markets are appropriately beginning to look ahead, setting their eyes on the possibility of more stimulative fiscal and monetary policies in 2026. Next week the Fed is expected to keep rates unchanged and remain in wait-and-see mode, supported by the underlying strength in the economy and trade uncertainty. However, policymakers will update their economic and interest-rate projections, which are likely to show a path to gradually cut rates toward neutral over the next 24 months, including one or two rate cuts this year, in our view.

Angelo Kourkafas, CFA
Investment Strategist

^*FactSet