Market Recap: U.S. and Canada

Put quite simply, it was more bad news for the major markets this week, with the Dow Jones and Nasdaq officially falling into correction territory, both down 10%+ since recent highs. The S&P 500 is hot on their heels.

The conflict in the Middle East is weighing heavily on the markets, and although we did see some early week attempts at stabilization, they quickly faded and selling picked up into the back half of the week. One positive note? Canadian equities stood out as more resilient, supported by strength in commodities.

From a returns perspective, the TSX led the group with a gain of 1.68%, followed by the Dow Jones at -0.90%, the S&P 500 at -2.12%, and the Nasdaq 100 suffering a big loss of -3.20%.

Major Economic Stories This Week

US Current Account

The U.S. current account deficit narrowed in the fourth quarter, falling to $190.7 billion from $239.1 billion in the prior period.

The shift was driven largely by a contraction in imports, which outpaced a decline in exports, as we’re seeing the  impact of trade restrictions. A notable swing in primary income to a $23.9 billion surplus also helped tighten the gap. Meanwhile, the services surplus edged lower and secondary income deficits showed a modest improvement. Altogether, the deficit shrank to 2.4% of GDP, a meaningful rebalancing in external flows.

•  Imports are falling faster than exports, tightening trade imbalance

• Primary income swing played a key role in deficit narrowing

• Services strength softened slightly, limiting further improvement

• Trade policy shifts beginning to reshape external economic dynamics

U.S. Initial Jobs

Initial jobless claims rose modestly to 210,000, in line with expectations but still relatively low by historical standards.

At the same time, continuing claims dropped sharply by 32,000 to 1.82 million, a sign that unemployed workers are still finding jobs at a steady pace. This contrasts with softer signals seen in recent payroll reports, where hiring momentum has slowed. Reduced immigration is also playing a role in tightening labour supply, according to central bank commentary. Government-related claims also declined, easing concerns tied to public sector disruptions.

• Initial claims remain stable, signalling limited layoffs across sectors

• Continuing claims drop suggests ongoing re-employment strength

• Hiring pace slowing, reflecting broader economic cooling trends

• Lower immigration contributing to tighter labour supply conditions

Consumer Sentiment

The University of Michigan’s sentiment index dropped to 53.3 in March, a sharp decline from both the prior month and earlier estimates.

The weakness was broad-based, cutting across income levels and demographics, with higher-income households seeing particularly steep declines. Rising fuel costs and market volatility, amplified by geopolitical tensions, are weighing heavily on expectations. Short-term outlooks fell 14%, while expectations for personal finances dropped 10%. Inflation expectations also jumped to 3.8% for the year ahead, showing growing concern among consumers. 

• Confidence falling across income groups and political affiliations

• Short-term outlook deteriorating faster than long-term expectations

• Rising inflation expectations adding pressure to household sentiment

• Market volatility and energy prices driving consumer uncertainty

TOP INSIGHTS

The Economy Is Splitting In Two

I obviously don’t know everything, but to me, one of the clearest themes I see right now is the growing divide between what the data says and how people feel. It’s like we’re still stuck in a twilight zone of sorts. On paper, parts of the economy still look stable. The labour market hasn’t fully cracked (although it’s showing signs), and external balances are improving. But, when we look at sentiment, it tells us a very different story.

All of this makes sense. If gas prices are rising and markets are volatile, does it actually matter that jobless claims are low? Not really. What matters is how secure people feel about their future income and purchasing power. This gap between perception and reality is where spending behaviour starts to shift.

Here’s what I’m watching. If confidence keeps falling, it can become self-fulfilling. Consumers pull back, businesses see weaker demand, and that eventually feeds into hiring decisions. Markets tend to react to hard data first, but right now, soft data may be the earlier warning signal.

Trade Improvements May Not Mean Strength

It was a slow economic week for the releases I normally track in this newsletter, and that gave me the chance to look at the U.S. Current Account report. At first glance, a narrowing deficit looks like a positive development. But I don’t think this is being driven by strength. It’s happening because imports are falling, which often signals weaker domestic demand rather than stronger competitiveness.

That distinction matters. If households and businesses are buying less from abroad, it can reflect a broader slowdown rather than a structural improvement. The boost from primary income helps, but that can be volatile and less tied to underlying economic momentum.

As investors, this changes how we need to interpret the data. A shrinking deficit isn’t automatically bullish, although there are many higher-ups that would argue it is. It just sounds better. But if we really think about it, it could mean the economy is cooling faster than expected. I’m paying close attention to whether exports begin to pick up in a meaningful way or if this trend remains driven by demand destruction.

Consumers Are Starting To Crack

I always look forward to the Michigan Consumer Sentiment survey tells us, and what stands out most to me this time around is how quickly sentiment has deteriorated. We had seen improving sentiment over the past few months, but now we see higher-income households and those with market exposure starting to pull back, and that signals something deeper than just temporary stress.

In real terms, this shows up in everyday decisions. People delay big purchases, rethink travel plans, or shift spending toward essentials. That ripple effect moves through the economy quickly, hitting discretionary sectors first and eventually broader growth.

This could mean markets are underestimating how fragile demand really is. Maybe we’re at a turning point? (Don’t forget to answer this week’s poll question.) If inflation expectations keep rising while confidence falls, it creates a tough environment for policymakers. We’ll have to see whether this becomes a feedback loop, where weak sentiment starts showing up more clearly in actual spending data.

TOP STORY
Wall Street Extends Losing Streak

• Markets cap fifth straight weekly decline amid rising uncertainty

• Oil surge fuels inflation fears and investor risk aversion

• Tech and consumer stocks lead broad-based market selloff

• Canadian equities show relative strength on commodity support

U.S. markets closed out a tough week, with their fifth consecutive weekly decline as investor sentiment weakened under the weight of escalating geopolitical tensions. Stocks swung between gains and losses earlier in the week, but selling pressure intensified into Friday. Major indices moved firmly into correction territory, with broad-based declines across sectors, especially in technology and consumer discretionary names. Meanwhile, Canada’s TSX managed to hold onto modest gains, supported by strength in resource-linked sectors.

Volatility Driven By War And Oil Prices

The big factor right now?  Obviously, the ongoing conflict in the Middle East, which continues to unsettle markets, especially through its impact on energy prices. Oil has spiked from pre-conflict levels, and that has raisesd concerns about inflation and the downstream effects on global growth. Investors are increasingly focused on the risk of prolonged supply disruptions, especially through critical shipping routes. Rising Treasury yields are already feeding through to higher borrowing costs, adding another layer of pressure on both consumers and businesses.

Markets Watching Policy And Geopolitical Signals

Markets are still highly sensitive to any signals around a potential de-escalation, but confidence in political messaging is fading, and for good reason. We see short-lived rallies tied to diplomatic headlines, but they’ve  quickly reversed, a clear sign of a lack of conviction among investors. If tensions persist, the risk of further downside remains elevated, particularly as higher energy prices begin to slow economic activity. For now, uncertainty will no doubt continue to dominate the outlook.

Read the full story here.

Markets have shifted quickly from confidence to caution, with volatility picking up and leadership starting to break down. The big question now is whether this is just another reaction to uncertainty, or an early signal that conditions are changing more meaningfully beneath the surface.

Please vote on this week’s question:

LAST WEEK’S POLL RESULTS

In last week’s poll, I asked what’s driving Canada’s labour market weakness, and the results were nearly split, with 52% pointing to global uncertainty and 48% to slowing economic growth, while high interest rates received no votes. Thanks to everyone who voted.

TOP COMMENTS

Slowing Economic Growth

"Canada needs to get out of its own way and start taking advantage of the natural resources that are rich in this Country. Real-Estate cannot be our largest GDP contributor. We have Oil, Gas, and all sorts of Minerals that the world desperately wants. Responsibly retrieving these commodities would greatly benefit Canada on many levels, including the labour market." — mrzarowny

"Growth is slowing due to Mark Carey's religious approach to net 0 carbon and related taxation, despite real science behind his approach." — keenrg

Global Uncertainty

"I think it's a bit of all three, but the biggest reason is corporate greed. Companies continue to make unheard of profits off the backs of employees. With AI, you're now seeing many companies lay off employees. It's the same cycle we saw with Covid. Companies lay off people, people can't afford products, prices go up, more layoffs, etc. It's a horrible death cycle and one that is hard to stop/slow down and reverse.
What worries me most is how many times we've globally had recessions over the last 30 decades, it's just getting worse each time." — michelleepereira

"Trumps TACO has Canadians asking "where the beef!"" — bill.geneau

Bonus Answer!

"Option 4 - Trump affect" — syoungconsultinginc

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BIG TECH AND THE LAW
Court Blocks AI Contract Ban

• Judge halts federal move to cut off AI provider

• Ruling questions legality of national security designation

• Dispute highlights tension over military AI usage limits

• Decision temporarily restores company’s federal partnerships

A U.S. federal judge has blocked efforts by the Trump administration to restrict Anthropic’s access to government contracts, clearly a significant legal setback for the administration. The ruling found that the designation of the firm as a national security risk lacked sufficient justification and may have violated due process. Effectively, the decision restores the company’s ability to continue working with federal agencies while the case proceeds.

Legal And Policy Tensions Come Into Focus

At the heart of the dispute is a broader disagreement over how artificial intelligence should be deployed in defence settings. Anthropic had pushed for limits on the use of its technology in areas such as autonomous weapons and surveillance, which appears to have contributed to tensions with government officials. The court noted that the company was not given a meaningful opportunity to respond before being cut off, raising concerns about procedural fairness.

What Comes Next For AI And Government Contracts

The ruling is temporary, with a short pause allowing time for appeal, but it signals that courts may take a closer look at how national security claims are applied in emerging technology sectors. Longer term, this case could shape how AI firms negotiate with governments, especially around ethical boundaries and usage restrictions.

Full story here.

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CANADA HOUSING
Housing Outlook Takes A Hit

• Major bank cuts outlook for home sales and prices

• Weaker demand delays expected market recovery timeline

• Ontario and B.C. face steepest downgrades in activity

• Affordability pressures continue to hold back buyers

Canada’s housing outlook for 2026 has been revised sharply lower, with expectations now pointing to declines in both home sales and prices, according to a TD Economics report. After a weaker-than-expected start to the year, economists no longer expect a near-term rebound. Activity is expected to remain subdued as affordability challenges and broader economic uncertainty continue to weigh on buyer demand, with focus on the country’s largest markets.

Affordability And Uncertainty Keep Buyers On Sidelines

The most significant downward revisions were seen in Ontario and British Columbia, where high costs and cautious sentiment are keeping potential buyers from re-entering the market. Even with earlier expectations of strong growth, activity has instead declined, and the that pent-up demand that’s been building has yet to materialize. Add to that economic pressures, including cost-of-living concerns, and it’s not a surprise that consumers are continuing to delay purchasing decisions.

Recovery Pushed Further Into The Future

While the outlook for this year has weakened, expectations for a rebound have shifted into 2027, when improved economic conditions and stronger job growth are expected to support a recovery. That said, risks remain tied to global developments, including geopolitical tensions and trade negotiations, which are very unpredictable. The timing and strength of any recovery will depend heavily on how these broader factors evolve.

Learn more here.

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COMMODITIES
Gold’s Safe Haven Status Questioned 

• Gold falls sharply even as global tensions rise

• Price drop challenges traditional safe haven narrative

• Investor flows suggest momentum rather than fundamentals

• Other assets outperform gold during recent volatility

Gold’s recent performance is challenging one of its most widely held assumptions. Even as geopolitical tensions and inflation risks rise, the price of gold has dropped significantly from earlier highs. The decline suggests that recent gains may have been driven more by investor momentum than by its traditional role as a defensive asset, catching many off guard.

 Momentum Reversal Drives Sharp Pullback

After surging to record levels earlier in the year, gold has fallen sharply, and analysts are pointing to a reversal in investor positioning. Funds that had flowed heavily into gold-backed investments are now pulling back as broader markets become more volatile. This shift has made gold behave more like a risk asset than a hedge, moving in tandem with equities rather than against them.

 Rethinking Gold’s Role In Portfolios

The recent downturn is prompting investors to reconsider gold’s role in a diversified portfolio, and we’ve seen other traditionally defensive assets, including certain equities and bonds, show greater stability during the latest bout of volatility. Gold could, of course, recover if conditions stabilize, but its recent behaviour once again raises important questions about how reliable it is as a safe haven in today’s market environment. And so goes the gold story; rinse and repeat.

 Read the 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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