Daily market snapshot

• Stocks finish mostly higher: Stock markets closed mostly higher, with the S&P 500 up roughly 0.3%, while the TSX posted a modest 0.1% loss.* Sector leadership was broad, with most sectors of the S&P 500 finishing higher, led by consumer discretionary and utilities. The consumer discretionary sector received a boost from shares of Tesla, which surged over 15% following news the company received tentative approval from Chinese regulators to launch its Full Self-Driving technology.* Overseas, Asian markets finished higher overnight, while European markets were mixed, in response to a softer-than-expected economic-sentiment reading.** Treasury yields were mostly lower, with the 10-year GoC yield ticking down to 3.76% and the 10-year U.S. Treasury yield closing around 4.61%.* In the commodity space, oil declined by over 1%, finishing the day below $83 per barrel. This week will be chock-full of U.S. economic data, headlined by the FOMC meeting on Wednesday and the U.S. nonfarm-payrolls report on Friday.*
• Corporate earnings and monetary policy in focus for the week ahead: Corporate earnings and monetary policy will be in focus for markets this week, with the Fed scheduled to meet on Wednesday. Consensus expectations are for the Fed to hold policy rates steady at Wednesday's meeting**, with market focus likely to center on commentary from Fed Chair Jerome Powell to gain any clues into the timing of future rate cuts. Given the hotter-than-expected inflation readings to start the year, we expect Fed Chair Powell to reiterate the need to see further progress on inflation before cutting rates. However, our view is that inflation should continue to trend lower in the coming months and that the Fed could have a credible case to begin cutting rates later this year. On the earnings front, over 170 companies in the S&P 500 are scheduled to report this week, headlined by technology heavyweights Apple and Amazon. Thus far, roughly 45% of companies in the S&P 500 have reported first-quarter earnings, with 80% of companies exceeding consensus earnings expectations.* For the full year, estimates are calling for over 10% earnings growth for the S&P 500 in 2024. TSX earnings will ramp up over the coming weeks, with only 15% of companies in the index having reported thus far.* Full-year expectations are for earnings of the TSX to grow by 4.6% year-over-year in 2024 after declining by roughly 9% in 2023.* With much of 2023's equity-market rally driven by expanding valuations, we believe healthy corporate profit growth will be a necessary ingredient for stocks to perform well the remainder of the year.  
• Performance check-in: After a strong run that saw the S&P 500 gain over 10% in the first three months of the year, April has been less favourable for performance. Month-to-date, the S&P 500 is lower by roughly 2.9% and is on pace to post its first monthly decline since October 2023.* At a sector level, only communication services, energy and utilities have posted month-to-date gains, with all other sectors lower. The TSX has fared better, posting a decline of roughly 0.7% month-to-date, due to strength in the materials and energy sectors.* Bonds have struggled in April as well, with the Bloomberg Canada Aggregate Bond Index down roughly 2.2%.* The pullback in stocks and bonds has been accompanied by rising yields stemming from hotter-than-expected U.S. inflation, which has caused markets to lower expectations for Fed rate cuts in 2024. Despite weakness in recent weeks, we believe the road ahead for equity markets remains constructive, albeit likely not without some bumps along the way. As for bonds, we believe higher starting yields could support investment-grade bond returns in the years ahead. We recommend investors complement short-term bonds and cash with intermediate and long-term bonds, as appropriate with their risk tolerance and time horizon.

Brock Weimer, CFA
Associate Analyst

^{*FactSet.
**CME FedWatch Tool}

• Stocks end the week on a strong note: Stocks in the U.S. and Canada closed sharply higher on Friday, as strong earnings reports from mega-cap technology firms Alphabet (Google) and Microsoft, as well as inflation data in the U.S. that was in line with expectations, supported a rebound in market sentiment. Despite a volatile week, the S&P 500 closed higher by over 2.6% this week and the Canadian TSX was up over 0.7%*. However, after five straight months of gains across the S&P 500 and Nasdaq, the indexes are all on track for a losing month in April. This would also mark the first correction in stocks for the year, as uncertainty around Fed rate cuts and the path of inflation sparked volatility in equity and bond markets. While U.S. Treasury yields moved lower on Friday, they remain on pace for substantial gains for the month. For example, the 2-year Treasury yield, often considered a proxy for the fed funds rate, went from about 4.6% to 5.0% in April, at highs of the year*. The sharp move higher in yields has weighed particularly on interest-rate-sensitive parts of the market, including small-cap stocks, sectors like real estate, and investment-grade bonds.
• Large-cap technology earnings support a rebound in markets: Strong earnings reports and guidance on Thursday from technology heavyweights Google and Microsoft helped drive a bounce-back in markets and sentiment. Both companies highlighted strong returns from their artificial intelligence (AI) businesses, and both expect to continue to spend and grow this business segment in the year ahead. Google also announced its first ever cash dividend, underscoring how large-cap technology firms with robust balance sheets can return value to shareholders, especially in an elevated interest-rate environment. More broadly, about 45% of S&P 500 companies have reported first-quarter earnings already, with 80% of these reporting a positive earnings surprise, well above the 10-year average of 74%*. First-quarter earnings growth is on pace for 2.0% year-over-year, somewhat below the 3.4% growth forecast at the end of March. Nonetheless, for the full-year 2024, expectations remain intact for 10.5% year-over-year earnings growth*, driven by both growth and value sectors, which, in our view, would support a broadening of market leadership in the year ahead.
• U.S. personal consumption expenditure (PCE) inflation in line with expectations: All eyes were on Friday's PCE inflation report, particularly after hotter-than-expected CPI and PPI reports earlier this month. However, PCE inflation for the month of March came in largely in line with expectations, providing some relief to markets. Headline PCE inflation was up 0.3% on a month-over-month basis, in line with expectations, although annual PCE inflation was 2.7%, a tick higher than expectations of 2.6% and last month's 2.5%*. Core PCE inflation, excluding food and energy, was also up 0.3% monthly, in line with expectations. On a year-over-year basis, core PCE inflation was up 2.8%, slightly higher than expectations of 2.7% but in line with last month's 2.8%*. Services inflation was the key driver, up 4%, while goods inflation rose a more modest 0.1% in March*. Overall, inflation data has been hotter than expected in the first quarter of 2024. However, in our view, the drivers of persistent inflation have been areas like energy and commodities, which have cooled in recent weeks, and idiosyncratic pricing in areas like motor vehicles. Given our view that easing shelter and rent pricing should show up in the inflation baskets in the months ahead, and wage gains may also ease, we see services inflation continuing a downward path in the year ahead, albeit perhaps not in a straight line lower. We expect the last mile to around 2.5% inflation or lower to be bumpy, but thus far we don't see any substantial reason that the path of disinflation has gone off-course.

Mona Mahajan
Investment Strategist

^*FactSet.

• Stocks finish mixed in response to soft U.S. GDP reading: Stocks finished mixed on Thursday in response to a softer-than-expected first-quarter U.S. GDP reading and higher-than-expected prices. The TSX posted a modest 0.1% gain, while the S&P 500 declined by roughly 0.5%.* U.S. real GDP grew at a 1.6% annualized rate in the first quarter, below expectations, while the GDP Chain Price Index (which measures changes in prices of goods and services produced in the U.S.) rose at a 3.1% annualized rate, which was above expectations. In response, equity markets finished lower while bond yields rose, with the U.S. 10-year Treasury yield back around 4.70%.* Domestic bond yields followed suit, with the 10-year GoC yield ticking up to 3.86%.* On the corporate front, shares of Meta were under pressure, closing lower by roughly 10%, following mixed earnings results after market close yesterday. While Meta exceeded earnings expectations for the first quarter, forward guidance from management highlighted an expectation for higher costs due to increased investment spending, which is weighing on sentiment.
• First-quarter U.S. GDP misses expectations: U.S. first-quarter real GDP rose by 1.6% on an annualized basis, below expectations for 2.2% and below the fourth-quarter reading of 3.4%.* Looking into the drivers of growth for the first quarter, household consumption held up well, growing at a 2.5% annualized rate, driven by robust spending on services.* Net exports were the principal detractor in the first-quarter reading, as growth in imports far outpaced that of exports, with lagging exports potentially signaling weak global demand in the first quarter.* Additionally, the contribution to GDP growth from government spending slowed in the first quarter, rising at a 1.2% annualized pace versus 4.6% in the prior quarter.* In addition to the softer-than-expected growth reading, the GDP Chain Price Index rose at a 3.1% annualized rate, above expectations of 2.7%.* The combination of softer-than-expected growth and higher-than-expected prices drove bond yields higher and U.S. stocks lower on Thursday. While market volatility is never comfortable, we'd remind investors that the S&P 500 & TSX have gained over 15% since early November and that markets normally experience one to three pullbacks in the 5% - 10% range per year.** We believe opportunities remain attractive in equity markets, and we recommend investors use pockets of volatility to add to quality investments in line with their financial goals.  
• U.S. inflation and corporate earnings in focus Friday: U.S. inflation and corporate earnings will set the tone for markets to close out the week. Technology heavyweights Microsoft and Alphabet (Google) will report after market close today, while personal consumption expenditures (PCE) inflation will be out tomorrow morning. On the earnings front, roughly 40% of companies in the S&P 500 having reported, with 80% of those companies exceeding expectations.* Full-year estimates have held steady, calling for roughly 10.3% year-over-year growth.* Turning to inflation, expectations are for core PCE to rise by 2.7% year-over-year, down from the prior reading of 2.8%.* Headline PCE is expected to see a modest uptick, rising from 2.5% year-over-year to 2.6%, likely due to higher commodity prices.* Higher-than-expected U.S. inflation in the first few months of the year has tempered market expectations for Fed rate cuts, with the first cut priced in for the September meeting.* Despite elevated inflation data in the U.S., the trend remains lower, and we believe the Fed will likely have a case to cut rates later this year, perhaps in the fall.

Brock Weimer, CFA
Associate Analyst

^{*FactSet.
**FactSet, Edward Jones}

• Stocks struggle for direction as yields rise - After a strong rebound over the previous two days led by tech, equity markets finished mixed today. The Nasdaq was helped by an 11% jump in the shares of Tesla after the company reported first-quarter results that were not as bad as feared*. The company also announced a renewed push to accelerate the launch of less expensive cars to improve growth. However, the TSX, U.S. small-caps and the Dow declined, as higher bond yields offset optimism on corporate profits. The defensive sectors outperformed, while the industrial sector lagged, as shares of Boeing declined after Moody's slashed the company's credit rating. Elsewhere, WTI oil pulled back below $83, but remains up more than 15% year-to-date*. In Canada, retail sales declined 0.1% in February, falling short of the preliminary estimate for a 0.1% gain. The estimate for March suggests that sales were unchanged in March, further reinforcing expectations that the BoC is likely to cut rates in June.
• Earnings take center stage - This week is the busiest of the earnings season, with about one-third of the S&P 500 companies reporting earnings, representing 40% of the index's market capitalization*. So far results have been encouraging, with 80% of the companies surprising to the upside, exceeding earnings expectations by 8.5%*. For the full year, earnings estimates are holding steady, indicating that earnings are on track to growth 10.3%, supporting the bull market in stocks*. The spotlight this week is on the “Magnificent Seven” group of mega-cap tech names**. Tesla's results and strategic update are lifting the group today, with the focus then shifting to Meta's results that are coming out after the market close, followed by Microsoft and Alphabet on Thursday. Profits for the Magnificent Seven are forecast to rise 38% in the first quarter from a year ago, handsomely exceeding the S&P 500’s 3% expected earnings growth*. However, that outperformance and gap with the rest of the market will likely start to narrow in the back half of the year, which supports our view that the rally will broaden to other companies and sectors that lagged last year.
• U.S. GDP and inflation data to provide clues for rate outlook - Investors will be parsing through the U.S. GDP growth estimate on Thursday and inflation data on Friday, with the fresh readings viewed through the lens of what it means for Fed policy. Unlike Canada, resilient growth and the slow progress in inflation in the U.S. have pushed back the timeline of when interest rates may be cut by the Fed, with markets now anticipating less than two rate cuts for the year*. The first estimate of first-quarter GDP is expected to show that the U.S. economy grew at a 2.5% annualized pace, a modest slowdown from the 3.4% pace seen in the fourth quarter*. On the inflation front, the core personal consumption expenditures price index (PCE), which is the Fed's preferred measure of inflation, is expected to tick lower to 2.7% in March from a year ago*. That pace of inflation is still elevated, but the trend remains lower, and, in our view, conditions will fall into place for the Fed to gain confidence to cut rates, maybe not in the summer, which is when we expect the BoC to ease policy, but possibly in September.

Angelo Kourkafas, CFA
Investment Strategist

^{*FactSet.
**Magnificent 7 represented by Apple, Amazon, Alphabet, Microsoft, Tesla, NVIDIA and Meta Platforms.}