Weekly review

The market experienced a dynamic week of news and earnings results, culminating in the S&P 500 and Dow Jones Industrial Average reaching fresh all-time highs on Friday. While major indices recorded gains, the Russell 2000, representing small-cap stocks, underperformed due to weaknesses in regional bank stocks. New York Community Bank (NYCB) reported a substantial increase in its provision for credit losses in Q4, totaling $552 million, primarily attributed to higher net charge-offs and concerns related to the office sector and potential repricing risk in the multi-family portfolio. NYCB's decision to cut its dividend by 70% to $0.05 per common share to enhance capital further impacted regional banks, reminiscent of last year's fallout. The SPDR S&P Regional Banking ETF (KRE) dropped 7.2% during the week.

In contrast, mega-cap stocks demonstrated strength, outperforming the broader market following influential earnings reports. Alphabet (GOOG) and Microsoft (MSFT) reported results on Tuesday, with GOOG experiencing a 6.7% decline, while MSFT climbed 1.8%. On Thursday, Apple (AAPL), Amazon (AMZN), and Meta Platforms (META) reported earnings, resulting in a 3.4% decline for AAPL, an 8.0% jump for AMZN, and a 20.5% gain for META. These major names collectively constitute nearly a quarter of the S&P 500, contributing to the Vanguard Mega Cap Growth ETF (MGK) climbing 2.1% during the week. Boeing (BA), a Dow component, reported earnings and recorded a 1.9% gain, though it remains down nearly 20% for the year due to the grounding of 737 Max 9 planes.

The week's price action was also influenced by a recalibration of rate cut expectations following robust economic data and the FOMC decision on Wednesday. While the committee voted to maintain the target range for the fed funds rate at 5.25-5.50%, the market hoped for a dovish shift in rhetoric. The FOMC's statement indicated a cautious approach, stating that a rate cut would be considered only when there is greater confidence in inflation moving sustainably toward 2 percent. This contributed to a broad market selloff on Wednesday. Furthermore, the unexpectedly strong January Employment Situation Report on Friday, featuring significant upside surprises in payroll growth and average hourly earnings, prompted a reassessment of the probability of a March rate cut. Fed Chair Powell expressed skepticism about a March rate cut, leading to a repricing in the fed funds futures market. Consequently, the 2-year note yield declined to 4.38%, and the 10-year note yield fell to 4.03% in response to the rate cut rethink and the Treasury Department's Q1 borrowing estimate of $760 billion, $55 billion below the October forecast. Borrowing in Q2 is expected to reach $202 billion.

On Monday, the S&P 500 reached a new record high, closing with a 0.8% gain, while the Dow Jones Industrial Average rose by 0.6%, the Nasdaq Composite climbed 1.1%, and the Russell 2000 jumped 1.7%. At the NYSE, advancers outnumbered decliners 5-to-2, and the Nasdaq saw a better than 2-to-1 lead in favor of advancers. The afternoon surge in buying activity was attributed to positive reactions to the Treasury Department's first quarter borrowing estimate. The Treasury Department's plan to borrow $760 billion in Q1, $55 billion below the October forecast, influenced market sentiment positively. Monday's trade exhibited a modestly positive bias even before the refunding estimate, supported by the outperformance of mega-cap stocks. Despite geopolitical concerns following a drone attack by an Iranian-backed militant group on a U.S. outpost in Jordan, which resulted in casualties, oil prices declined, signaling limited market concerns about supply disruptions.

On Tuesday, market sentiment lacked conviction, with negative market breadth and below-average volume at the NYSE. The Dow Jones Industrial Average closed with a 0.4% gain, while the S&P 500 (-0.1%) and Nasdaq Composite (-0.8%) experienced losses. Relative weakness in mega-cap and semiconductor-related stocks contributed to the S&P 500 and Nasdaq Composite declines, with participants awaiting earnings results from influential names in these sectors. The mixed market action was also influenced by a wait-and-see approach ahead of the FOMC decision on Wednesday, with expectations of unchanged rates but keen interest in any tonal shifts in rhetoric during Fed Chair Powell's press conference. Economic data on Tuesday included the November FHFA Housing Price Index (0.3%), November S&P Case-Shiller Home Price Index (5.4%), and January Consumer Confidence (114.8), all contributing to a mixed market sentiment. Additionally, the December JOLTS - Job Openings reported 9.026 million, indicating a positive outlook for continued strength in consumer spending, supported by factors such as slower inflation, expectations of decreasing interest rates, and favorable employment conditions.

On Wednesday, major indices closed at or near their day's lowest levels, with the Dow Jones Industrial Average falling by 0.8%, the S&P 500 declining 1.6%, the Nasdaq Composite logging a 2.2% loss, and the Russell 2000 sinking 2.5%. Although the beginning of the week saw lighter volume at the NYSE, it increased on Wednesday as market participants responded to the latest move by the FOMC. The committee voted unanimously to leave the target range for the fed funds rate unchanged at 5.25-5.50%, as expected. However, the market was anticipating a shift in rhetoric regarding the Fed's rate cut path, but the directive stated that it wouldn't be appropriate to reduce the target range until greater confidence is gained that inflation is moving sustainably toward 2 percent. During his press conference, Fed Chair Powell reiterated this view, expressing skepticism about a March rate cut. Initially, mega-cap losses had a disproportionate impact on index performance, but the broader market held up reasonably well. Wednesday's economic data included the Weekly MBA Mortgage Applications Index (-7.2%), January ADP Employment Change (107K, below the consensus of 140K), and Q4 Employment Cost Index (0.9%, slightly below the consensus of 1.0%). The disinflation in employment costs aligns with the softening inflation trends signaled by the core-PCE Price Index for December.

On Thursday, stocks rebounded strongly, with the Dow Jones Industrial Average (+1.0%) recovering from the previous day's retreat triggered by the FOMC, closing near its daily high. The S&P 500 (+1.3%), Nasdaq Composite (+1.3%), and Russell 2000 (+1.4%) also posted solid gains, with mega-cap stocks influencing index performance ahead of influential earnings reports. Despite brief interruptions due to renewed weakness in regional bank stocks and losses in New York Community Bank (NYCB) shares, stocks regained upside momentum. Economic data on Thursday included Weekly Initial Claims (224K), Weekly Continuing Claims (1.898 million), Q4 Productivity-Prel (3.2%), Q4 Unit Labor Costs-Prel (0.5%), January S&P Global US Manufacturing PMI - Final (50.7), December Construction Spending (0.9%), and January ISM Manufacturing Index (49.1%). The labor market conditions softened, and unit labor costs showed a tame increase, considered an inflation-friendly signal for the Fed. Construction spending was solid, indicating activity in both private and public sectors, and the ISM Manufacturing Index hovered near the breakeven mark of 50.0%, aligning with the market's soft landing outlook.

On Friday, the S&P 500 (+1.1%) and Dow Jones Industrial Average (+0.4%) achieved new record closing highs, while the Nasdaq Composite gained 1.7%, settling near its daily high. However, the advance-decline line was negative at both the NYSE and Nasdaq, and the equal-weighted S&P 500 experienced a 0.1% decline. Meta Platforms (META) and Amazon (AMZN) led index-level upward movements with significant gains following favorable earnings reports, even though Apple (AAPL) briefly turned positive after being down approximately 4% due to a relatively disappointing outlook for fiscal Q2 iPhone sales. The underlying negative bias beneath the index surface was attributed to the release of the stronger-than-expected Employment Situation Report for January. This report featured a notable increase in payroll growth and average hourly earnings. Despite the strong employment report, the market's hope for a sooner and more substantial rate cut from the Federal Open Market Committee (FOMC) was dampened. Consequently, the fed funds futures market adjusted the probability of a 25-basis points rate cut at the March FOMC meeting to 20.5%, down from 38.0% the previous day and 47.6% a week ago. The probability of a similar rate cut at the May FOMC meeting also decreased to 74% from 93.8% the previous day. The jobs report led to higher Treasury yields, contributing to the overall negative sentiment in the stock market. Friday's economic data included the January employment report, which exceeded expectations in key metrics, although it presented some quirks, such as a notable drop in the average workweek and benchmark revisions impacting nonfarm payroll employment. Despite these quirks, the report is likely to align with the Fed's current base case, considering a March rate cut as unlikely. The final reading for the University of Michigan Consumer Sentiment Index in January was 79.0, beating the consensus of 78.8. This increase in sentiment reflects an improved view of inflation and personal incomes, suggesting positive implications for consumer spending activity. Factory orders increased 0.2% month-over-month in December, slightly below the consensus of 0.3%, but continued business spending growth in December is considered a positive factor supporting the market's soft landing view.

Closing the week, the TSX edged down by 0.2%, posting a year-to-date gain of 0.6%. Meanwhile, the Dow Jones Industrial Average marked a 1.4% increase, contributing to a year-to-date growth of 2.6%. The S&P 500 Index also recorded a 1.4% rise, resulting in a 4.0% gain for the year so far. The NASDAQ experienced a 1.1% uptick, bringing its year-to-date performance to 4.1%. The MSCI EAFE* index showed a modest 0.4% increase, but it has a slight year-to-date decrease of -0.2%. The 10-year Treasury Yield saw a marginal 0.1% year-to-date rise, closing at 4.02%. On the other hand, the 10-year GoC Yield had a slight dip of 0.2%, but it maintained a year-to-date growth of 0.3%. Oil prices faced a weekly decline of 7.2%, settling at $72.37 per barrel, yet still holding a year-to-date gain of 1.0%. Bonds, represented by the index at $98.46, increased by 0.4%, reflecting a matching year-to-date growth. Canada Investment Grade Bonds* showed a 1.9% year-to-date increase but experienced a weekly decrease of -0.7%. The Canadian/USD Exchange remained stable at $0.74, showing no change for the week and a year-to-date decrease of -2.0%.

Previous update:

This week saw the stock market making gains, propelling the S&P 500 to new record highs. The increase in gains was more widespread compared to the previous week, which saw the outperformance of mega-cap stocks. Both the market-cap weighted S&P 500 and the Invesco S&P 500 Equal Weight ETF (RSP) posted a 1.1% climb this week. The broadening buying activity resulted in eight out of the 11 S&P 500 sectors experiencing gains. The energy sector saw the largest increase, rising by 5.2%, followed by a 4.5% gain in the communication services sector. The consumer discretionary sector was the notable laggard, facing a 1.4% decline, primarily due to Tesla's disappointing earnings and guidance, leading to a 13.6% drop in its shares. Microsoft, on the other hand, stood out among mega-cap stocks, reaching a market cap exceeding $3 trillion for the first time this week.

Several companies, including Humana, 3M, Johnson & Johnson, AT&T, DuPont, Kimberly-Clark, Intel, Texas Instruments, and KLA Corporation, faced stock declines after reporting disappointing earnings or guidance. This negatively impacted the semiconductor space, causing the PHLX Semiconductor Index to drop 0.8%. Conversely, companies like Netflix, United Airlines, Verizon, and Procter & Gamble received positive reactions to their earnings results or guidance.

The economic data this week brought positive news regarding the continued strength of the economy and a moderation in inflation. The Advance Q4 GDP report exceeded expectations, indicating a 3.3% rise in real GDP. Personal income in December increased as anticipated, while personal spending surpassed expectations with a 0.7% increase. Inflation indicators aligned with expectations, with the PCE Price Index and core-PCE Price Index both rising by 0.2% month-over-month. Year-over-year, the PCE Price Index was up 2.6%, unchanged from November, and the core PCE Price Index increased by 2.9%, the lowest since March 2021.

Despite these positive economic releases, Treasuries saw little change from the previous Friday. The 10-year note yield settled one basis point higher at 4.16%, while the 2-year note yield dropped by five basis points to 4.36%. This price action followed a $61 billion 5-year note auction on Wednesday, which witnessed poor demand, and a robust $60 billion 2-year note sale on Tuesday. In other notable news, the People's Bank of China implemented a 50 basis points cut in the required reserve ratio for commercial banks.

Monday saw gains in the stock market, pushing the S&P 500 to a new record high. The positive momentum from last week continued to provide support, complemented by a decline in Treasury yields. Investors were anticipating key events later in the week, including an uptick in earnings reports and potentially impactful economic data. Notably, Monday's gains were more widespread compared to the previous week, which witnessed the outperformance of technology stocks. However, Archer-Daniels (ADM) experienced a significant drop in its shares following news of a review of its Nutrition segment's accounting practices, leading to its CFO being placed on leave.

On Tuesday, the stock market exhibited a mixed performance. While the S&P 500 achieved another fresh record high, thanks to a late recovery by some mega-cap stocks, the major indices largely traded near Monday's closing levels for most of the session. NVIDIA (NVDA) stood out as a significant winner, rebounding after initially experiencing profit-taking activity. The overall market displayed a lack of conviction among buyers and sellers, partly influenced by the S&P 500 and Dow Jones Industrial Average hovering around or near all-time highs, coupled with the imminent release of Q4 earnings. Blue-chip companies reporting earnings since Monday's close elicited mixed reactions from investors, contributing to subdued index-level actions. Notable movements included 3M (MMM) weighing on the DJIA and a post-earnings decline in Johnson & Johnson (JNJ). On the positive side, United Airlines (UAL), Verizon (VZ), and Procter & Gamble (PG) recorded significant gains following their quarterly results. Tuesday lacked noteworthy U.S. economic data releases.

On Wednesday, the market initiated the day with a rally, driven by a substantial gain in Netflix (NFLX) after surpassing Q4 subscriber growth estimates and notable strength in mega-cap and semiconductor stocks. However, a downturn in the afternoon led to major indices ending the day near their lows. Despite this, the Nasdaq Composite (+0.4%) and S&P 500 (+0.1%) closed with modest gains, securing another record close for the S&P 500. Conversely, the Dow Jones Industrial Average recorded a 0.3% decline, and the Russell 2000 fell by 0.8%. Microsoft (MSFT) stood out as a winner among mega-cap stocks, briefly reaching a $3 trillion market cap for the first time. The afternoon pullback coincided with an increase in Treasury yields following a $61 billion 5-year note auction that met poor demand, following Tuesday's strong $60 billion 2-year note sale. Additionally, the S&P 500 struggled to maintain a posture above 4,900. Stocks disappointing with earnings and guidance, such as AT&T (T), DuPont (DD), and Kimberly-Clark (KMB), experienced outsized losses.

On Thursday, the stock market exhibited a positive trend throughout the session. While major indices dipped lower around mid-morning, the afternoon saw an improvement powered by gains in the broader market. This positive bias followed favorable economic data, including the Advance Q4 GDP report, which showed real GDP rising 3.3% compared to an expected 2.0%, and the GDP Price Deflator increasing 1.5% versus an expected 2.8%. Treasury gains in response to the morning's economic data provided added support for equities. The economic data released on Thursday included a 3.3% increase in real GDP for the fourth quarter, surpassing the consensus of 2.0%. Initial jobless claims for the week ending January 20 rose by 25,000 to 214,000, exceeding the consensus of 200,000. Continuing jobless claims for the week ending January 13 increased by 27,000 to 1.833 million. Durable goods orders for December were unchanged, in line with expectations. The Advance Intl. Trade in Goods deficit narrowed to $88.5 billion in December, and new home sales increased by 8.0% month-over-month in December. Overall, the data suggested ongoing economic strength and subdued inflation pressures. Treasury yields saw gains in response to the positive economic data, further supporting equities.

On Friday, the market experienced mixed performance at the index level with below-average volume at the NYSE. The S&P 500 (-0.1%) and Nasdaq Composite (-0.4%) faced headwinds from weakness in the semiconductor sector and losses in certain mega-cap stocks, while the Dow Jones Industrial Average (+0.2%) and Russell 2000 (+0.1%) closed with modest gains. The soft performance in semiconductor-related stocks was attributed to disappointing guidance from Intel (INTC) and KLA Corporation (KLAC), leading to a 2.9% drop in the PHLX Semiconductor Index (SOX). Despite sector-specific challenges, the overall sentiment remained positive as investors absorbed favorable economic data indicating ongoing strength in the economy and easing inflation. The December Personal Income and Spending report revealed robust consumer spending, while inflation moved closer to the Federal Reserve's 2.0% target. Additionally, pending home sales for December exceeded expectations, surging by 8.3%, following a revised 0.3% decline in November. American Express (AXP) contributed to the positive tone with a significant earnings-related gain. Reviewing the economic data for the day, personal income increased by the expected 0.3% month-over-month in December, while personal spending surpassed expectations with a stronger-than-anticipated 0.7% increase (consensus 0.4%). The inflation gauges aligned with expectations, with the PCE Price Index and core-PCE Price Index both rising by 0.2% month-over-month. Year-over-year, the PCE Price Index remained unchanged at 2.6%, while the core PCE Price Index decreased to 2.9% from 3.2% in November. The overall takeaway from the report suggests a Goldilocks scenario: robust consumer spending coupled with core inflation moving closer to the Fed's 2.0% target.

Closing the week, the TSX recorded a 1.0% increase, contributing to a year-to-date gain of 0.8%. The Dow Jones Industrial Average closed at 38,109, marking a weekly rise of 0.6% and a year-to-date increase of 1.1%. Similarly, the S&P 500 Index saw a 1.1% weekly gain, bringing its year-to-date performance to 2.5%. The NASDAQ experienced a marginal 0.09% weekly increase, with a year-to-date growth of 3.0%. The MSCI EAFE* index closed at 2,211, reflecting a weekly gain of 1.5%, despite a year-to-date decrease of -1.1%. The 10-year Treasury Yield stood at 4.14%, showing no change for the week and a 0.3% increase year-to-date. In comparison, the 10-year GoC Yield remained stable at 3.52%, resulting in a week-to-week change of 0.0% and a year-to-date growth of 0.4%. Oil prices surged to $78.12 per barrel, showcasing a substantial 6.6% weekly increase and a notable 9.0% year-to-date rise. Bonds closed the week at $98.07, recording a marginal 0.1% increase, yet marking a year-to-date decline of -1.1%. Canadian Investment Grade Bonds* also noted a 0.1% weekly increase, contributing to a year-to-date decrease of -2.3%. The Canadian/USD Exchange rate concluded the week at $0.74, showing a minor 0.1% increase, yet reflecting a year-to-date depreciation of -1.9%.

Previous update:

The market concluded the week on a positive note, marking its tenth week of gains in the last eleven. The S&P 500, briefly surpassing its all-time high close on Friday, successfully recovered from the losses incurred in the previous week, resulting in a 0.3% increase for the year. The impressive performance of mega cap stocks significantly influenced the overall index, with the Vanguard Mega Cap Growth ETF (MGK) rising by 3.9%, and the Nasdaq Composite logging a 3.1% increase. Notably, the S&P 500 exhibited a 1.8% gain this week, outperforming the Invesco S&P 500 Equal Weight ETF (RSP), which saw a modest 0.2% gain.

Key sectors contributing to the S&P 500's success were information technology (+4.9%), communication services (+3.4%), and consumer discretionary (+1.5%). Conversely, the energy sector experienced a notable decline of 2.4%. The financial sector also underperformed, closing the week with a 0.5% decrease. The start of the Q4 earnings reporting period featured major players like Bank of America (BAC), Wells Fargo (WFC), JPMorgan Chase (JPM), and Citigroup (C), all reporting results. UnitedHealth (UNH) and Delta Air Lines (DAL) were among the notable names with earnings reports. However, the overall market response to quarterly results was negative, setting a cautious tone for upcoming earnings releases. Additionally, Microchip Technology (MCHP) issued a Q4 revenue warning linked to a weakening economic environment.

Boeing (BA) faced a challenging week, plummeting by 12.6% after the grounding of 737 MAX 9 jets due to a fuselage blowout on an Alaska Airlines (ALK) flight.

Economic data for the week presented a mixed picture. The Consumer Price Index (CPI) for December exceeded market expectations slightly, while weekly initial jobless claims remained below levels indicative of a recession. On the other hand, the Producer Price Index was cooler than anticipated. Despite the mixed economic data, market participants adjusted their rate cut expectations, reflecting skepticism about the likelihood of inflation resurgence. The fed funds futures market now indicates a 79.4% probability of a 25 basis points rate cut at the March FOMC meeting, compared to 73.2% yesterday and 68.1% a week ago.

This adjustment was mirrored in the Treasury market's price action. The 2-year note yield, most responsive to changes in the fed funds rate, declined by 24 basis points to 4.15%, while the 10-year note yield fell by nine basis points to 3.95%.

In geopolitical developments, tension escalated following US and UK strikes against military targets in Houthi-controlled areas of Yemen.

On Monday, the stock market experienced a positive day as major indices rebounded from the losses of the previous week, ending a nine-week winning streak. The S&P 500 gained 1.4%, the Russell 2000 climbed 1.9%, and the Nasdaq Composite saw a notable jump of 2.2%. The Dow Jones Industrial Average had a relatively modest gain of 0.6%, primarily impacted by Boeing's (BA) loss following the grounding of 737 MAX 9 jets due to a fuselage blowout on an Alaska Airlines (ALK) flight. Mega cap stocks played a significant role in influencing overall index performance during this broad-based recovery. The positive momentum was supported by a decline in market rates, although Treasuries settled below their daily highs. Treasuries' price action was influenced by reduced inflation expectations, as indicated in the New York Fed's December Survey of Consumer Expectations, along with a decrease in crude oil prices ($70.82/bbl, -2.91, -3.9%) following a report that Saudi Arabia aims to cut crude prices for February due to weak demand. Economic data for the day was limited to the consumer credit report, revealing a $23.7 billion increase in November, exceeding the consensus of $9.3 billion.

On Tuesday, the market exhibited a negative bias, with the A-D line favoring decliners by a 7-to-3 margin at the NYSE and nearly 2-to-1 at the Nasdaq. Despite this, major indices managed to recover from their daily lows, thanks to the support of mega cap stocks that rebounded after early weakness. The prevailing negative sentiment was partly influenced by a Q4 revenue warning from Microchip Technology (MCHP), linked to an economic environment showing signs of weakening. Samsung Electronics also contributed to the pessimistic tone by forecasting a 35% year-over-year decline in Q4 operating profit, falling below analysts' expectations. Economic data for the day included a November Trade Balance of -$63.2 billion, beating the consensus of -$64.7 billion. The key takeaway from the report highlighted decreases in both exports and imports, aligning with a globally weakening economic environment. Additionally, the NFIB Small Business Optimism index for December was reported at 91.9, surpassing the previous month's reading of 90.6.

On Wednesday, the major indices closed near their daily highs, with the S&P 500 gaining 0.6% and turning positive for the year. The Dow Jones Industrial Average saw a 0.5% gain, while the Nasdaq Composite registered a 0.8% increase. Mega cap stocks played a crucial role in boosting the overall gains, with the Vanguard Mega Cap Growth ETF (MGK) rising by 1.2%. Apple (AAPL), despite facing a 0.7% decline earlier in the day following another analyst downgrade from Redburn Atlantic, managed to close with a gain. The market displayed a lack of strong conviction from both buyers and sellers, and the equal-weighted S&P 500 recorded only a modest 0.2% gain. This subdued price action was attributed to a wait-and-see approach ahead of the $37 billion 10-year note auction results, an afternoon speech on the economic outlook from New York Fed President Williams (FOMC voter), the upcoming release of the December Consumer Price Index on Thursday, and earnings reports from the banking industry before Friday's opening.

Thursday's trading session had a negative bias throughout, despite an initial upward move that encountered resistance at the S&P 500's all-time high close of 4,796.56. Decliners led advancers by almost a 2-to-1 margin at the NYSE and a 4-to-3 margin at the Nasdaq. Market participants were digesting the Consumer Price Index (CPI) report for December, which slightly exceeded the market's expectations. The total CPI increased by 3.4% year-over-year in December, up from 3.1% in November, while the core reading slightly decelerated to 3.9% from 4.0%. Additionally, weekly initial jobless claims remained below recession-like levels at 202,000, down from 203,000 in the prior week. Despite data suggesting the Fed may not cut rates as much as hoped, and Cleveland Fed President Mester (FOMC voter) stating on BloombergTV that March is likely too early for a rate cut, the market's rate cut expectations strengthened. Treasuries settled with gains, with increased buying in response to a robust $21 billion 30-year bond reopening, rather than the morning's economic data. In reviewing Thursday's economic data, the December CPI was reported at 0.3% (consensus 0.2%), while the December Core CPI stood at 0.3% (consensus 0.2%). The key takeaway from the report highlighted that although inflation improved, it lost some downward momentum, suggesting the Fed may not rush into interest rate cuts based on this latest CPI reading. Weekly Initial Claims were reported at 202,000 (consensus 209,000), down from a revised 203,000 in the prior week, and Weekly Continuing Claims were 1.834 million. The key takeaway emphasized that employers remain reluctant to cut employees from payrolls, a positive consideration for the labor and economic outlook, though it may not align with the market's expectation for rate cuts.

On Friday, the S&P 500 and Nasdaq Composite closed with minimal changes compared to Thursday, while the Dow Jones Industrial Average and Russell 2000 experienced declines of 0.3% and 0.2%, respectively. This subdued conclusion followed a lackluster start to the Q4 earnings reporting period, setting a cautious tone as investors looked ahead to upcoming earnings releases. Companies like UnitedHealth (UNH), Delta Air Lines (DAL), Bank of America (BAC), and Wells Fargo (WFC) were notable underperformers in this regard. Buyers displayed hesitancy due to the relatively soft commencement of earnings season, compounded by the fact that the S&P 500 and Dow Jones Industrial Average are trading near their all-time highs. Although the S&P 500 briefly surpassed its all-time high close, reaching 4,802 shortly after the open, the initial upward movement was partly a reaction to a Producer Price Index (PPI) report for December that was cooler than expected. Interestingly, this report had a more pronounced impact on the Treasury market than on the stock market. The favorable PPI report led to a recalibration of rate cut expectations among market participants. Notably, rate cut expectations rose despite a December Consumer Price Index report that did not align with the market's hopes, indicating a prevailing belief that inflation is not likely to accelerate. In reviewing Friday's economic data, the December PPI was reported at -0.1% (consensus 0.1%), with the prior figure revised to -0.1% from 0.0%. The December Core PPI stood at 0.0% (consensus 0.2%), maintaining the same level as the prior reading. The report's key takeaway emphasized that wholesale-level inflation has been effectively controlled, with deflation observed in several components. This trend is expected to translate into more favorable inflation readings for the PCE Price Index, the Federal Reserve's preferred inflation gauge.

The TSX closed at 20,987, reflecting a 0.2% increase for the week and a marginal 0.1% gain year-to-date. The Dow Jones Industrial Average concluded the week at 37,593, posting a 0.3% weekly gain but showing a slight decline of -0.3% for the year. The S&P 500 Index recorded a more significant weekly increase of 1.8%, bringing its year-to-date performance to a 0.3% gain. The NASDAQ exhibited a robust 3.1% weekly growth but experienced a -0.3% decline year-to-date, closing at 14,973. The MSCI EAFE closed at 2,204, marking a -0.2% decrease for the week and a more notable -1.4% decline year-to-date. The 10-year Treasury Yield settled at 3.96%, representing a slight -0.1% decrease for the week and a 0.1% increase year-to-date. Meanwhile, the 10-year GoC Yield remained unchanged at 3.23% for the week, with a modest 0.1% gain year-to-date. Oil prices, measured at $72.78 per barrel, declined by -1.4% for the week but demonstrated a 1.6% increase year-to-date. Bonds closed at $99.07, showing a 0.9% weekly gain but reflecting a -0.3% decline year-to-date. In the Canadian market, Investment Grade Bonds experienced a 0.2% weekly increase but sustained a larger -0.9% loss year-to-date. The Canadian/USD Exchange rate settled at $0.75, indicating a -0.5% decline for the week and a more substantial -1.5% decrease year-to-date.

Previous update:

This week, areas of the market that fared better compared to mega caps were those that either missed out on last year's gains or experienced less robust growth than the mega cap stocks. The Russell 3000 Growth Index saw a 2.8% decline, contrasting with the 0.6% dip in the Russell 3000 Value Index.

Interestingly, the only three S&P 500 sectors that registered declines in 2023 witnessed significant gains this week. The utilities sector, which suffered a 10.2% fall last year, recorded a 1.8% gain. Similarly, the energy sector, down 4.8% in 2023, saw a 1.1% climb this week. The consumer staples sector, which faced a 2.2% decline last year, closed with a 0.03% gain this week.

The health care sector emerged as another top performer, posting a 2.1% gain, despite being among the worst-performing sectors last year with only a marginal 0.3% gain. Conversely, heavily-weighted information technology (-4.1%) and consumer discretionary (-3.5%) sectors experienced the most significant declines this week after their outperformance last year.

Profit-taking activity and rising market rates contributed to the negative bias this week as the 10-year yield surpassed 4.00%. The 10-year note yield rose by 16 basis points to 4.04%, and the 2-year note yield increased by 14 basis points to 4.39%.

The Treasury's price action was influenced by a recalibration of rate-cut expectations following less dovish Minutes from the December 12-13 FOMC meeting. While the committee acknowledged that the policy rate might be near its peak for the current tightening cycle, they did not rule out the possibility of further rate hikes. Economic releases on Friday, including better-than-expected nonfarm payrolls and average hourly earnings, along with a steady unemployment rate, added uncertainty to rate-cut expectations. The December ISM Services PMI revealed a larger-than-expected deceleration in service sector growth.

Solid employment numbers may restrain the Fed from cutting rates as much as the market anticipated, while weak business activity in the largest sector may align the Fed with the market's rate-cut expectations. The probability of a 25 basis points rate cut to 5.00-5.25% at the March FOMC meeting decreased to 68.3%, compared to 88.5% the previous week. In geopolitical news, tensions escalated in the Red Sea as Iran dispatched a warship in response to the U.S. destroying three Houthi boats.

The beginning of 2024 witnessed a mixed performance in the stock market, marked by profit-taking in mega-cap stocks and others that excelled in 2023. This trend followed nine consecutive weeks of gains that concluded the previous year. Apple (AAPL) notably faced a significant decline, plummeting over 3.0% following a Barclays downgrade to Underweight from Equal Weight. Despite these challenges, the major indices managed to hold their ground, supported by strength in segments of the market that either missed out on last year's gains or had less robust growth compared to mega-cap stocks.

On Tuesday, the only three S&P 500 sectors that experienced declines in 2023 recorded substantial gains. The utilities sector, which saw a 10.2% drop last year, posted a 1.4% gain. Similarly, the energy sector, down 4.8% in 2023, saw a 1.2% climb, and the consumer staples sector, with a 2.2% decline in the previous year, closed with a 1.2% gain. In the Treasury market, there was some selling despite heightened geopolitical concerns in the Red Sea, triggered by Iran's deployment of a warship in response to the U.S. destroying three Houthi boats. Analyzing Tuesday's economic data, the December S&P Global US Manufacturing PMI finalized at 47.9, down from the previous 49.4. November Construction Spending stood at 0.4%, slightly below the consensus of 0.6%, with the prior figure revised to 1.2% from 0.6%. Notably, the report highlighted the strength observed in new single-family construction, which is crucial given the severe constraints in the supply of existing homes on the market.

On Wednesday, the stock market saw widespread declines, with the Russell 2000 exhibiting underperformance by dropping 2.7%. The Dow Jones Industrial Average, S&P 500, and Nasdaq Composite also experienced losses of 0.8%, 0.8%, and 1.2%, respectively. Profit-taking activities led to early selling, causing major indices to trade lower before the 2:00 p.m. ET release of the minutes from the December 12-13 FOMC meeting. The market encountered volatility in response to the minutes, ultimately settling near session lows, with the S&P 500 briefly slipping below the 4,700 level at its lowest point of the day. In discussions about the policy outlook, the committee expressed the view that the policy rate is likely at or near its peak for this tightening cycle. Despite this, the Fed clarified that it hasn't entirely ruled out the possibility of raising rates again. Following the release, there was a slight decrease in expectations for rate cuts. Almost all sectors participated in the downside moves on Wednesday. Early selling in the Treasury market began to subside before 2:00 ET, but yields reached their intraday lows after the release of the minutes. Examining Wednesday's economic data, the Weekly MBA Mortgage Applications Index showed a decline of 9.4%, following a prior decrease of 1.5%. The December ISM Manufacturing Index was 47.4%, slightly surpassing the consensus of 47.1%, with the prior figure at 46.7%. Notably, while the manufacturing sector remains in contraction, the report conveyed positive news as the Prices Index declined to 45.2% from 49.9%, indicating a further alleviation of inflation pressures. Additionally, November JOLTS reported Job Openings at 8.790 million, with the prior figure revised to 8.852 million from 8.733 million.

Thursday's trading session commenced with a positive inclination, as advancing issues dominated both the NYSE and Nasdaq, and major indices generally showed upward movements. Although buying activity was moderate, it demonstrated a broad-based trend. However, around mid-day, early buyer enthusiasm began to wane, causing the S&P 500 to hover around the 4,700 level in the afternoon. As the day progressed, a notable surge in selling, particularly in mega-cap stocks, drove the major indices to their lowest points just before the close, with the S&P 500 ultimately settling below the 4,700 mark. The Vanguard Mega Cap Growth ETF (MGK) experienced a 0.4% loss, influenced partly by Apple's (AAPL) weakness following a downgrade to Neutral from Overweight by Piper Sandler. Although other mega-cap stocks initially traded higher, they reversed course before the market close. Market participants were responsive to increasing interest rates and adjusting their expectations for rate cuts following robust data from the labor market preceding the December jobs report scheduled for Friday. Assessing Thursday's economic data, the December ADP Employment Change reported 164K (surpassing the consensus of 114K), with the prior figure revised to 101K from 103K. Weekly Initial Claims stood at 202K, below the consensus of 220K, and the Weekly Continuing Claims reported 1.855 million, with the prior figure revised to 1.886 million from 1.875 million. The notable takeaway from the report, including the ADP figure, is that the labor market remains robust, boding well for the economy despite the market's reconsideration of an aggressive rate-cut outlook. The December S&P Global US Services PMI, in its final reading, was 51.4, surpassing the prior 50.8.

On Friday, stocks and bonds experienced a somewhat erratic session, with the S&P 500 closing just below 4,700, marking a 0.2% gain. The Nasdaq Composite and Dow Jones Industrial Average registered a 0.1% gain each, while the Russell 2000 declined by 0.3%. Market participants were grappling with the implications of the December Employment Situation Report and the December ISM Services PMI. The former exceeded expectations, featuring better-than-expected nonfarm payrolls, average hourly earnings, and an unchanged unemployment rate, contrary to expectations of an increase. In contrast, the latter revealed a larger-than-expected deceleration in December service sector growth, contributing to uncertainty regarding rate-cut expectations. Following the jobs report, the 10-year yield surged to 4.09% but later dropped to 3.95% after the PMI number, settling at 4.04%, a five basis points increase from the previous day. Late in the afternoon, a decline in Apple (AAPL) shares, prompted by news of an impending antitrust case by the DOJ, weighed on major indices. Reviewing Friday's economic data, the December Nonfarm Payrolls exceeded expectations at 216K, along with positive revisions to the prior figure. The Unemployment Rate remained steady at 3.7%, and Average Hourly Earnings were up 0.4%. November Factory Orders reported 2.6%, surpassing the consensus, but excluding transportation, factory order strength was subdued. The December ISM Non-Manufacturing PMI indicated a slowdown in activity to a level just above contraction in the largest sector of the U.S. economy, potentially influencing the Fed's rate decisions.

The TSX closed at 20,934, marking a marginal 0.1% decrease for the week and a corresponding year-to-date decline of 0.1%. The Dow Jones Industrial Average concluded the week at 37,466, representing a 0.6% decrease both for the week and year-to-date. The S&P 500 Index closed at 4,697, reflecting a 1.5% decrease for both the week and the year-to-date period. The NASDAQ recorded a 3.2% decline, mirroring the weekly and year-to-date percentages. The MSCI EAFE closed at 2,203, reflecting a 1.5% decrease in both the weekly and year-to-date figures. The 10-year Treasury Yield stood at 4.04%, with a 0.2% increase for the week and year-to-date. Similarly, the 10-year GoC Yield experienced a 0.2% increase, closing at 3.26%. Oil, priced at $73.91 per barrel, showed a 3.2% increase for both the week and year-to-date. Bonds closed at $98.16, marking a 1.1% decrease for the week and a corresponding 0.8% decrease year-to-date. Lastly, Canada Investment Grade Bonds indicated a 0.9% decrease for the week and year-to-date. The Canadian/USD Exchange closed at $0.75, reflecting a 1.0% decrease for both the week and year-to-date.

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The market extended its winning streak for an eighth consecutive week as it approached the extended holiday weekend. Similar factors that had driven the significant upward momentum since late October persisted during this week. These factors included a decline in market rates, a positive economic outlook, a fear of missing out on additional gains, and an uptick in speculative trading in the absence of concerted selling activity. Notably, the Russell 2000 outperformed, climbing 2.5% for the week.

The gains were broadly distributed, with ten out of the 11 S&P 500 sectors ending the week higher. The sole sector that experienced a decline of 1.3% was the rate-sensitive utilities sector. Conversely, the communication services sector achieved the most substantial gain at +4.1%, primarily driven by significant increases in its major components, Meta Platforms (META) and Alphabet (GOOG), which rose by 5.5% and 6.6%, respectively.

Other notable sectors that performed well included the economically-sensitive energy (+1.7%) and materials (+1.1%) sectors, reflecting positive sentiment regarding the economic outlook. Micron (MU) stood out as an individual winner, surpassing expectations with better-than-expected earnings results and guidance. However, FedEx (FDX) and NIKE (NKE) faced significant losses for the week due to disappointing guidance, though the overall market showed resilience.

Economic data continued to align with a soft landing scenario for the economy. The November Personal Income and Spending report revealed a healthy 0.4% increase in real disposable personal income, a 0.3% increase in real spending, and disinflation in both the PCE and Core PCE Price Indexes. Housing starts exceeded expectations in November, consumer confidence rose in December, and initial claims remained far from recession-associated levels.

Interest in the Treasury market persisted, partly in response to economic data. The 2-year note yield settled ten basis points lower at 4.33%, while the 10-year note yield declined two basis points to 3.90% for the week. Safe-haven trading also influenced the Treasury market, prompted by geopolitical concerns, particularly attacks on vessels by Houthi militants in the Red Sea. As a reminder, markets are closed on Monday for Christmas Day.

On Monday, the S&P 500 and Nasdaq Composite extended their gains by 0.5% and 0.6%, respectively, following a seven-week winning streak. Mega-cap components contributed to the strength of these indices, while the Dow Jones Industrial Average closed flat, and the Russell 2000 experienced a slight decline of 0.1%. The market lacked strong conviction, with the absence of significant selling interest despite substantial gains since late October. Contributing factors included a flurry of M&A activity, exemplified by Nippon Steel's all-cash offer of $55.00 per share for U.S. Steel (X), and a fear of missing out on additional gains. In the Treasury market, there was modest selling activity, particularly in longer-dated tenors, partly influenced by rising oil prices at $72.82, marking a 2.0% increase. This rise followed reports of shipping companies, including BP, altering travel routes through the Red Sea due to attacks on vessels by Houthi militants. Monday's economic data was limited, with the NAHB Housing Market Index climbing to 37 in December, just below the consensus of 38.

On Tuesday, stocks continued to build on their gains, with the Dow Jones Industrial Average reaching a new record high and the S&P 500 closing only 0.6% below its prior record closing high of 4,796.56. The advance-decline line favored advancers at both the NYSE and Nasdaq, with ratios of better than 4-to-1 and nearly 2-to-1, respectively. Small-cap stocks outperformed the broader market, indicating an increase in speculative trading amid a lack of concerted selling activity. The positive market bias on Tuesday was supported by seasonality, a fear of missing out on further gains, and a drop in market rates. Factors influencing the Treasury market included the Bank of Japan's decision to maintain its policy rate at -0.10% with a negative interest rate policy. Other contributing factors were a report showing stronger-than-expected housing starts in November, an upward revision of the Atlanta Fed GDPNow model estimate for Q4 real GDP growth to 2.7% from 2.6%, and comments from Atlanta Fed President Bostic indicating no urgency to cut rates in 2024. The economic data for Tuesday revealed that November Building Permits were 1.460 million, in line with the consensus, while November Housing Starts exceeded expectations at 1.560 million. Notably, single-unit activity showed positive signs, with a robust 18.0% increase for starts and a more modest 0.7% increase for permits, providing encouraging indications for a housing market constrained by low inventory of existing homes for sale.

On Wednesday, the trading dynamics shifted significantly compared to the early session, with the Russell 2000 reaching a 0.9% increase at its peak, the S&P 500 showing a 0.2% gain at its highest point, and the Nasdaq Composite experiencing a 0.4% rise at its intraday high. However, an unexpected afternoon reversal without a specific news catalyst led to a downturn. Some attributed the retreat to trading activity in zero-day options, while others pointed to a general profit-taking trend, considering the major indices were overdue for a pullback after their substantial run since late October. During the afternoon decline, major indices experienced losses ranging from 1.3% to 1.9%, with the S&P 500 closing just below the 4,700 level, still up 14.1% from its low close on October 27. Various factors contributed to the retreat, including a 1.6% drop in the industrial sector, influenced in part by a significant loss in FedEx following disappointing FY24 revenue guidance. Geopolitical concerns on Wednesday, particularly the U.S. and its allies contemplating strikes against Houthi rebels in Yemen, contributed to buying interest in Treasuries. Wednesday's economic data encompassed the Weekly MBA Mortgage Applications Index, showing a 1.5% decline, the Q3 Current Account Balance at -$200.3 billion, and December Consumer Confidence at 110.7, surpassing the consensus. Additionally, November Existing Home Sales were reported at 3.82 million, indicating continued constraints due to high mortgage rates, selling prices, and limited inventory, with the recent drop in mortgage rates expected to drive stronger sales in December.

On Thursday, the stock market rebounded following a late-session slide on Wednesday. The Dow Jones Industrial Average rose 0.9%, the S&P 500 climbed 1.0%, the Nasdaq Composite jumped 1.3%, and the Russell 2000 gained 1.7%. The buying activity, especially in the last 30 minutes of trading, propelled major indices near their daily highs. The broad-based buying included notable strength in semiconductor stocks, supported by better-than-expected results and guidance from Micron. Thursday's positive momentum was also influenced by a continued willingness to buy on weakness, economic data aligning with the soft landing narrative, and a decline in oil prices related to Angola leaving OPEC, potentially reducing OPEC's control over production levels. Economic data on Thursday included a November Leading Economic Index decline of 0.5%, initial jobless claims increasing by 2,000 to 205,000, continuing jobless claims decreasing by 1,000 to 1.865 million, the third estimate for Q3 real GDP at a revised lower but still substantial 4.9%, and the December Philadelphia Fed Index at -10.5, indicative of contraction but with rising future activity indicators suggesting widespread expectations for overall growth in the next six months.

On Friday, the trading session exhibited an overall positive atmosphere in a lightly traded environment ahead of the extended holiday weekend. Advancing issues outpaced declining issues with a roughly 2-to-1 lead at both the NYSE and Nasdaq. Market participants focused on economic releases, mostly aligning with the soft landing narrative. The prominent event was the November Personal Income and Spending report, revealing a healthy 0.4% increase in real disposable personal income, a 0.3% rise in real spending, and disinflation in both the PCE and Core PCE Price Indexes. Throughout most of the session, the three major indices maintained modest gains; however, a brief downturn occurred a little after 2:00 p.m. ET, bringing the indices below Thursday's closing levels. This momentary dip lacked a specific news catalyst to explain the activity. The Dow Jones Industrial Average underperformed, partly due to a substantial 11.8% decline in NIKE following disappointing fiscal Q2 earnings and guidance. M&A activity featured prominently with Bristol-Myers acquiring Karuna Therapeutics for $330.00 per share in cash, representing a 47.7% premium over Thursday's closing price for KRTX. Reviewing Friday's economic data, the Personal Income report showed a 0.4% month-over-month increase, while Personal Spending was up 0.2%. The PCE Price Index declined 0.1%, bringing the year-over-year change to 2.6%, and the core PCE Price Index increased 0.1%, resulting in a year-over-year change of 3.2%. Durable goods orders surged 5.4% month-over-month in November, with nondefense capital goods orders excluding transportation up 0.8%, signaling a positive trend in business spending. The final reading for the University of Michigan Consumer Sentiment Index for December came in at 69.7, showing an increase from November and a recovery from declines in previous months. New home sales decreased by 12.2% month-over-month in November, reflecting a notable slump in activity, particularly in the South, attributed to supply constraints for lower-priced homes and affordability challenges posed by high mortgage rates and prices relative to existing homes.

The financial market indices for the week closed with the TSX at 20,880, reflecting a 1.7% increase, and year-to-date (YTD) growth of 7.7%. The Dow Jones Industrial Average closed at 37,386, marking a 0.2% weekly gain and a YTD growth of 12.8%. The S&P 500 Index ended the week at 4,755, showing a 0.8% increase, contributing to a YTD growth of 23.8%. The NASDAQ closed at 14,993, experiencing a 1.2% weekly gain and demonstrating a substantial YTD growth of 43.2%. The MSCI EAFE* index reached 2,204, reflecting a 0.5% weekly increase and a YTD growth of 13.4%. The 10-year Treasury Yield remained at 3.90% with no weekly change or YTD growth. The 10-year GoC Yield closed at 3.22%, indicating a 0.1% weekly increase but a slight YTD decrease of -0.1%. Oil prices per barrel stood at $73.55, showcasing a 3.0% weekly increase while revealing an 8.4% decline YTD. Bonds closed at $98.88, with a marginal 0.2% weekly gain and a YTD growth of 5.2%. Canada Investment Grade Bonds* experienced a -0.1% weekly change and a YTD growth of 6.1%. The Canadian/USD Exchange rate closed at $0.75, reflecting a 0.8% weekly increase and a YTD growth of 2.1%.