The Week in Review

Weekly Market Recap: U.S. and Canada

It was another solid week in the markets, with all major indices posting decent gains. The Dow Jones led the way, followed by the S&P 500 and TSX, while the Nasdaq trailed slightly. Trading activity picked up after a quiet start to the week, as U.S. markets were closed Monday for the presidential inauguration. Overall, sentiment remained positive, and investors continued to bet on economic resilience and potential rate cuts.

Looking at the numbers, the Dow Jones was the top gainer, rising 1.69%. The TSX followed with a 1.32% increase, while the S&P 500 climbed 1.16%. The Nasdaq 100 lagged slightly but still managed a 0.92% gain for the week.

Major Economic Stories

Canadian economic data showed mixed results. Headline inflation continued its downward trend, staying below the Bank of Canada’s target for the fifth consecutive month, but core inflation ticked higher. Meanwhile, retail sales were flat in November, but early estimates suggest a strong December rebound.

Let’s take a closer look.

Canada’s Inflation Slows

Canada’s inflation rate eased to 1.8% in December, remaining below the Bank of Canada’s 2% target.

Inflation is now at its lowest since September, which reinforces rate-cut expectations. A sharp drop in food prices helped offset rising gasoline costs.

• Headline inflation fell to 1.8%, down from 1.9% in November.

• Food inflation dropped sharply to 0.6%, aided by GST/HST tax breaks.

• Shelter inflation remained high at 4.5%, though rent price growth softened.

• Gasoline inflation rebounded, pushing transportation inflation up to 2.3%.

• Read the Full Release

• Watch my full YouTube Report

Canada’s Core Inflation Rises

Core inflation, which excludes volatile items, increased to a six-month high in December, also coming in at 1.8%. 

In contrast lower headline inflation, core prices rose, showing that there are still some underlying price pressures. Monthly declines in core goods were offset by rising service costs.

• Core inflation rose to 1.8%, up from 1.6% in November.

• Monthly core prices fell by 0.3%, continuing a downward trend.

• Rising service costs contributed to the increase, despite easing goods inflation.

• The trend suggests inflation may still be sticky in key sectors.

• See all measures of Core Inflation

Retail Sales Flat in November, December Rebound Expected

Canadian retail sales stagnated in November, but early data suggests a strong December.

Retail sales remained unchanged in November, as weaker grocery spending offset auto sales growth. The good news? A 1.6% jump is expected for December, which would be the largest gain in two years.

• Retail sales held steady at $67.6 billion in November.

• Early estimates point to a 1.6% jump in December.

• Motor vehicle sales rose 2%, while grocery sales fell 1.5%.

• Core retail sales (excluding autos and fuel) declined 1%.

• Read the full Retail Trade Report

• I covered this in more detail on my YouTube Report

Key Takeaways From this Week’s Economic News

Inflation Below Target: Will Bank of Canada Cuts Continue?

For the fifth straight month, inflation has remained within or below the Bank of Canada’s 2% target, and that will no doubt reinforce expectations of further rate cuts. The key driver of December’s decline was a steep drop in food inflation, helped by the temporary GST/HST tax holiday. Lower inflation is good news for consumers, but the Bank of Canada will need to assess whether this trend is sustainable.

One thing to note is that inflation isn’t easing across the board. Shelter costs, particularly rent and mortgage interest, are still elevated. This presents a challenge: while inflation appears under control, affordability issues persist. If price pressures in key categories continue, the central bank will need to balance supporting growth with avoiding a resurgence in inflation.

Core Inflation Edges Higher: A Warning Sign?

While headline inflation cooled, core inflation, which excludes volatile components like food and energy, ticked up to 1.8%, its highest level in six months. This suggests that underlying price pressures haven’t disappeared entirely. It’s nice to see the monthly drop in core prices, but the rise in service costs tells me that inflation in non-volatile sectors could be stickier than expected.

And yes, the new data throw a bit of a wrench into the Bank of Canada’s decision-making. If core inflation continues to rise, it could delay aggressive rate cuts. Investors betting on a rapid easing cycle might need to adjust their expectations if the central bank prioritizes inflation stability over growth support.

Retail Sales: Strong December or Just a One-Time Boost?

November’s flat retail sales weren’t great news, but the estimated 1.6% jump in December suggests that consumers came back strong. The late timing of Black Friday and the start of the GST/HST holiday likely pushed spending into December, which flattened November and boosted December’s numbers. If this holds, it would be the largest monthly increase in retail sales in two years.

The question is whether this strength will last. Once the temporary tax break ends in February, consumer spending could soften again. Lower interest rates should help support demand in 2025, but the real uncertainty in trade could pose challenges. If spending slows again after this seasonal boost, it could reinforce the case for further rate cuts.

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

I’m going back-to-back with the Poll question this week. More of our readers believe the markets are overvalued (see last week’s results), but does that mean you’d change your investment strategies? I’m very curious to hear whether your take on market valuations might affect your decision making.

Weigh in on week’s poll question and don’t forget to share your thoughts!

LAST WEEK’S POLL RESULTS

Last week I asked whether you agree or disagree with Picton Mahoney’s current take on market valuations, and 70% of you said yes, you do. So… that being the case, how might that affect your investment decisions? Let us know by voting on this week’s poll question.

Comments of the Week

👎No

“If you look at what companies are earning, it justifies the value.” - storierod

👍Yes

“I agree with Picton Mahoney that we're in a 'growing equity bubble mostly concentrated in U.S. large-caps'. No idea if this will result in a crash, but I'm more confident saying International equities, especially Emerging Markets, will outperform U.S. Large Caps over the next 5-10 years.  I admittedly might be biased as I've never been more bearish on the America I live in than I am right now.  I understand that's likely an unpopular opinion with many and I'm perfectly OK with that...” - callawayguy

“I don't want to be a Negative Nelly, but call me cautiously optimistic.  We are just at the bounce, and we can slip off the path easily.  With the major changes of a new administration, Canada without a government (prorogued) it is time for common sense and try our best to bring stability with looming tariff challenges.” - aelaan

“Following trillions of dollars of liquidity being put in the market during the pandemic I feel the valuations are uncomfortably high relevant to historic performance.  This may be a result of all the liquidity and while spending has been fuelling the good earnings reports, I am of the opinion these good earnings reports are a quarter or two from turning ugly.” - realtymediaservices

THE BANK OF CANADA

Bank of Canada’s Next Move: Cut Rates or Play It Safe?

• Inflation is cooling, dropping to 1.8% in December.

• The Bank of Canada has already cut rates by 175 basis points.

• Trump’s proposed tariffs on Canadian goods add a wildcard.

• Markets are betting on another rate cut on Jan. 29.

The Bank of Canada is at a crossroads, and honestly, with so many conflicting signals we’re seeing these days, I’m glad I’m not having to make their decisions. Inflation has been easing, which usually signals more rate cuts ahead. But after five consecutive cuts in 2024, some experts are saying the central bank should slow down a bit. And with President Trump throwing tariffs into the mix, things have become a lot more complicated.

Trump’s Trade War: Another Canadian Headache 

Trump’s threat of a 25% tariff on Canadian imports is exactly the kind of uncertainty the economy doesn’t need right now. Prime Minister Trudeau is already talking about retaliatory tariffs, while Industry Minister François-Philippe Champagne says Canada needs to get "offensive" on trade. That’s all well and good, but if a trade war kicks off, inflation could spike again, and that would throw the Bank’s plans right out the window.

So, What’s the BoC Going to Do?

Experts are sharing conflicting points of view on this dilemma.

Scotiabank’s Derek Holt is firmly in the "hold rates steady" camp. He says he’d hold off on further cuts at this moment.

But the markets aren’t convinced. Reuters reports an 81% chance of another cut. BMO’s Sadiq Adatia expects one, too, arguing that inflation is stabilizing, so why not?Personally, I think the Bank will go for a small cut just to keep everyone happy. Either way, Jan. 29 is going to be an interesting day for the Canadian economy.

Read the Full Story here.

COMMERCE AND THE LAW

Retail Theft Is Out of Control, And It’s Getting Violent

• Canadian retailers lost $9.1 billion to theft in 2024.

• Almost half of thefts involved violence against staff or customers.

• Criminal networks are stealing and reselling goods online.

• Retailers are spending big on security - but at what cost?

Don’t you miss theft like it was in the good old days, when shoplifters would slip a candy bar into their pocket? Today, we’re seeing full-on, coordinated crime rings stealing thousands of dollars’ worth of stuff in one go. And it’s not just high-end electronics or fragrances; thieves are making off with everyday items like vitamins, meat, and even butter (yes, butter). The worst part? These thefts are getting more aggressive, and are now putting workers and customers at risk.

Crime Is Getting More Brazen

Retailers are sounding the alarm: theft has almost doubled since 2018, and 45% of incidents now involve violence. Employees are being shoved, threatened with weapons, and even attacked.

Darrell Jones, president of Pattison Food Group, says things are getting really bad.

It’s scary stuff, and it’s clear that this isn’t just petty crime. It’s organized and intentional.

Are We Paying the Price?

To fight back, stores are locking up more products, hiring security, and even testing body cameras for their guards. But all these extra measures cost money, and at the end of the day, those costs will get passed on to us, the customers. London Drugs’ Tony Hunt warns that higher prices might be inevitable if theft keeps climbing. He says that in the past five years, London Drugs Ltd. has increased its security guard staff to around 200 guards.

Honestly, I understand that businesses need to protect themselves. But walking into a store that feels like a fortress? I’m not a huge fan of shopping in the first place, but that scenario isn’t exactly the shopping experience anyone wants.

Read the Full Story here.

CANADA POST

Canada Post Gets a $1B Bailout, But Then What?

• The federal government is lending Canada Post $1 billion.

• The postal service has lost $3 billion since 2018.

• Competition and shrinking mail volumes are killing revenue.

• A major overhaul is needed - but what will that look like?

Canada Post is getting a $1 billion lifeline from the government, but in all honesty, it’s like putting a Band-Aid on a sinking ship. The postal service has been bleeding money for years, and this loan just buys it a bit more time. Since 2018, Canada Post has racked up $3 billion in losses, and is struggling to stay relevant in a world where fewer people send letters and private couriers have come to dominate the parcel game.

Why Is Canada Post Failing?

It’s a classic case of an old business model not keeping up with the times. Mail volume has plummeted as more people go digital. BUT, you might say, parcel delivery should be booming, right? Well, it is, but the problem is that Canada Post is competing with giants like Amazon and FedEx, and it’s losing - badly. On top of that, high labour costs and outdated regulations aren’t helping. The company has already raised stamp prices by 25%, but that’s not nearly enough to fix the bigger issues.

What’s Next?

The government says it’s working on a long-term plan for Canada Post. But heck if I can figure out what that actually means. Will we see another price hike? A full restructuring? Privatization maybe? Whatever happens, this loan won’t last forever. If Canada Post doesn’t figure things out soon, we’ll probably be having this same conversation in a couple of years, and I can assure you it won’t be a cheaper solution..

Read the Full Story here.

TRADE & TARIFFS
A Hat Went Viral and Exposed a Big Problem

• A "Canada Is Not for Sale" hat went viral.

• The high price sparked debate over local manufacturing.

• Canadian businesses struggle to compete with overseas factories.

• Reshoring manufacturing isn’t easy, but is it possible?

It all started with a hat. A simple baseball cap with the words "Canada Is Not for Sale" blew up online, and it seems to have struck a patriotic nerve. All good. But then people saw the price tag, (apparently between $45 and $55; I haven’t bought one) and suddenly, the conversation shifted. Why is it so expensive? Why can’t we make things in Canada for a reasonable price? Turns out, this little hat just exposed a much bigger issue; manufacturing in Canada is ridiculously expensive.

The Real Cost of "Made in Canada"

Everyone loves the idea of supporting local businesses, but when push comes to shove, price wins. Labour costs, materials, and government regulations make it almost impossible for small businesses to compete with cheap overseas production.

"It’s not that we don’t want to make things here," says one entrepreneur. "It’s that we can’t afford to." And honestly, I don’t blame them - why would a business choose to manufacture locally if it means pricing themselves out of the market?

Can We Bring Manufacturing Back?

Some experts say reshoring Canadian manufacturing is possible, but it would take major policy changes and investment in automation to make it work. Until then, we’ll keep seeing companies outsource production, even while consumers demand more "Made in Canada" products. It’s a tough cycle to break, and sadly, I don’t see it changing anytime soon. So, while the "Canada Is Not for Sale" hat makes a great statement, the reality is that our manufacturing industry kind of is.

Read the Full Story Here.

OTHER NEWS FROM THE PAST WEEK

Kraft Heinz’s Ketchup Dilemma: Canada vs. U.S.
Kraft Heinz is caught in a branding battle after shifting ketchup production back to Canada. But will shoppers forgive the company’s past decision to move jobs to the U.S.?

AstraZeneca Invests $820 Million in Canada
Pharma giant AstraZeneca is betting big on Canada with a massive investment in research and production. Could this move help boost Canada’s biotech industry?

Where ETF Investors Should Look in 2025
With market volatility expected to continue, BMO analysts highlight the best ETF strategies for 2025. Should investors go defensive or double down on growth?

TD’s Top Anti-Money Laundering Executive Leaves
TD Bank’s head of anti-money laundering compliance is out after just one year. The sudden departure raises questions about the bank’s internal challenges.

Jamie Dimon on Trump’s Trade Policies
JPMorgan Chase CEO Jamie Dimon weighs in on Trump’s trade stance, warning that tariffs could create economic uncertainty. Could businesses brace for a rough ride?

Are Markets Ignoring Inflation Risks?
Markets are rallying, but some experts warn that inflation could make a comeback. Is this the calm before the storm for investors?

Market Movers

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

TSX Returns | Week At-a-Glance

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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