Market Recap: U.S. and Canada

Things looked strong out of the gate this week, and stocks pushed higher in the early sessions. Then, things shifted. That early momentum faded quickly, and markets slid for three straight days as investors reacted to rising geopolitical tensions tied to energy markets. By the end of the week, the cautious tone had erased the early gains and left the major indices in negative territory.

From a returns perspective, the Nasdaq 100 was the best of the worst, ending the week down -1.06%, followed by the S&P 500 at -1.60%, the TSX at -1.61%, and the Dow Jones coming in last, down almost 2%.

Major Economic Stories This Week

Canada’s Labour Market Loses Momentum

Canada’s economy lost 84,000 jobs in February, marking one of the weakest labour reports in years outside of the pandemic.

The unemployment rate rose to 6.7%, while job losses were concentrated in cyclical sectors including wholesale and retail trade, construction, and manufacturing. Youth unemployment climbed to 14.1%, again shining a light on the challenges younger Canadians continue to face. The participation rate slipped slightly to 64.9%; so fewer Canadians were working or actively searching for jobs. Meanwhile, average hourly wages increased 3.9% year-over-year, suggesting wage growth remains relatively firm even as hiring slows.

• Employment fell by 18,000 in wholesale and retail trade

• Construction sector employment declined by 12,000 positions

• Manufacturing payrolls dropped by roughly 9,200 jobs

• Average hourly wages reached $37.56 nationwide

U.S. Inflation Pressures Persist

New consumer price data for February showed inflation rose 2.4%, and remains present across several parts of the U.S. economy.

Shelter costs rose 3.0% year-over-year, maintaining the same pace as January and continuing to significantly contribute to overall inflation. Other major spending categories also recorded notable increases, including medical care (+3.4%), household furnishings and operations (+3.9%), recreation (+2.3%), and personal care (+4.5%). On a monthly basis, core consumer prices rose 0.2%, slowing slightly from the 0.3% increase recorded in January. For the most part, the data broadly matched market expectations.

• Inflation report showed core prices rising 0.2% monthly

• Previous month recorded a slightly faster 0.3% increase

• Personal care prices increased 4.5% year over year

• Recreation costs climbed 2.3% over the past year

Core PCE Inflation Remains Elevated

The core PCE price index, the Federal Reserve’s preferred inflation gauge, rose 0.4% month-over-month in January, matching the pace seen in December and marking the fastest increase in roughly ten months.

On an annual basis, the index climbed 3.1%, remaining well above the Federal Reserve’s 2% inflation target. Core PCE is closely monitored by policymakers because it captures a broader range of consumer spending behaviour and tends to provide a clearer picture of underlying inflation trends. Persistent strength in the index suggests inflation progress may be slowing, and that will complicate the timing of future interest rate cuts.

• Previous month also recorded a 0.4% monthly increase

• Core inflation accelerated from 3.0% the month prior

• Federal Reserve inflation target remains 2% annually

• Reading represents the highest annual pace in nearly two years

TOP INSIGHTS

The Canadian Labour Market May Finally Be Cracking

There’s always lots to think about as new economic data comes out, and this week is no exception. When we look at Canada’s latest employment report, we see a break in a pattern we’ve seen for most of the past year. Canada’s labour market has been gradually cooling, but this report showed something different. A drop of this size suggests that the slowdown may no longer be gradual. When we see job losses in cyclical sectors like retail, construction, and manufacturing at the same time, it often points to a broader slowdown in economic activity.

Another thing to pay attention to is how little job growth Canada has actually produced over the past year. Population growth has been strong, and yet employment hasn’t kept pace. That’s one reason the unemployment rate has been drifting higher. This means the job market could start to feel more competitive for the everyday household, especially for younger workers trying to get their first foothold.

Here’s what I’m watching. If weakness shows up in a second or third consecutive report, the Bank of Canada may have to reconsider its policy stance. The combination of a softening labour market and slower economic growth could quickly shift the conversation from rate stability to potential rate cuts.

Inflation Is Cooling, But Not Comfortably

The latest U.S. inflation data reinforces a theme we’ve seen for months now. Prices are no longer rising as quickly as they were during the peak inflation years, but the progress toward central bank targets has slowed. The biggest issue is that inflation isn’t concentrated in just a few volatile categories, but rather, price increases are spread across everyday services that households use regularly.

Why does this matter? It matters because services inflation tends to be much stickier. Shelter, healthcare, and personal services don’t adjust as quickly as the prices of goods. This is why many people still feel like inflation is high even if the overall rate has come down from its peak. Everyday expenses simply aren’t falling.

For investors, this creates a tricky situation. Interest rate cuts would be great, but persistent services inflation gives central banks a reason to wait. The longer inflation remains above target, the longer policymakers may feel pressure to keep rates higher.

The Fed’s Inflation Problem Isn’t Going Away

Core PCE is one of those economic indicators that doesn’t always grab headlines, but the team at the Federal Reserve watch it very closely. The reason is simple. It tends to give a clearer picture of underlying inflation trends than many other measures. When that index starts moving higher again, like we saw last month, it signals that inflation progress may be stalling.

You’ll notice that in the latest report monthly pace hasn’t slowed. Two consecutive readings at the same elevated level suggest inflation isn’t cooling as quickly as policymakers hoped earlier this year. Just like with the Bank of Canada, that complicates the path forward for the Federal Reserve, especially at a time when markets are expecting rate cuts.

TOP STORY
Canada’s Job Market Takes A Hit

• 84,000 jobs lost in February, surprising economists and markets

• Unemployment rate climbed to 6.7% nationwide

• Youth unemployment rose sharply to 14.1%

• Wage growth continued at a steady 3.9% pace

I had to start this week’s coverage with the fact that Canada’s labour market delivered one of its weakest reports in years as the economy shed 84,000 jobs in February. The drop caught economists off guard, as the consensus was pointing to modest job gains. Job losses were concentrated in wholesale and retail trade, construction, and manufacturing, suggesting that the slowdown is hitting economically sensitive sectors first. Youth workers were particularly affected, with unemployment among those aged 15–24 rising further. Wage growth remained relatively firm, but economists say the broader trend is concerning after nearly a year of minimal job growth.

A Weak Start To The Year

Economists described the report as a troubling signal for the economy. The loss of full-time private-sector jobs stood out in particular, as these roles typically drive stronger wage growth and consumer spending. Several analysts noted the labour market appears to be losing momentum after holding up relatively well through much of the past year.

What It Means For Interest Rates

The big takeaway is that this report will probably influence the Bank of Canada’s next policy decision. With the unemployment rate rising and job growth stalled over the past year, some economists believe the central bank may now feel more pressure to consider rate cuts if weakness continues.

Learn more here.

Economic data released this week raised new questions about the direction of Canada’s labour market, especially after a surprisingly weak jobs report. If hiring momentum is fading, Bank of Canada policymakers may soon face difficult decisions about interest rates and economic support.

I’d love for you to weigh in with your thoughts on this week’s poll question. I’ll print the top comments in next week’s edition.

LAST WEEK’S POLL RESULTS

In last week’s poll, I asked how long you think oil prices will stay elevated. Most readers expect higher prices to persist for a while, with 56% saying months, while 24% think prices could stay high for over a year and 20% expect the spike to last only weeks. Thanks to everyone who voted.

TOP COMMENTS

Answered Months

"I won't even pretend to understand the global oil market, but I went with 'months'... Why months? I think the tensions in the Middle East won't subside anytime soon, but also think Iran's neighbors will eventually pressure Iran's new leaders to stop threatening attacks on ships passing through the Straight of Hormuz." — callawayguy

"oil companies will keep prices up as long as possible. maybe elevated prices will be the new normal." — mrrobpog

"Some of the refineries are very close to having to shut down, if this happens it will affect the global supply for years. " — kellyo2515

INTERNATIONAL TRADE
Trump Expands Trade Investigations

• U.S. launches new trade investigations targeting roughly 60 countries

• Canada included in probe under Section 301 trade law

• Investigation could lead to new tariffs on foreign goods

• Move comes ahead of upcoming CUSMA trade review

If you thought the recent SCOTUS tariff ruling would take things back to normal, you thought wrong. In its latest norm-busting move, the Trump administration has expanded its trade investigations to roughly 60 countries, including Canada, as it looks for new ways to impose tariffs after a key legal setback. Officials say the investigations will examine whether foreign governments are using policies that unfairly restrict U.S. commerce, potentially opening the door to new tariffs if violations are found.

Long-Standing Trade Frictions

At this point, it’s not clear exactly what policies the investigation will target in Canada, though U.S. officials have repeatedly criticized Canada’s dairy supply management system and provincial alcohol restrictions. The probe also comes as North America prepares for a mandatory review of the CUSMA trade agreement.

Trade Uncertainty Returns

The investigation could add new uncertainty to the Canada-U.S. trade relationship just as negotiations around the trade pact begin to take shape. If tariffs are ultimately imposed, it will affect key industries and cross-border supply chains.

Read the full story here.

AVIATION SECTOR
Airlines Feel The Fuel Price Shock

• Jet fuel prices spiked following Middle East conflict

• Oil prices jumped roughly 40% in recent weeks

• Airlines relying on hedging strategies to manage costs

• Ticket prices already rising on some routes

Canadian airlines are scrambling to manage soaring fuel costs after a sharp rise in oil prices linked to conflict in the Middle East. The disruption has pushed jet fuel prices sharply higher, and that has forced airlines to balance hedging strategies with fare increases. Fuel is the largest operating expense for airlines, making sudden price spikes particularly difficult to absorb. Companies such as Air Canada and Transat hedge part of their fuel purchases to smooth volatility, but analysts say sustained price increases could still lead to sharply higher operating costs.

Limited Tools To Manage Fuel Spikes

As mentioned, airlines can use hedging contracts, inventory management, and pricing adjustments to cope with higher fuel costs. That said, none of these are silver bullets, and only offer temporary relief, especially when fuel prices rise quickly. Airlines can’t raise prices on tickets already sold and they still have to compete with other carriers when adjusting fares.

Passengers May Feel The Impact

Higher fuel costs are already translating into higher ticket prices on some routes, especially in peak travel periods. If oil prices remain elevated, airlines may continue raising fares or trimming capacity in certain markets. So, take your pick. Bad news or bad news. The choice is yours.

Read the full story here.

LEGAL
Judge Blocks Federal Reserve Investigation

• U.S. judge halts Justice Department probe into Federal Reserve

• Court finds “no evidence” supporting criminal investigation

• Fed chair accused White House of political pressure

• Ruling intensifies debate over central bank independence

A U.S. federal judge has blocked the Justice Department from pursuing an investigation into the Federal Reserve, and has sided with central bank officials who argued the probe was politically motivated. The case centered on subpoenas seeking documents about cost overruns tied to renovations at the Fed’s headquarters. Judge James Boasberg ruled prosecutors failed to provide evidence suggesting criminal wrongdoing and concluded the investigation appeared aimed at pressuring Fed Chair Jerome Powell.

Concerns Over Political Influence
The dispute has raised concerns about political interference in central bank policy. Powell had warned earlier that the investigation could be an attempt to pressure the Federal Reserve into lowering interest rates.

Implications For Fed Leadership
The ruling may complicate efforts by the White House to install a new Fed chair when Powell’s term ends later this year. The Justice Department has said it plans to appeal the decision.

Full story here.

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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