The Week in Review

Weekly Market Recap: U.S. and Canada

Meh, Meh, What the *#@…!!??

Monday and Tuesday came and went this week without much fanfare. Then, the much anticipated Fed rate decision dropped Wednesday, and after throwing the markets into a tizzy, investors got their nerves calmed down and it was all good from there. (Check out my YouTube video from Wednesday, which covers this in more detail.)

At the end of the week, the Dow Jones led the way with a 1.62% gain, the Nasdaq was up 1.42%, the S&P 500 rose 1.36% and the TSX gained 1.25%

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

TSX Returns | Week At-a-Glance

Major Economic Stories This Week

The biggest economic stories of the week were no doubt the US Federal Reserve’s interest rate decision and the news that inflation in Canada has now fallen to the target 2.0% range.

Here’s what happened:

US Federal Reserve Cuts Interest Rates by 50bps

The Federal Reserve made a notable cut September, lowering the federal funds rate by 50bps to 4.75%-5%. (More on this story below.)

This is the first reduction since 2020, and Fed Chairman Jerome Powell indicated that more cuts are on the way as inflation projections are revised downward.

• Fed cut rates by 50bps, now at 4.75%-5%.

• Forecasts for two more 25bps cuts by the end of 2024.

• PCE inflation revised to 2.3% for 2024 and 2.1% for 2025.

• GDP growth estimate lowered to 2% for 2024.

Canada's Inflation Hits 2%, Lowest Since February 2021

Canada’s inflation rate slowed to 2% in August, aligning with the Bank of Canada’s target for the first time in three years.

This cooling trend is largely due to falling gasoline prices and continued drops in clothing and footwear costs.

• Annual inflation rate decreased to 2%.

• Gasoline prices dropped by 5.1%.

• Shelter costs rose 5.3%, slightly down from July.

• Core inflation at its lowest level in 40 months.

U.S. Existing Home Sales Fall by 2.5%

US existing home sales dropped by 2.5% in August, continuing a downward trend.

This decline occurred even though we saw lower mortgage rates, with the net result being a decrease in the median home sales price. Housing inventory rose slightly, a sure sign of a cooling market.

• Existing home sales fell to 3.86 million (annualized rate).

• Median home price decreased by $10,200 to $416,900.

• Inventory increased to 3.9 months of sales.

Key Takeaways From this Week’s Economic News

Canada's Inflation Hits Target

The fact that Canada's inflation rate hit 2% is big news, as it means inflation has finally returned to the central bank’s target after three years. The sharp drop in gasoline prices was a big factor, but the broader cooling across categories like clothing and core inflation also contributed. If this trend continues, it could give the Bank of Canada some extra room for flexibility as they ponder the next rate decision.

US Federal Reserve Cuts Interest Rates

The Fed’s 50bps rate cut is a significant move, as it reflects a shift toward easing monetary policy after years of aggressive tightening. This suggests the central bank sees enough progress on inflation to begin stimulating the economy again. It also points to a cautious outlook on growth, as the Fed predicts more cuts in the coming months. The ripple effect on global financial markets will likely be substantial, as cheaper borrowing costs could boost investment and spending but may also signal concerns about a slowing economy.

US Existing Home Sales Drop for Fourth Time in 2024

The drop in US home sales, despite falling mortgage rates, is a clear sign that the housing market remains under pressure. Rising inventory levels show that homes are sitting on the market longer, possibly due to affordability concerns as prices, though lower, are still high for many buyers. This cooling trend could eventually help stabilize prices, but it’s clear the housing market is still grappling with the fallout from earlier interest rate hikes. It wouldn’t shock me that buyers might settle into a bit of a holding pattern and wait for deeper price drops or more favorable financing conditions before jumping back in.

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

Comments of the Week

✅ Yes

“As much as I agree with fair negotiation and unions so people can have a living wage, certain functions should be forced back to work with mediation. Probably not a popular opinion, but we can't shut down critical services like rail, air, education, garbage pick up, health care. There should be a way to force arbitration so it doesn't drag on for years either, as that would be fair to workers.” - syoungconsultinginc

“If parties are unable to come to an agreement, then a balanced arbitration is necessary. The economic impact and impact on travelling public is far too great. Arbitration can not favour one party at all, but must be balanced and fair looking a total compensation packages. Gov’t intervention, is sometimes very necessary in certain critical industries. - rcbent

“Only when the strike will place an unacceptable burden on the economy or citizens. No one group should be allowed to harm the economy or citizens. The same holds for corporations/companies. The government is not here to cover for them.” - entender1012

❌ No

“What is the point of collective bargaining if workers keep getting legislated back to work. Bringing an industry to standstill is a negotiation tactic. Which would behoove the organization to negotiate quickly as opposed to these long drawn collective bargaining sessions that really only the worker looses in.” - cuciureanp

“Unions form in order to negotiate better working conditions and benefits. If the right to strike and negotiate is taken away, what is left? Forced working conditions? Gains in unionized workplaces set the tone, salary and benefits of non-unionized workplaces. Unions fight for the rights of all workers, whether Canadians believe it or not.” - chrism86

INTEREST RATES & THE ECONOMY
Fed’s Half-Point Cut Catches Investors “Off-Guard”?

• Fed delivers ‘unexpected’ half-point rate cut.

• Investors were split on predicting the Fed's move.

• Economic data prompted officials to consider a larger cut.

• Future rate decisions will depend on evolving economic data.

I’ve heard a ton about the Federal Reserve’s 50 basis point rate cut this week being a surprise, and that it caught investors off guard.  I’m not sure why, because literally on September 17^th, the day before the announcements, the odds were 64% in favor of this cut (as opposed to a 25bps cut), according to the FedWatch Tool.

No doubt that leading up to the meeting, market expectations were divided, with quite a few (36%) predicting a more typical quarter-point cut (I was in that camp) but how this could have caught anyone ‘off-guard’ is a mystery to me.

In breaking down the announcement, it’s clear the shift in sentiment came after key economic reports, including a cooling inflation rate and slowing wholesale prices, influenced the Fed’s decision.

Internal Debate and Market Reactions

Fed Chair Jerome Powell acknowledged that officials “left the size of the rate cut open” until the last minute. Even with the eventual decision in the books, one Fed official, Michelle Bowman, dissented, advocating for a smaller cut. She expressed concerns that the half-point cut might “unnecessarily stoke demand” and be seen as prematurely declaring victory on inflation.

Looking Ahead: Uncertainty Continues

So where do we go now? The September rate cut is behind them, but future decisions remain unpredictable. Fed Governor Christopher Waller indicated that upcoming moves will hinge on economic data. The debate between quarter- or half-point cuts, or even pausing, aren’t going anywhere as officials monitor inflation and labor market trends.

The next decision will come on November 7^th. As of today, the odds are 48.6% in favour of a further 25 basis point cut, with 51.4% predicting another 50bps cut. The only thing we know for sure is that these odds will change with every new data point that comes out between now and then. Of that, I am 100% certain.

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BANKING
TD Bank CEO Bharat Masrani to Retire, Raymond Chun Named Successor 

• Bharat Masrani retires as CEO of TD Bank on April 10, 2025.

• Raymond Chun, current Group Head, Canadian Personal Banking, will succeed him.

• Chun has 32 years of experience with TD, known for leadership and strategic success.

• Senior executive changes effective November 1, 2024, to support the transition.

TD Bank announced this week that CEO Bharat Masrani will retire in April 2025, capping off a 38-year career. Raymond Chun, also a TD veteran, will step in as Group President and CEO, following a smooth transition starting November 1, 2024, when he will take over as Chief Operating Officer. Masrani will continue as an advisor to the bank until October 2025.

Chun’s Proven Leadership and Future Vision

Over his 32 years with TD, Raymond Chun has held numerous leadership roles, including President of TD Direct Investing and CEO of TD Insurance. He has a reputation for building high-performing teams and is expected to guide TD into its next chapter.

Senior Leadership Changes Announced

Alongside Chun’s transition, TD will see key executive shifts in November, with Tim Wiggan taking over TD Securities and Sona Mehta leading Canadian Personal Banking. These changes hope to facilitate a seamless transition as the bank works its way through the current ongoing challenges.

COMMUNICATIONS
Rogers to Buy Bell's Stake in MLSE for $4.7B

• Rogers will acquire Bell's 37.5% MLSE stake.

• Bell sells its share to reduce debt and refocus.

• Rogers will own 75% of MLSE post-deal.

• Bell retains media rights for Leafs and Raptors.

Rogers Communications has announced plans to purchase Bell Canada’s 37.5% stake in Maple Leaf Sports & Entertainment (MLSE) for $4.7 billion. This deal, expected to close in mid-2025, will give Rogers a 75% majority ownership in MLSE, which owns the Toronto Maple Leafs, Raptors, Toronto FC, and other sports teams. Rogers and Bell have co-owned a 75% stake in MLSE since 2012.

Bell Sells Stake to Reduce Debt

If you’ve been following BCE stock over the past few years you’ll know that the company has been struggling, with a growing debt load being one of its notable problems. With this sale, Bell is planning to reduce debt and shift focus from telecommunications to tech. For you sports fans out there, as part of the deal Bell has secured a long-term media rights deal with Rogers, ensuring 50% access to Leafs and Raptors games controlled by MLSE.

Rogers' Bigger Role in Canadian Sports

With this deal, Rogers CEO Tony Staffieri emphasized the importance of maintaining Canadian ownership of these iconic teams. Rogers is expected to leverage its increased control to bring more value to its shareholders, with speculation that they may significantly invest in team development.

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CORPORATE LEADERSHIP
Nike CEO John Donahoe Steps Down, Elliott Hill to Lead

• John Donahoe retires as Nike CEO in October 2024.

• Elliott Hill, Nike veteran, returns to replace Donahoe.

• Nike's stock rose 8% after the announcement.

• Hill aims to restore Nike’s culture and innovation.

John Donahoe will step down as Nike’s CEO on October 13, 2024, with company veteran Elliott Hill coming out of retirement to succeed him. As part of the transition, Donahoe, who has led Nike since January 2020, will stay on as an advisor until January 2025. As so often happens when a key leadership change is announced, Nike’s shares jumped 8% on the news, a relief from the roughly 20% drop in share price so far this year, including a one-day drop of around 20% in June.

Challenges and Transition

Donahoe’s tenure saw mixed results. He did help grow Nike’s annual sales from $39.1 billion to $51.4 billion, but critics argue that the shift to direct-to-consumer sales hurt innovation and cost Nike key market share. Donahoe acknowledged Nike's over-reliance on e-commerce, which led to a restructuring plan to save $2 billion and refocus on core areas like running and the Jordan brand.

Elliott Hill's Vision for the Future

Hill, a 32-year Nike veteran, expressed excitement about coming out of retirement and returning to the Nike family.

Known for his deep connection to Nike's culture, Hill aims to rebuild morale and innovation, with a focus on delivering bold, market-leading products.

OTHER NEWS FROM THE PAST WEEK

J&J Subsidiary Files Bankruptcy for $8B Settlement

A Johnson & Johnson subsidiary filed for bankruptcy to advance an $8 billion settlement, aiming to resolve 62,000 lawsuits alleging that its talc products, including baby powder, caused cancer.

Elon Musk didn’t show up for testimony in a probe over his $44 billion Twitter takeover. Now the SEC wants sanctions | CNN Business

Elon Musk faces possible sanctions after failing to testify in an SEC probe regarding his $44 billion Twitter acquisition. The SEC claims Musk skipped the scheduled testimony without proper notice.

July Retail Sales Rise, Analysts Urge Rate Cuts

Canadian retail sales grew 0.9% in July, hitting $66.4 billion, driven by stronger car sales. However, analysts suggest more interest rate cuts are needed to boost long-term consumer spending.

Bank of Canada Pauses Plans for Digital Loonie

After years of research, the Bank of Canada has shelved plans for a digital Canadian dollar. Although initially considered to maintain financial stability, the bank is now focusing on evolving payment systems.

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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