The Week in Review

Weekly Market Recap: U.S. and Canada

Summer is coming to a close, but you might want to slather on some suntan lotion before you look at this week’s charts, ‘cause there’s a lot of bright red on your screen!

Friday’s drop in the major indices closed out a rocky week for the equity markets. The S&P 500 registered its worst week since March 2023, and the Nasdaq dropped the most since 2022. After all the dust had settled, the Nasdaq was down 5.80%, the S&P 500 down 4.2%, the Dow Jones fell 2.8% and the TSX, joining in with its U.S. peers, ended the week down 2.41%

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

TSX Returns | Week At-a-Glance

Major Economic Stories This Week

The biggest influence on the equity volatility this week stems from a slew of economic news, largely jobs related. Here’s a look at the major economic news of the week.

Bank of Canada Cuts Interest Rate by 25bps to 4.25%

In its September 2024 meeting, the Bank of Canada lowered its key interest rate by 25 basis points to 4.25%, its third consecutive cut.

The bank cited persistent excess supply in the economy, which is pressuring inflation downward, as a key reason for the move. However, concerns remain over inflation in shelter and services, as well as the risk of undershooting the inflation target.

• Third consecutive 25bps rate cut

• Key interest rate now at 4.25%

• Wage growth remains high despite a cooling labor market 

Canada Unemployment Rate Rises to 6.6%

Canada's unemployment rate increased to 6.6% in August , higher than expected, and the highest level since October 2021.

Even though we saw an increase in employment numbers, wage growth cooled to 4.9%, and the core working-age group saw notable job losses, further signs of a weakening labor market. 

• Unemployment rate rose to 6.6%

• 60,400 more unemployed people

• Net employment increased by 22,100

• Wage growth fell to 4.9%

US ISM Manufacturing PMI at 47.2

The ISM Manufacturing PMI edged up slightly to 47.2 in August but continued to reflect a contraction in U.S. manufacturing activity, marking the 21st consecutive month of decline.

Declines in new orders and production were significant, while rising costs posed a challenge for the Federal Reserve’s efforts to curb inflation.

• Manufacturing PMI at 47.2, 21st straight contraction

• New orders fell for the third consecutive month

• Employment in manufacturing fell for the 3rd month

• Prices increased, defying inflation expectations

US Job Openings Fall to 7.673 Million

Job openings in the U.S. dropped to 7.673 million in July, the lowest since January 2021.

Sectors such as healthcare, state and local government, and transportation saw significant declines, while professional and business services saw an increase in job availability. Overall, hiring and separations remained relatively steady.

•  Job openings dropped by 237,000

• Largest declines in healthcare and government sectors

• Slight increase in professional and business services openings

• Quits fell to lowest since September 2020

US Economy Adds 142K Jobs

The U.S. economy added 142,000 jobs in August, with the largest gains in construction and healthcare.

That said, job growth was lower than expected, continuing the trend of slowing employment. Notably, manufacturing saw a material decline in employment, particularly in durable goods industries.

• 142,000 jobs added, lower than forecasts

• Construction added 34,000 jobs

• Manufacturing lost 24,000 jobs

• July jobs figure revised lower to 89,000

US Unemployment Rate Falls to 4.2%

In the rare positive news this week, the U.S. unemployment rate eased slightly to 4.2% in August , which was in line with market expectations.

The number of unemployed individuals remained steady, while temporary layoffs decreased by 190,000. Long-term unemployment continued to account for over 21% of the total unemployed population.

• Unemployment rate fell to 4.2%

• Number of unemployed people remained at 7.1 million

• Temporary layoffs decreased by 190,000

• Long-term unemployment remained at 1.5 million

Key Takeaways From this Week’s Economic News

Bank of Canada Cuts Rates Again

This third consecutive rate cut shows that the Bank of Canada remains very focused on keeping inflation in check and supporting the slowing economy. So far they’ve managed to lower inflation somewhat, but there are lingering concerns around housing and certain services being too expensive. Cutting rates could help give the economy a bit of breathing room, but there’s still the risk that inflation could remain stubborn in key areas like shelter. If wage growth keeps outpacing productivity, the bank might also face pressure to change course quickly. 

Canada's Unemployment Hits 6.6%

A rising unemployment rate is always a bit of a red flag, especially when it hits levels we haven’t seen since 2021. Despite a slight increase in employment, the softer labor market could be a sign of tough times ahead for workers, and the slowing wage growth could cool consumer spending which, of course, isn’t great for the economy. The fact that employment for core working-age people dropped significantly adds to concerns, as they’re a big driver of productivity and economic growth. 

US Manufacturing PMI Stays in Contraction

Even though the ISM Manufacturing PMI ticked up slightly, the fact that it’s still deep in contraction territory means U.S. manufacturing is having a rough time. This reflects how higher interest rates from the Federal Reserve have weighed down on factory activity, and the ongoing drop in new orders just adds to the bleak outlook. With rising production costs, it’s also clear that inflation remains an issue, making it hard for the Fed to fully ease up on its rate-hiking cycle.

Global Labor Market Cooling and Interest Rate Challenges

Both Canada and the U.S. are seeing a softening in their labour markets, which is quickly becoming a central theme for economic performance. Canada’s unemployment rate hit a multi-year high, while the U.S. labor market added fewer jobs than expected. While the Bank of Canada continues to cut rates to fight economic slack and avoid overtightening, inflation remains a nagging concern, especially in services and housing. In the U.S., weaker manufacturing and reduced job openings suggest businesses are feeling the effects of tight monetary policy, while wage pressures linger.

If you look at this from a high level view, we’re seeing a broader global trend where central banks are walking a tightrope: trying to ease financial conditions without reigniting inflation. For consumers and businesses, this means ongoing uncertainty. Even though interest rates are being cut or held steady in some cases, inflation concerns—especially in critical areas like housing—could continue limiting economic growth.

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

Comments of the Week

✅ Nvidia Will Stay Ahead

“Can’t predict the future, the quarter was better than I had expected and AI is the future. Nvidia will be involved in that future.” - eccodog

❌ Competitors Will Catch Up

“I expect Nvidia's dominance will continue for a while, but I don't see them sitting atop the AI heap all by themselves forever... What they've done to date is beyond phenomenal tho'. ” - callawayguy

“AI is still early days, the chip industry now might be a bit like the car industry in the 1950’s. lots of players, lots of room, lots of innovation.” - mrrobpog

JOBS
U.S. Labour Market Weakening

• U.S. labor market softens but isn't collapsing.

• S&P 500 and TSX show market pullbacks.

• Fed and BoC expected to cut rates.

• Market corrections likely, but growth outlook remains positive.

Last week's focus was on the U.S. labor market, especially the nonfarm jobs report for August. The report showed that while unemployment dropped slightly (from 4.3% to 4.2%), job growth slowed, with new job figures and revisions signaling a softening trend. Manufacturing saw notable job losses, while services sectors, though still growing, also slowed. However, the unemployment rate remains well below long-term averages, and current job numbers align with pre-pandemic trends, which still gives hope that there is no immediate risk of a recession. Depending on who you ask, this remains up for debate.

Markets React Defensively

As we saw earlier in this newsletter, September is off to a rough start. Investors are shifting towards defensive sectors like consumer staples and utilities. Bond yields also declined, reflecting weaker economic data and expectations of rate cuts by central banks. Direction affecting our Canadian markets, oil prices hit yearly lows, led by concerns over global demand, particularly in China.

Rate Cuts on the Horizon

Both the U.S. Federal Reserve and the Bank of Canada are expected to cut rates to support the economy. The Fed is likely to begin its rate-cutting cycle this month, possibly reducing rates by 0.25% or even 0.50% (more on this below), depending on market conditions. The BoC, has already reduced rates three times this year, and is expected to continue cutting, with two more cuts expected before year-end.

All this news can seem confusing, but from an investor’s perspective, particularly long-term investors, it’s just a reminder that in the face of the increased potential of market volatility, it’s important to stay focused and ensure your portfolio is designed to weather these storms, or for those with money on the sidelines and a reasonable tolerance for risk, to use market dips to rebalance portfolios.

IN PARTNERSHIP WITH BMO ETFs
Stay Invested, Stay Protected

Lately, the market has been on a wild roller coaster, and it’s got everyone holding tight! With all the ups and downs, finding smart ways to invest is more important than ever. Don’t worry though – we’ve got your back. In this article, well spotlight two ETFs from BMO that can help keep your portfolio steady and even catch some gains along the way.

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Whether your managing volatility by incorporating Buffer ETFs or Low Volatility ETFs into your investment strategy, remember it’s about time in the market not timing the market. If your time horizon allows for staying invested, know over the long run you will reap the benefits.

To learn more visit BMO Exchange-Traded Funds.  

Disclaimer

² Using beta as the primary investment selection and weighting criteria. Low beta investments are less volatile than the broad market and can be considered defensive investments

This content is sponsored by BMO Exchange Traded Funds.

This content is intended for information purposes only. Beavis Wealth is compensated under this arrangement by BMO Exchange Traded Funds. The views expressed herein 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 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.

BMO Global Asset Management is a brand name under which BMO Asset Management Inc. and BMO Investments Inc. operate.

U.S. FED & INTEREST RATES
Traders Split on How Big Fed Rate Cut Will Be

• Fed is expected to start cutting rates soon.

• Some expect a big cut, others aren’t so sure.

• Mixed signals from August jobs data and Fed comments.

• Upcoming inflation numbers could be the deciding factor.

Investors are divided on just how much the Fed will cut interest rates when they begin easing, with some expecting a 50-point reduction, though nothing is set in stone. According to the CME Group’s FedWatch Tool, the current odds sit at 70% of a 25bps cut on September 18th, with 30% predicting a 50bps cut.

Treasury yields have been reacting to mixed signals from August's jobs report and comments from Fed officials.

However, even the mixed signals are telling us one thing; rates will be going down.

Fed Officials Hint at Cuts, But Disagree on Size

Fed leaders like John Williams, Christopher Waller, and Austan Goolsbee seem to agree it’s time to reduce rates, but they don’t all see eye-to-eye on how aggressive those cuts should be. Waller is open to a bigger cut but emphasized that more data is needed before making that call.

Inflation Data Could Tip the Scales

The upcoming August inflation report could be the key to determining the size of the next rate cut.

With the next meetings just around the corner, the Fed about to enter a blackout period, and markets will be left to speculate until the next big meeting. I expect volatility to remain elevated in the meantime.

INVESTING IN TECHNOLOGY
Nvidia Stock Plunges Amid Economic Concerns

• Nvidia suffered the largest single-day stock loss in history, wiping out $279 billion in market value.

• Economic slowdown and investor skepticism are driving concerns over Nvidia's high valuation.

• Nvidia is under potential scrutiny from U.S. regulators for possible antitrust violations.

• Despite the downturn, demand for Nvidia's AI chips remains strong, keeping its long-term prospects positive.

Nvidia made history on Tuesday this week, as its share price dropped 9.5%, erasing $279 billion from its market value. This surpasses the previous record held by Meta and highlights growing fears among investors about economic uncertainty. CEO Jensen Huang personally lost $10 billion due to the stock plunge. Ouch! $10 billion in one day; that’s more than I make in a year! 😁

Economic Uncertainty and Market Skepticism

Nvidia's AI technology has driven a ton of excitement and optimism, but now the U.S. economy's slowdown has made investors cautious about high-tech valuations. A less than rosy forecast from Nvidia’s recent earnings report, even with strong results, added fuel to the selloff. Nvidia’s stock has now fallen 24% since its peak in June.

Antitrust Investigations Loom

Nvidia’s troubles are only made worse by reports of a potential U.S. Department of Justice antitrust investigation. Although Nvidia denies receiving a subpoena, the news has raised regulatory concerns, and this is adding pressure to its stock. The Biden administration’s aggressive approach toward tech regulation could lead to further scrutiny of Nvidia’s market dominance.

Strong AI Demand Keeps Long-Term Outlook Bright

Nvidia is still a key player in the AI chip market, obviously, and demand for its new AI chips continues to outstrip supply. Some investors see the recent dip as a buying opportunity, leaning on the fact that Nvidia’s GPUs are increasingly essential in the tech world, while others are taking on a more cautious stance.

MERGERS & ACQUISITIONS
7-Eleven’s Parent Retains Advisers Amid Couche-Tard’s Bid

• Seven & i hires top financial and legal advisers to assess Couche-Tard's bid.

• Couche-Tard, parent of Circle K, seeks to acquire 7-Eleven.

• Japan's new M&A rules face a test with this potential deal.

• A successful acquisition would be the largest foreign takeover of a Japanese firm.

The Japanese parent company of 7-Eleven, Seven & i Holdings, has brought on Mitsubishi UFJ Morgan Stanley Securities (MUMSS) and legal firm Nishimura & Asahi as advisers as it evaluates a purchase offer from Alimentation Couche-Tard, the Canadian company behind Circle K. This is a pretty strong indication of how seriously the company is taking the bid, even though it rejected Couche-Tard’s initial proposal last week. Seven & i remains open to further discussions if the offer better aligns with their valuation and regulatory concerns.

Couche-Tard’s Persistent Pursuit of 7-Eleven

This isn't Couche-Tard's first attempt to buy 7-Eleven. After an earlier failed pitch, the company is back with a stronger bid, supported by Goldman Sachs as its financial adviser. The potential deal is also taking on a particular significance, as it would be the first major transaction under Japan's updated M&A guidelines, which aim to ease foreign acquisitions. If successful, this would mark Couche-Tard’s largest deal to date and the biggest acquisition of a Japanese company by a foreign firm in history.

U.S. Market Key in Couche-Tard’s Strategy

Japan is home to over 21,000 7-Eleven stores, and Couche-Tard is also eyeing 7-Eleven’s U.S. presence, especially the Speedway chain of 3,900 stores. Couche-Tard tried but failed to acquire Speedway in 2020, and now the company sees this as an opportunity to expand in the U.S. market. In a deal that closed in May 2021, Seven & i acquired Speedway for $21 billion, adding to the backstory in these ongoing negotiations.

HOUSING & MORTGAGES
Sub-4% Rates Return, Benefitting Renewals

• Fixed mortgage rates under 4% are re-emerging.

• Borrowers are locking in lower rates for mortgage renewals.

• Lenders are fiercely competing with significant discounts.

• Consumers should prioritize strategies over chasing low rates.

For the first time in years, fixed mortgage rates below 4% are popping up in Canada. Mortgage brokers are spotting deals like 3.99% for five-year terms, and they expect rates to dip further as borrowing costs continue to decline. This is welcome news for homebuyers, and it’s especially significant for homeowners renewing their mortgages, as it helps narrow the gap between their pre-pandemic low rates and the current higher rates.

Lenders Competing Fiercely for Renewals

Home sales have been slowing, and lenders are hoping to hang onto existing clients when the time comes for them to renew their mortgages. Frances Hinojosa, CEO of Tribe Financial Group, predicts more borrowers will lock in rates below 4% by the end of the year. She points out that lenders, even big banks, are offering steeper discounts than usual to attract or retain customers, especially those with other financial products at the bank.

Borrowers Are Shopping Around

Another trend we’re seeing is that homeowners renewing their mortgages are actively negotiating lower rates. Mortgage agent Tuli Parubets shared a recent case where a borrower secured a 3.99% five-year rate after being initially offered 5.09%.

Strategize, Don’t Just Chase Rates

So lower rates are enticing, but borrowers need to be aware of potential penalties for breaking fixed-rate mortgages if rates drop further. Frances Hinojosa of the Tribe Financial Group advises that consumers focus on mortgage strategies tailored to their long-term needs and cautious not just to always chase the lowest rate.

OTHER NEWS FROM THE PAST WEEK

e-Scooters and e-Bikes Face Uncertainty Amid Canada’s Patchy Laws

Canada’s e-scooter and e-bike boom is hindered by inconsistent provincial regulations, leaving riders unsure of the legal status of their vehicles. Advocates are pushing for national standards to ensure safety and clarity.

Canada Sees Record Insurance Claims in 2024

Natural disasters in 2024 have led to a record 228,000 insurance claims in Canada. Floods, wildfires, and hailstorms have driven a 406% increase in claims compared to the 20-year average, straining the insurance industry.

Judge Pauses $2.78 Billion NCAA Settlement

A judge has paused a $2.78 billion NCAA antitrust settlement, citing concerns about how it could limit future NIL payments to athletes. The NCAA has three weeks to revise the proposal or face a potential trial.

Ex-RBC CFO Denies Improper Relationship Allegations

Former RBC CFO Nadine Ahn denies allegations of an undisclosed romantic relationship with colleague Ken Mason, claiming the bank is treating her unfairly. Both Ahn and Mason are suing RBC for wrongful termination.

Google Faces Penalty Proposals in Antitrust Case

A federal judge has set a December deadline for U.S. regulators to propose penalties in Google’s search monopoly case. Potential penalties could target Google’s lucrative deals with Apple and Samsung, with a trial expected in spring 2024.

Canada Post Proposes 25-Cent Stamp Price Hike

Canada Post plans to raise stamp prices by 25 cents, bringing the cost of most to $1.24 in 2025. This hike aims to offset rising costs and declining letter-mail volumes, which have dropped 60% over the past two decades.

And, to wrap things up for this week….

Musk in Legal Battle with Brazilian Judge Over X Suspension

Elon Musk is in a legal standoff with a Brazilian judge who threatened to suspend X (formerly Twitter) in the country. Musk criticized the judge’s demands, framing the conflict as a fight over free speech and censorship.

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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