Fed Might Delay Rate Cuts on Stronger than Expected U.S. Jobs Reports

Lower than expected unemployment in the U.S. might push the first Fed fund rate back later into the year.

The Week in Review

It was a fairly rocky week in the markets, with the major markets fluctuating quite a bit on the news of a number of economic indicators and policymakers’ commentary.

One of the biggest takeaways of the week was the anticipation that the US Federal Reserve might delay initial rate cuts into the latter half of the year and this led to a drop off more than one percent in the major indices on Thursday, with a slight recovery on Friday that still resulted in a weekly declines in the US markets. North of the border, the TSX eked out a small gain of just under 1/2%.

Week Ending April 5, 2024

There was lots of jobs related news out this week. In the labor market, the U.S. saw a March gains with 303,000 jobs added, outpacing economists' expectations and marking the largest increase in 10 months. We’ll talk more about the U.S. jobs picture in a following post.

The strong job growth led to a decrease in the unemployment rate to 3.8%.

Here in Canada, the unemployment rate jumped to 6.1% in March, up from 5.8% in the earlier month, and now at the highest level since October of 2021. Expectations were a rate of 5.9%. More coverage in a post below.

In other news this week:

🪙🛢️ Commodities like oil and gold continued their upward price trend, with U.S. crude oil nearing $87 per barrel and gold prices hitting a record high of around $2,345 per ounce.

📈 Market volatility also spiked, with the Cboe Volatility Index reaching its highest closing level in over five months before slightly retreating. This surge in volatility reflects investors' growing concerns over the economic outlook, especially in light of strong U.S. economic readings that raised doubts about the Federal Reserve's timeline for rate cuts.

Overall, investors remain keenly focused on central bank moves, especially the Fed's approach to interest rates in response to surprising economic resilience and inflation trends. Despite the challenges, there's optimism that economic and corporate earnings growth could support a bullish market outlook, albeit with potential hiccups along the way.

In this Edition of The Pulse:

  • Canada Unemployment Rate Jumps

  • U.S. Posts Strong Jobs and Unemployment Numbers

  • Disney Wins Proxy Battle with Nelson Peltz

  • Ford Changes EV Strategy

  • Microsoft Forced to Unbundle Teams from O365

  • RBC CFO Ousted Following Employment Ethics Breach

  • Market Movers | Winners & Losers

(Results in Next Week’s Newsletter)

The proxy battle Disney went through with activist investor Nelson Peltz inspires this week’s poll question. Some people sing the praises of this type of investor who go into underperforming companies and shakes things up, while other see them as disruptive and counterproductive. What do you think? Share your opinion in this week’s poll question.

Are activist investors like Nelson Peltz a positive or negative influence on the companies they try to shake up?

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S&P 500 Weekly Overview

Week ending April 5, 2024 | Market Cap >$100B

S&P TSX Weekly Overview

Week ending April 5, 2024 | Market Cap >$5B


The Relative Strength Indicator (RSI) can provide a signal that suggest a stock is either overbought or oversold. A stock that has an RSI over 70 is considered to be in “overbought” territory. This might suggest that the stock is due for a pullback, however it is not a recommendation to sell. Always perform your own due diligence.

Week ending April 5, 2024 | Most Overbought Stocks, based on 14-Day RSI


A stock that is trading with an RSI below 30 is considered to be in “oversold” territory. This might suggest that the stock is due for a recovery, however it is not a recommendation to buy. Always perform your own due diligence.

Week ending April 5, 2024 | Most Oversold Stocks, based on 14-Day RSI

Canadian Unemployment Jumps

Canada's labor market saw a surprising downturn in March, with the unemployment rate climbing to 6.1%, the highest it's been in more than two years. Statistics Canada reported a net loss of 2,200 jobs, sharply below the expected creation of 25,000 jobs.

The difference was mainly due to an increase in the number of people either searching for work or on temporary layoff.

The reaction to Canada's labor market report was swift among traders, leading to speculation that the Bank of Canada might cut interest rates soon, possibly as early as June, but more likely in July.

This speculation is grounded in the recent labor market performance, which includes six consecutive months of declining employment rates and challenges in generating jobs for a record influx of immigrants. Despite the central bank maintaining the overnight lending rate at 5%, the expectation of rate cuts has grown due to these labor market struggles, hinting at a softer economic outlook.

"Despite the current overnight lending rate holding at 5%, the labor market's struggles suggest a weakening economic outlook."

Bank of Canada

When you dig into the details, it’s notable that a significant number of job losses were reported in key sectors such as accommodation and food services, and wholesale and retail trade, leading to a 0.3% decrease in total hours worked across the economy.

As a spin-off effect, this downturn will probably have a negative impact on Canada's gross domestic product, which had previously shown strong gains.

Finally on this topic, the average hourly wages in Canada have risen by 5.1% over the past year, complicating the Bank of Canada's efforts to rein in inflation, which has eased to 2.8% from a mid-2022 peak but remains above the target.

High Yielding ETF Strategies Require Investor Due Diligence

The popularity of income investing, and covered call strategies, has exploded. There are now hundreds of ETFs listed in Canada which offer options strategies in the form of income focused ETFs.

Investors should conduct their due diligence before jumping into these types of investments to ensure they will satisfy their investment objectives.

Sacrificing Growth for Income: A Fine Balance

High yielding ETFs will usually sacrifice tomorrow’s portfolio growth for cash flow earned today.

Because of this growth and cash flow trade-off, when you consider historical returns, ETFs with covered call overlays usually underperform long only strategies over time. For the investor that needed the monthly cash flows, this trade-off would make sense for their investment objectives. However, for an investor who was more focused on growth, they may be better off in the long only version.

Moneyness Matters: Understanding the Call Option Process

When you’re investing in an ETF with an options strategy, you should understand how the call options are being written. Out-of-the-money (OTM) call options set strike prices above current market prices, which means the stocks must grow to a certain threshold before being called away (sold). The further OTM the options are written; the more potential growth is available to the investor. At-the-money (ATM) call options set strike prices very close to the current market price which gives little opportunity for growth to the investor. Understanding the underlying options strategy of the ETF will ensure you know what your outcome will look like when it comes to growth potential and income.

BMO ETFs has over ten years of proficiency enhancing income with the first covered call ETF launch in 2011, ZWB. They are the largest Covered Call ETF Provider in Canada by AUM and in terms of number of products1. With a wide range of dividend-based solutions built to balance growth and income, such as the BMO Canadian High Dividend Covered Call ETF (ZWC) and sector focused covered call ETFs (like our BMO Covered Call Utilities ETF (ZWU) they have the tools an investor needs to enhance the annualized distribution yields on their portfolio.

1Source: Bloomberg, Feb 29, 2024 
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U.S. Jobs Numbers Strong

The U.S. labour market showed strong performance in March, beating expectations with job growth and consistent wage increases and possibly changing the Federal Reserve's timeline for anticipated interest rate cuts.

The unemployment rate dipped to 3.8% from 3.9%, thanks to a strong rebound in household employment which absorbed the increase in the labour force. This period now marks the longest stretch of unemployment below 4% since the late 1960s, highlighting the U.S. economy's resilience despite the Federal Reserve's aggressive rate hikes aimed at controlling inflation.

"While the favourable supply-side developments are consistent with (Fed Chair Jerome) Powell’s benign view of the outlook, the apparent absence of any cracks developing on the demand side should lessen the urgency to ease policy."

Michael Feroli, chief U.S. economist at JPMorgan in New York

The labour market's strength was obvious with the addition of 303,000 jobs last month, with job gains averaging 276,000 per month in the first quarter, outpacing the previous quarter.

And it wasn’t just one or two sectors showing strength. The diversity of job growth across industries, with significant contributions from healthcare, government, construction, and leisure and hospitality, underscores the economy's broad-based growth.

Wage growth maintained a steady pace, rising 0.3% in March, with a year-on-year increase of 4.1%, suggesting moderation towards the Fed's inflation target.

That said, the labour market's strong demand, coupled with an increase in labour supply through immigration, presents a nuanced picture of the economic landscape. This balance between job creation and wage pressure is crucial for the Fed's rate decision strategy, particularly in light of the next inflation data.

When you look at this data from different angles, the resilience of the U.S. labour market, buoyed by immigration and sectoral growth, paints a promising picture of economic stability and growth potential, despite the complex dynamics of inflation and interest rate policies.

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Disney Wins Battle with Peltz

Disney was back in the news this week, as the company fended off an attempt by activist investor Nelson Peltz to join its board, with shareholders showing strong support for the current leadership under CEO Bob Iger during the annual meeting. This comes on the heels of the recent truce Disney struck with Florida Governor Ron DeSantis, reported in this newsletter last week.

This outcome, which wasn’t a sure thing, represents confidence in Iger's vision for the company, but it also sets the stage for Disney to tackle several critical challenges in the year ahead. Shareholders expect Iger to make significant progress in areas like turning Disney's streaming services profitable, defining ESPN’s digital future, achieving box-office success, and setting a clear succession plan.

One of Iger's main focuses will be on making Disney's streaming services, including Disney+, Hulu, and ESPN+, profitable by the end of this fiscal year.

"What they have to do next is fix the streaming losses. They still need to cut costs on the streaming side to get to profitability."

Laura Martin, Needham & Co. analyst

This goal is part of a broader strategy initiated five years ago when Disney decided to invest heavily in the streaming sector, despite the inherent challenges and costs. The company is also looking to redefine ESPN's position in a rapidly changing media landscape, transitioning from traditional cable packages to a digital-first approach, potentially complicating consumer choices with its array of offerings.

The box office presents another area for improvement, as Disney aims to recover from a series of underperforming releases. The hiring of David Greenbaum as president of Walt Disney Motion Picture Studios is a strategic move to rejuvenate Disney's film production, with the company seeking to replicate the success of past blockbusters.

Despite the defeat of shareholders’ votes, activist investor Nelson Peltz kept up a brave face, and said that as long as Disney does what it has promised, he’ll be happy.

"I hope Bob can keep his promises. I hope they can do all the things they assured us they were going to do. I’ll watch and wait. If they do it, they won’t hear from me again."

Nelson Peltz, Trian Partners

Perhaps the most pressing and longstanding issue is identifying a suitable successor to Bob Iger. Having delayed his retirement multiple times and even returning as CEO after his successor's tenure fell short, Iger faces the task of finding someone capable of steering Disney through its next chapter.

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Major Changes at Ford

Ford has announced it will be revising its electric vehicle (EV) strategy, delaying the introduction of a new all-electric large SUV and a pickup truck to focus more on expanding its hybrid vehicle offerings across its North American lineup by 2030.

This move is a reflection of the broader automotive industry's cautious approach towards EV adoption, which has been slower than anticipated, and the high costs associated with producing these vehicles.

“As the No. 2 EV brand in the U.S. for the past two years, we are committed to scaling a profitable EV business, using capital wisely and bringing to market the right gas, hybrid, and fully electric vehicles at the right time.”

Ford CEO Jim Farley

Initially planned for 2025, the production of the three-row electric SUV at Ford’s Oakville Assembly Plant in Ontario, Canada, is now rescheduled for 2027. As well, the launch of the next-generation pickup, codenamed “T3,” has been postponed from late 2025 to 2026.

These decisions are part of Ford's response to the current market dynamics, including slower EV adoption rates and the financial challenges of manufacturing EVs at a profit. Despite these delays, Ford remains committed to its EV initiatives, as evidenced by its significant investments in new production facilities and battery plants.

The transition to a hybrid-focused lineup by 2030 doesn’t mean Ford is stepping back from its electric ambitions. Instead, the company is taking a pragmatic approach by allowing more time for the market for three-row EVs to mature and to leverage advancements in battery technology that could offer consumers improved durability and value.

“The additional time will allow for the consumer market for three-row EVs to further develop and enable Ford to take advantage of emerging battery technology, with the goal to provide customers increased durability and better value.”

Ford Statement

Despite the EV business unit’s significant losses in 2023, Ford’s overall vehicle sales show a promising trend, with electric vehicle sales increasing by 86% and hybrid sales by 42% in the first quarter compared to the previous year.

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Microsoft O365 Teams Unbundling

Microsoft has announced a significant change in how it will sell its popular chat and video application, Teams, by offering it separately from its Office suite globally.

This decision comes after Microsoft initially unbundled these products in Europe to avoid potential antitrust fines from the European Union.

The move is a response to an ongoing investigation, sparked by a complaint from Salesforce-owned Slack, by the European Commission into Microsoft's practice of combining Office and Teams, a strategy that began in 2017. The complaint argued that Microsoft's bundling of these services provided an unfair market advantage.

“To ensure clarity for our customers, we are extending the steps we took last year to unbundle Teams from M365 and O365 in the European Economic Area and Switzerland to customers globally.”

Microsoft spokesperson

Starting April 1, Microsoft will introduce a new lineup of Microsoft 365 and Office 365 suites without Teams for regions outside the European Economic Area and Switzerland. Additionally, a new standalone Teams offering will be available for Enterprise customers.

Despite these changes, Microsoft may still face EU antitrust charges in the coming months, as rivals have criticized the fees for the standalone products and the interoperability of their messaging services with Office Web Applications.

With a history of 2.2 billion euros in EU antitrust fines over the past decade for similar practices, Microsoft could risk a fine up to 10% of its global annual turnover if found guilty of antitrust breaches once again.

RBC CFO Out After Ethics Breach

The Royal Bank has made headlines by terminating its Chief Financial Officer, Nadine Ahn, following an investigation that unveiled Ahn was involved in a personal relationship with another employee, leading to allegations of preferential treatment regarding promotion and compensation.

“The investigation found evidence that, in contravention of the RBC Code of Conduct, Ms. Ahn was in an undisclosed close personal relationship with another employee which led to preferential treatment of the employee including promotion and compensation increases.”

RBC Statement

Ahn's dismissal is particularly notable given her stature within the bank and the broader financial community. Appointed CFO in 2021, Ahn had over two decades of experience at RBC and was recognized for her leadership and advocacy for the advancement of women in finance.

RBC has assured its stakeholders that this situation has not impacted the bank's financial statements, strategic direction, or its performance. This is an important clarification, especially following the recent closure and integration of RBC’s monumental $13.5-billion acquisition of HSBC Bank Canada.

In the interim, Katherine Gibson, a seasoned executive with more than twenty years at RBC, steps into the CFO role. Her experience and reputation as a trusted advisor within the bank are expected to provide stability and continuity as RBC seeks a permanent replacement for Ahn.

“Ms. Gibson is ‘widely considered a trusted advisor with a strong analytical and governance mindset.’”

RBC Statement

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Market Movers

Top 10 Weekly Gainers

TSX, NYSE & Nasdaq Exchanges | Market Cap >$10B | Week ending April 5, 2024

Top 10 Weekly Losers

TSX, NYSE & Nasdaq Exchanges | Market Cap >$10B | Week ending April 5, 2024

1  BMO ETF Disclaimer:

This content is intended for information purposes only. This content has been prepared by Beavis Wealth and represents its assessment at the time of publication. Beavis Wealth is compensated under this arrangement by BMO Exchange Traded Funds. The content contained herein does not necessarily represent the views of BMO Global Asset Management. The views expressed herein by Beavis Wealth are subject to change without notice. The content contained herein is not, and should not be construed as, investment advice to any party. Any securities described herein must be evaluated relative to the individual’s investment objectives and risk tolerance, and professional advice should be obtained with respect to the individual’s particular circumstances.

The views expressed herein by Beavis Wealth regarding a particular company, security, industry, or market sector should not be considered as an indication of trading intent of any investment funds managed by BMO Global Asset Management. Any reference to a particular company is for illustrative purposes only and should not be considered as investment advice or a recommendation to buy or sell nor should it be considered as an indication of how the portfolio of any investment fund managed by BMO Global Asset Management is or will be invested. This social media network is an independent organization and is not affiliated with BMO Global Asset Management.

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