From 666 to 6666

Those of us old enough to have witnessed the great financial crisis will remember that at the worst of the meltdown in March 2009, when the financial system itself was on the brink of implosion, the S&P 500 index reached the 9th circle of hell at an intraday level of 666. Fortunately, the market recovered and this would be the starting point of the strongest equity rally in history. The younger crew will probably see veterans on trading desks smile as they hear that one of the big US banks is forecasting that the same index will reach 6666 next year. An extra 6 in a bit more than 15 years—a reminder to us all that when we’re going through hell, just keep going!

Economic data

This optimism is justified by the strong economic data we saw for most of the week starting with the Job Openings and Labor Turnover Survey (JOLTS). This showed that after months of declines, available job positions increased to 7.74 million, higher than expectations. The level of layoffs dropped and the quits increased, indicating that workers are more confident in their ability to find a better job. The job/jobless ratio increased from 1.08 to 1.11, another positive turn in the market, which takes it in line with pre-pandemic levels. The non-manufacturing Institute for Supply Management (ISM) disappointed at 52.1, lower than the expected 55.7, but still in the expansion zone. The employment component slowed, while prices paid accelerated, a sign that inflation remains sticky. Finally, the much-awaited nonfarm payroll number came out today showing a nice rebound of 227,000 after a poor showing of 36,000 the previous month caused partly by strike activity and poor weather. Most of the jobs were created in the private sector and unemployment ticked up to 4.2% due to a divergence between the establishment and household surveys. One component the US Federal Reserve (the Fed) will look at ahead of their last meeting of the year will be average hourly earnings. This came out at 0.4% for the month, keeping the yearly rate at 4% and showing that the American workforce remains expensive.

Canadian news was mixed as labour productivity showed another poor showing at -0.4% for Q3. Lower hours worked combined with higher compensation led to unit labour costs increasing by 1.4%. Productivity has now been negative for 9 of the 10 last quarters, and prospects for improvement are bleak as the uncertain trade environment might be a drag on productivity inducing investments. However, we finished the week with good news, as Canadian employment numbers doubled expectations as a bit more than 50,000 jobs were created in November, all of them in the full-time category. The unemployment rate increased to 6.8%, due to a significant increase in the labour force. However, the bulk of these gains were in the public sector, and hourly wages edged down to 3.9% for the year, a sign that the pressures for increased salaries are abating.

Bond market reaction: Yields march lower

Yields continued their march lower, especially in Canada as the expectations of a 50 basis points cut increased after the rise in the unemployment rate and the soft wages number. The yield curve steepened as the front end performed better than longer term securities and 10-year bonds yields dropped below 3.00%, the first time since September 2024. The corporate bond market sounds like a broken record: demand remains strong and new issues are well received as investors look for ways to increase yield. This week saw strong activity in the primary market, with new issues being well received and well oversubscribed.?

Stock market reaction: The US economy is in “very good shape”

US Fed Chairman Jerome Powell reassured equity markets by stating that the US economy is in “very good shape.” The MSCI World Index is up approximately 30% year-to-date (in CA$ terms, with dividends reinvested), led by the US. All the major US indices have been hitting all-time highs. Stocks in most other countries continued to gain as well. The TSX is up over 25% year-to-date. South Korea was one notable exception as the country is experiencing political strife and even briefly declared martial law this week. Bitcoin surpassed the $100,000 price point, signaling a strong risk-on sentiment in the market. President-elect Trump plans to nominate a pro-cryptocurrency advocate, Paul Atkins, to chair the Securities and Exchange Commission. The top performing sectors globally were information technology, communication services, and consumer discretionary. Within this group, enterprise software companies like Salesforce performed well, and also AI-related stocks like Marvell Technology and Pure Storage. Chipmaker Intel’s CEO was forced to resign amid ongoing challenges that threaten the company’s participation in the AI boom. The worst performing sectors during the week were energy, utilities, and real estate.

What to watch in markets next week

Even though it’s beginning to look a lot like Christmas, vacations will have to wait a bit as some important data will be released next week. In the US, we’ll get both consumer and producer price indices, as well as productivity and hourly earnings. The Bank of Canada will meet for the last time this year as the market now expects a 50 basis points cut to support the economy.

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Authors: Adam Ditkofsky, Pablo Martinez, Sandor Polgar, Steven Lampert, Craig Jerusalim, Diana Li, Mona Nazir and Mickey Ganguly

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