The Week in Review

Weekly Market Recap: U.S. and Canada

It was pretty much a downhill slide for the U.S. markets this week, with a grand finale of a dive on Friday.

Ongoing concerns around tariffs and economic growth weighed on sentiment. The TSX held up a bit better, but overall, the mood was cautious and risk-off.

Looking at the numbers, the TSX dipped just 0.36%, comfortably outperforming its U.S. peers. The Nasdaq 100 fell 2.39%, while the Dow Jones slid 2.47%. Leading the weekly declines was the S&P 500, which gave back 2.61%.

Major Economic Stories

Recap of the Week

We’re focused on Canadian economic news this week, with the big theme being cooling inflation, but with a twist. There are a number of underlying pressures still hanging around and that’s keeping the Bank of Canada in a bit of a bind.

Here’s what we learned this week.

Canada Inflation Falls

Annual headline inflation eased but core metrics sent mixed signals.

Headline inflation slowed in April, mostly thanks to a sharp drop in energy prices after the removal of the carbon tax. Gasoline and natural gas were down double digits, helping ease transportation costs. But beneath the surface, the core CPI ticked up, driven by services and groceries.

• Headline inflation fell to 1.7% from 2.3%

• Energy prices dropped 12.7%, gas down 18.1%

• Core CPI (trimmed mean) rose to 3.1%

• Shelter inflation slowed, groceries accelerated

• Full Release Here

Core Inflation Bucks the Headline Trend

BoC’s preferred core reading continued to move in the wrong direction.

While headline inflation softened, as noted above, the Bank of Canada’s deeper inflation gauges tell a more stubborn story. The annual core rate moved up to 2.5%, and month-over-month gains also sped up.

• Core CPI rose to 2.5% from 2.2%

• Monthly core inflation increased 0.5%

• Excludes food, energy, and mortgages

• Signals sticky price pressures in underlying components

• Read the Full Release

Retail Sales Stay Strong

Perhaps surprisingly, retail momentum carried into April even in the face of the ongoing tariff noise.

Preliminary estimates showed another solid retail month, led by car sales. Even with U.S. tariffs looming, consumers didn’t seem fazed, although energy price drops did weigh on gas station revenues.

• March sales revised to +0.8%

• April retail up an estimated 0.5%

• Motor vehicles up 4.8%, furniture and clothing also strong

• Gasoline vendors saw a 2.7% drop

• Read the Full Report here.

Key Takeaways From this Week’s Economic News

Inflation’s Drop Looks Great, Until You Check the Core

On the surface, April’s inflation numbers seem like a win. Headline inflation fell to 1.7%, the lowest in seven months, mostly due to the carbon tax rollback and falling energy prices. That gave consumers a bit of breathing room, especially at the gas pump. But when you look past the headline, the story changes.

The trimmed-mean core CPI, which the Bank of Canada watches closely, actually rose to 3.1%, its highest level in two years. And that’s a problem. What it tells me is that underlying inflation pressures aren’t easing, even though we are seeing overall price slowing. We then have to consider what that means for the Bank of Canada, and in this case it keeps the door open to rate cuts, but it no doubt also raises the stakes; cut too soon, and inflation could come roaring back. We're seeing progress, but it’s not clean or complete.

Core Inflation Creeping Up Adds Pressure

Ok, so now on to core inflation. The rise last month from, 2.2% to 2.5%, might not look dramatic, but it matters. This measure strips out volatile categories like food and energy, so it reflects stickier, more persistent inflation. And the monthly acceleration, from 0.1% to 0.5%, suggests that pressure is building beneath the surface.

For the BoC, that’s a flashing yellow light. It’s a reminder that while energy-driven disinflation is real, it’s not the whole picture. Persistent inflation in services, groceries, and household goods could delay the timeline for cuts. Markets are pricing in a possible move as early as June, but this kind of data makes that path anything but certain.

Retail Resilience Sends Mixed Signals

If you’re looking for signs that the Canadian consumer is scaling back and becoming more cautious in a meaningful way, you won’t find them in the latest retail numbers. Sales rose 0.8% in March and are on track for another 0.5% gain in April. And what’s driving it? Big-ticket items like cars and furniture, even as tariff fears are swirling in the background.

For the poor Bank of Canada, which has to figure out its next step, the resilience we see in this report complicates the bank’s job. On one hand, it’s good news that consumers are still spending, because it helps prop up growth. But strong demand makes it harder to cool inflation sustainably, and if retail strength continues, it could limit how far and how fast the central bank is willing to cut rates.

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

As I cover in this edition of Pulse, Canadian retail sales continue to rise even in the face of looming tariff threats, and it’s clear consumers aren’t waving the white flag just yet. But as companies face rising import costs, many will start passing those expenses down the line. So, this week I’m asking for your opinion: Should the companies ‘eat’ the extra costs or is it ok if they pass them on to consumers? Looking forward to reading your responses.

LAST WEEK’S POLL RESULTS

Last week I asked whether you’ve been cutting back on your discretionary spending due to the impact tariffs are having on prices, and 77% of you said yes, at least to some degree.

Reader Comments

Yes, I’m cutting back

“At least partially. The overwhelming concern is the dark cloud of the US threat of tariffs and I believe many people are concerned about jobs, impacts on pensions and savings, and are therefore saving for that rainy day scenario." — rcbent

"Cutting back and using no name brands" — joe.schoroth

"Even though I am in a sound financial situation, I am buying only essentials and putting every spare dollar in a high yield savings account." — riarmandeep

"I have serious concerns with Carney, he is a pathological liar and has displayed complete disrespect towards Canadians. He is corrupt and will destroy the economy within 2 years or less." — steevengingras1970

"It just the prudent thing to do only a year away from retirement...I hope." — ddamude

"My pension income has remained unchanged since 1995 (no indexing) so am forced to cut back on expenditures due to higher prices for non-discretionary costs." — dennisvarcoe

"Our reliance on goods from china is a definite reality. Cut them out and prices will rise. So yes, I am watching my spending." — eccodog

"Prices were already high enough during and following the pandemic, now tariffs, counter to information that the US administration has stated to gas-light their citizens with, will push prices even higher. It is not surprising that low and now even middle class income earners have to make tough decisions about purchasing priorities. Even necessity purchasing will have to see some scaling back to ensure people’s budgets can handle another potential 20-30% increase, on top of those already experienced over the last 5 years." — realtymediaservices

"The cost just to put food on the table is insane and now Loblaws has come out and said due to tariff's it's going to raise prices even further. Carney just announced the elimination of retaliatory tariffs so unless Loblaws is setting up shop in the US this is complete BS . He should be happy with his savings from fuel prices but Weston can't control his thirst for greed." — storierod

THE CONSUMER
Retail Sales Surprise, Rate Cut Bets Unchanged

• March retail sales beat forecasts with 0.8% growth

• April preliminary estimate shows 0.5% gain

• Auto sales led with 4.8% jump, despite tariff worries

• BoC rate cut odds for June held steady at 32%

With so much focus on tariffs and trade recently, I wanted to take a bit of a closer look at the retail sector, and specifically the report out this week. As noted above, retail sales in Canada delivered a solid beat in March, rising 0.8% month-over-month and setting the stage for another increase in April. Consumers shrugged off trade tension headlines and higher vehicle prices and continued to spend broadly across sectors. That strength helped calm fears of a more abrupt slowdown, even as broader economic risks are looming.

Consumers Spend Despite Tariff Jitters

The standout category was motor vehicles and parts, up 4.8%, the first gain in three months. Analysts believe (and I concur) that some of that was front-loaded demand, as buyers rushed to lock in purchases before U.S. tariffs took effect. Clothing, home goods, and building materials also posted gains, while gas stations and food retailers saw declines tied to lower energy prices.

BoC’s Tightrope Walk

So, we see this strong consumer showing in March, but rate cut expectations didn’t budge much. Odds of a 25-basis-point cut in June stayed at 32%, a reflection of the market’s mixed view. Retail strength is encouraging, but it also reduces the urgency for stimulus. With Q1 GDP data coming out next Friday, policymakers are in wait-and-see mode.

Read More Here

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CANADIAN BANKS
TD’s New CEO Faces Major Test

• Raymond Chun named CEO September 2024

• TD fined US$3B, faces asset cap in U.S.

• Chun launching cost cuts, U.S. asset sales, and restructuring

• Investor confidence slowly improving with new leadership

I wouldn’t mind Raymond Chun’s compensation package, but I sure wouldn’t want his job. It’s been a few months since he stepped into the CEO role at TD Bank at one of the most challenging moments in the company’s history, and I read a full and interesting update on the whole matter this weekend. The most obvious immediate challenge is the damaging U.S. money-laundering scandal and regulatory penalties, and he inherits a battered reputation and tight growth restrictions. His task is nothing short of a full-scale turnaround; fix compliance gaps, rebuild morale, and keep growth alive with limited tools.

Leadership Shift Amid Crisis

Chun’s appointment came after a string of executive exits and growing investor frustration. He was once seen as an underdog in succession plans, but his promotion reflected both internal trust and a lack of viable alternatives. In case you’ve forgotten, the U.S. Department of Justice hit TD with over US$3 billion in penalties last fall, and perhaps more damaging, imposed a cap on U.S. asset growth, which cuts off a key growth engine. We’re always looking forward, right? And that’s exactly what ‘growth’ is. Chun has already moved fast, selling US$9 billion in mortgages and a major stake in Charles Schwab to shore up capital.

Restoring Culture, Rebuilding Confidence

Internally, reports are that employee morale had cratered under the weight of regulatory scrutiny and leadership churn. Chun is emphasizing cultural renewal and agility, echoing calls for managers to remove barriers and act decisively. Some of his first moves include strategic divestments and a more open communication style with stakeholders. Skepticism will linger for a while, perhaps even a long while, but we’ll see whether Chun can build momentum as he fights to bring back credibility. His full strategy, which we’ll see in September, will be a pivotal moment.

Read More Here

THE BEST OF SOCIAL MEDIA
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CANADIAN HOUSING
Canadian Home Prices Keep Falling

• Home prices fell 1.5% in April, 2.4% since December

• Toronto, Hamilton, Halifax saw steepest monthly declines

• Market hit by higher rates, weak sentiment, and trade fears

• Affordability remains a long-term structural issue

Canadian home prices continued their downward trend in April, led by sharp drops in Ontario cities. According to the Teranet-National Bank index, nine of eleven major urban areas posted monthly declines, with Halifax and Toronto down nearly 5% and 3%, respectively. The market’s weakness is now stretching beyond just the traditionally expensive cities and is showing signs of broader strain.

High Rates, Low Confidence

Adding to the pressure is that this pullback is coming as rate expectations remain murky at best. Even though we’re still seeing strong consumer spending, economic uncertainty has to be having an effect on buyer sentiment. Prices are falling, but that isn’t the same thing, really, as affordability improved meaningfully.

No Quick Recovery in Sight

Adding to the puzzle is that even as mortgage rates are stabilizing, housing momentum remains weak. National Bank’s Daren King warns that prices could stay under pressure given “moderate population growth” and the likelihood of long-term rates remaining elevated. The worst declines may be over in western markets like Calgary and Edmonton, but Ontario’s urban centers are still sliding. The message from this report: Canada’s housing market isn’t crashing, but it’s not healing either.

Read the full story here.

TRUMP’S TARIFFS
Target Warns Tariffs May Push Up Prices

• CEO: Tariffs pose “massive potential costs”

• Sales fell 2.8% in Q1; outlook remains cautious

• Consumer confidence near record low

• Price hikes possible, but a last resort

In this newsletter last week, I covered how Walmart is warning that some of the increase in prices caused by tariffs will have to be passed along to consumers. Now Target is the latest retailer sounding the same alarm. CEO Brian Cornell warned that the company faces serious cost pressures, and while price hikes are not imminent, they are on the table. The retailer posted a 2.8% drop in Q1 sales and is bracing for more consumer pullback in coming months.

Retailers Struggle to Navigate Uncertainty

Cornell said tariffs create huge operational challenges and that the company is doing all it can to shield shoppers from higher prices. But with so much uncertainty around which product categories may be hit next, planning has become increasingly difficult. Like Walmart and Best Buy, Target is walking a fine line between maintaining margins and staying competitive.

Tariffs Drag on Consumer Sentiment

To add to the challenge, consumer confidence recently hit its second-lowest level ever recorded. Inflation fears, recession worries, and political volatility are all feeding into shoppers’ hesitation. Cornell says that top-line pressures will continue, and he told analysts that household budgets are stretched and fragile. For now, Target is absorbing costs, but that cushion won’t last forever.

Full Story Here

OTHER NEWS FROM THE PAST WEEK

Bitcoin Hits Record High
Bitcoin soared to a new all-time high this week, driven by institutional buying and renewed investor appetite for digital assets amid global economic uncertainty and weakening confidence in traditional fiat currencies.

Judge Blocks Trump Rule Targeting Foreign Students
A federal judge has blocked the Trump administration from enforcing a rule that would bar foreign students from remaining in the U.S. if their classes are entirely online, citing legal overreach.

Hudson’s Bay Sells Up to 28 Store Leases
Hudson’s Bay Company has offloaded up to 28 retail leases across Canada as it continues to streamline operations and reposition itself amid ongoing shifts in consumer behavior and real estate values.

Canada Post Strike Threatens Service Disruptions
Canada Post workers have voted in favor of strike action, raising concerns over potential delivery delays nationwide as contract negotiations remain at an impasse with management over pay and workload.

Duolingo Adds AI-Powered Language Teachers
Language-learning app Duolingo has launched new AI tutors powered by GPT-4, aiming to deliver personalized, conversational lessons that adapt to user performance and mimic real-world language immersion.

Boeing, DOJ Reach Deal Over Safety Scandals
Boeing has reached a settlement with the U.S. Department of Justice over past safety violations, potentially avoiding criminal prosecution after a series of fatal crashes rocked the aviation giant.

Amazon Sued Over Contaminated Rice Sales
Amazon faces a lawsuit alleging it sold rice contaminated with unsafe chemical residues. Plaintiffs argue the company failed to vet third-party sellers and ignored repeated consumer safety complaints.

McDonald’s Shuts CosMc’s Test Locations
McDonald’s will shut its CosMc’s drink-focused pilot locations as it reassesses future beverage strategy. The concept saw mixed results amid fierce competition in the premium coffee and smoothie market.

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Market Movers

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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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