The Week in Review

Weekly Market Recap: U.S. and Canada

Crazy week for the major markets, with a ton of downward pressure midweek and a decent recovery attempt on Friday. Investor sentiment remained cautious related to growing concerns over monetary policy and inflation concerns.

As for performance, the Nasdaq 100 and Dow Jones each fell 2.25%, while the S&P 500 dropped 1.99%. The TSX was the weakest performer, sliding 2.62%.

S&P 500 Returns | Week At-a-Glance

TSX Returns | Week At-a-Glance

Major Economic Stories

This week’s economic releases centered around inflation updates in Canada and the U.S., and central bank policy adjustments. Canada’s inflation rate eased slightly but core inflation remained elevated. Meanwhile, the Federal Reserve announced a widely expected rate cut, with updated projections signaling fewer reductions in 2025 than previously anticipated.

Here’s how it all played out:

Canada Headline Inflation Eases

Canada’s annual inflation rate slowed to 1.9% in November, coming in below expectations of 2%.

Notably though, core inflation did remain stubbornly high, and the Bank of Canada will have to remain cautious as it contemplates future rate cuts.

• Gasoline prices fell modestly (-0.5%), driving higher transportation costs.

• Shelter inflation eased to 4.6%, with lower mortgage costs.

• Food inflation slowed to 2.8%, reflecting easing grocery prices.

• Month-over-month, CPI was flat.

Fed Cuts Rates, Signals Fewer in 2025

The Federal Reserve reduced rates by 25bps, taking borrowing costs to 4.25%-4.5%.

The Fed also adjusted its GDP and inflation forecasts upward, a vote of confidence of the resilience in the U.S. economy.

• GDP growth revised up to 2.5% for 2024.

• Core PCE inflation forecast raised to 2.8% for 2024.

• Unemployment expected to remain steady at 4.3% for 2026.

• Only two rate cuts expected in 2025, down from four.

Core PCE Inflation Stays at 2.8%

U.S. core PCE inflation held steady at 2.8% in November, coming in under expectations of an increase.

Month-over-month, prices rose by just 0.1%, the slowest gain in six months.

• Core inflation stayed at 2.8% annually, against expectations of 2.9%.

• Monthly core PCE increase slowed to 0.1%.

• Headline inflation also decelerated from October levels.

• Energy prices weighed on broader inflation trends.

Key Takeaways From this Week’s Economic News

Canada’s Inflation: Balancing Risks

Canada’s inflation rate slowing to 1.9% might seem like good news to many, but the persistently high core inflation at 2.7% paints a more nuanced picture. I’m fully onboard with the Bank of Canada taking a cautious approach, because if it trims rates too aggressively it could risk reignite inflation pressures. Another key part of the release is that while shelter costs did ease slightly, at this point at least it’s probably not going to solve the ongoing affordability crisis in housing.

Fed’s Policy Signals Economic Resilience

The key takeaway of the Federal Reserve’s rate cut in December is the reminder of the delicate balance between fostering growth and containing inflation. What’s notable is the upward revision to GDP and inflation forecasts for 2024 and 2025. Clearly the Fed is confident in the economy’s ability to withstand higher borrowing costs, though the reduced scope for rate cuts in 2025 does suggest inflationary pressures are still a concern.

Core PCE: A Breather, Not a Break

The slowdown in U.S. core PCE inflation to a 0.1% monthly increase gives some breathing room to the Fed. That said, the annual rate holding steady at 2.8% are a sure reminder that inflationary pressures aren’t gone. I’m probably sounding like a broken record, but this is top of my mind. With consumer spending remaining resilient and labor markets tight, the Fed has its work cut out for it in 2025.

THIS WEEK’S POLL QUESTION
(Results in Next Week’s Newsletter)

Considering the Federal Reserve has lowered it’s forecast and reduced expected rate cuts in 2025 to only two, what do you believe is the driving force behind this decision? They certainly don’t want to reignite inflation, but at the same time they want to keep the economy strong.

Answer this week’s poll question and don’t forget to share your thoughts.

LAST WEEK’S POLL RESULTS

As you’re reading this, you probably know already that the postal carriers are back on the job, delivering packages and Christmas letters. But it came as a result of the government intervention I asked about last week. It was a decisive vote in favour of the government stepping in.

Comments of the Week

👍Yes

“Union has to acknowledge that Canada Post operating massive deficit. Wage suppression in private sector ginormous as we try to sustain the bloated public sector.” - Catherine

“Both sides have had more then enough time to negotiate and can’t agree, so now it’s Canadians who are paying the price of the lack of progress so it’s time to end.” - realtymediaservices

“Our economy is in rough shape. We don't need more disruption affecting our fragile economy, suck it up and get back to work.” - eccodog

👎 No

“Canada Post has been acting in bad faith and mistreating its workers because they knew any strike wouldn’t last long, as the federal government has a vested interest to force them back to work. The workers are negotiating from a position of weakness where their only bargaining chip is being undermined by the government.” - viokguliani

“It seems like an industry under pressure from the Gig economy.” - mrrobpog

THE ECONOMY

Bank of Canada Warns of Uncertainty  

• BoC signals caution in monetary policy shifts.

• Inflationary pressures remain despite headline improvements.

• Core inflation stays elevated at 2.7%.

• Economic growth projections revised slightly downward.

The Bank of Canada’s latest report painted a mixed picture of the economy. While headline inflation slowed to 1.9%, core inflation remained elevated at 2.7%, and this highlights the persistent price pressures we’re seeing in key sectors. The Bank also hinted at ongoing uncertainty, adding a new layer of complication to its outlook.

Policy Challenges Mount 

One of the BoC’s biggest challenges is balancing inflation control with economic growth. Housing costs eased slightly, thanks to declining mortgage rates and energy prices showed signs of stabilizing, which should limit further deflationary pressures. Meanwhile, softer inflation in food and shelter should offer some relief, even though it won’t be enough to offset broader risks.

Economic Outlook

Globally, we’re seeing slowing exports and ongoing geopolitical risks. Unless the Bank is able to verify some decisive improvements in inflation or growth metrics, it will probably have to remain in a holding pattern.

Read the Full Story here.

IN PARTNERSHIP WITH BMO ETFS
Brandon’s Investing Evolution

If you missed it, Brandon sat down with Erin Allen from BMO Exchange Traded Funds for chat around the transformation of his investment portfolio. Making a big splash, Brandon recently reallocated his portfolio into exchange traded funds.

Here were the highlights:

• Brandon’s “Aha!” Moments: Family, changing priorities, and time constraints lead him to his new strategy.

• ETF Allocation Strategies: Would going from a managed portfolio of individual securities to an all-in-one solution be a weight off your shoulders?

• Brandon’s Tips: Investing globally, diversify, save time, and let ETFs do the heavy lifting.  

Whether you’re new to ETFs or a seasoned investor, this interview is packed with insights to consider for your investment portfolio.

Will Brandon add more stocks in his portfolio down the road?
Watch the full interview here  to find out!

POLITICS
Freeland Resigns as Canada Faces Fiscal Deficit    

• Chrystia Freeland resigns as Finance Minister.

• Calls for Trudeau’s resignation intensify.

• Canada reports $62B federal deficit for 2024.

• New Finance Minister appointed amid fiscal concerns.

One of the biggest stories of the week was Canada’s Finance Minister Chrystia Freeland announcing her resignation, citing personal reasons, though the timing has raised questions. Her stunning resignation comes amidst mounting criticism over the Liberal government’s economic management, as the country reported a $62 billion federal deficit for 2024. Freeland’s departure has added fuel to calls for Prime Minister Trudeau to step down, particularly from opposition leaders.

Fiscal Challenges Ahead

I know it’s a massive understatement, but the new Finance Minister, Dominic LeBlanc, inherits a challenging economic backdrop. Fiscal deficits are widening, and inflation concerns are persisting, so finding a way to restore credibility with voters and financial markets will be critical. The government’s spending priorities, especially on infrastructure and social programs, are expected to come under increased scrutiny.

Political Fallout

Freeland’s resignation has shifted political dynamics into high gear, and as expected opposition leaders have amplified critiques of Trudeau’s leadership. There’s also plenty of evidence of internal pressures growing within the Liberal Party, and the jury is out on whether the government can rebuild confidence ahead of the next election.

Read the Full Story here.

POLITICS AND THE ECONOMY
Fed, Powell, and Trump Shake Markets   

• Trump criticizes Powell's monetary policy approach. 

• Markets react to Fed’s revised projections. 

• Fed raises GDP forecasts, inflation remains high. 

• Market volatility increases on geopolitical tensions. 

The Federal Reserve announced a 25bps rate cut this week, as expected, bringing borrowing costs to the 4.25%-4.5% range. The markets seemed to be caught off guard though, by the Fed’s updated projections, which ‘signaled’ a slower pace of rate cuts in 2025 than previously expected. Adding fuel to the fire, President-elect Trump criticized Chair Jerome Powell, saying his policies were overly restrictive and out of touch.

Market and Policy Impacts

Much to Trump’s delight, I’m sure, his comments added uncertainty to an already fragile market sentiment, with investors worried about political interference in central bank independence.

For our regular readers, you might remember that our weekly poll question back in August was “Do you agree with Donald Trump's suggestion that the US president should have a say in Federal Reserve interest rate decisions?”, and the result was as resounding 94% saying no.

Powell defended the Fed’s most recent decision, highlighting the resilience of the economy, as evidenced by upward GDP revisions for 2024 and 2025. He did, however, accept inflation’s stubbornness as a factor limiting further monetary easing.

Broader Concerns

Geopolitical issues continue to add to the tension, with trade policies and economic uncertainty increasing market volatility. The Fed’s balancing act remains critical, but Powell’s independence will be tested as political pressures grow. I’m sure the markets will remain jittery as the Fed navigates these headwinds and challenges into the new year.

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OTHER NEWS FROM THE PAST WEEK

BCE Must Slash Dividend to Stage Turnaround, Scotia Says
BCE may face tough decisions as analysts suggest a dividend cut to redirect capital toward its struggling business. A reallocation could improve growth prospects but risks alienating income-focused investors.

BMO Upgrades TD Due to Stock’s Steep Discount
Bank of Montreal analysts upgraded TD Bank, citing its valuation as too attractive to ignore. With other banks trading at premiums, TD’s steep discount presents an opportunity amid sector-wide uncertainty.

RBC Cuts Canadian Telecoms Price Targets, Declaring 2025 Comeback Unlikely
RBC analysts lowered price targets for Canadian telecom stocks, signaling doubts about a sector recovery in 2025. Weak fundamentals and competitive pressures weigh on near-term prospects despite long-term optimism.

Canada’s Anti-Money Laundering Agency Plans Scorecard to Improve Monitoring
Canada’s anti-money laundering agency aims to implement a scorecard to enhance regulatory oversight. The initiative seeks to address persistent gaps in monitoring and enforcement, particularly in high-risk sectors like real estate and cryptocurrency.

2024: A Blowout Year for Diversified Investors
Diversified investors enjoyed robust returns in 2024, with equities, bonds, and commodities contributing to gains. Experts highlight that balanced portfolios reduced volatility and provided strong risk-adjusted performance in a volatile economic year.

Why Dating May Look Radically Different in 5 Years
Emerging technologies like AI and virtual reality could transform the dating world. Experts predict profound changes in how people meet, connect, and maintain relationships, fueled by tech-driven matchmaking and new social norms.

Market Movers

Top 10 Weekly Gainers

Top 10 Weekly Losers

10 Most Overbought Stocks

10 Most Oversold Stocks

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.
📉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.

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