The Week in Review

Weekly Market Recap: U.S. and Canada

It was a great week in the markets, with tech stocks leading the charge. The Nasdaq 100 moved ahead as investors embraced risk, while the S&P 500 also posted a nice gain. The Dow and TSX lagged behind but still managed to close in positive territory.

In terms of performance, the Nasdaq 100 jumped 2.90%, standing out as the top performer. The S&P 500 rose by 1.47%, the Dow Jones managed a 0.55% gain and the TSX saw a modest increase of 0.22%.

Major Economic Stories

This week’s economic data highlighted the persistent inflationary pressures in the U.S., throwing into question expectations that we’ll be seeing any near-term monetary easing. Meanwhile, a sharp decline in U.S. retail sales added to concerns about consumer resilience heading into 2025.

Here’s how it all played out:

U.S. Inflation Rises to 3%

U.S. inflation ticked up in January, a possible sign that efforts to tame rising prices may be stalling.

Annual inflation hit 3%, with energy costs reversing a six-month decline and transportation costs accelerating.

• Energy prices rose 1% year-over-year after months of declines.

• Transportation costs jumped 8%, up from 7.3% in December.

• Monthly CPI climbed 0.5%, above market expectations of 0.3%.

• Shelter costs contributed nearly 30% of the monthly increase.

• Read the Full Release

U.S. Core Inflation Surprises Markets at 3.3%

Core inflation, which excludes food and energy, rose unexpectedly, reducing hopes for a smooth disinflation path.

The 3.3% rise was driven by higher motor vehicle insurance costs and recreation prices, even though we did see slower growth in shelter and medical care costs.

• Motor vehicle insurance surged 11.8%, up from 11.3%.

• Recreation prices rose 1.6%, nearly double the prior month’s increase.

• Core CPI’s monthly increase of 0.4% was the highest since March 2024.

• Shelter inflation eased to 4.4%, its smallest 12-month rise since early 2022.

• Read more here.

U.S. Retail Sales Plunge 0.9%

Retail sales dropped sharply, marking the steepest decline since March 2023, as severe weather and wildfires took a toll on consumer activity.

Categories like sporting goods and motor vehicles saw big drops, while gas stations and restaurants posted modest gains.143,000 jobs were added, below the forecasted 170,000.

• Sporting goods and motor vehicle sales fell 4.6% and 2.8%, respectively.

• Gas station and restaurant sales both rose by 0.9%.

• Core retail sales, which impact GDP, declined by 0.8%.

• Severe weather events contributed to weaker consumer spending in January.

• Read the Full Report

Key Takeaways From this Week’s Economic News

Inflation’s Persistent Edge: What’s Next for the Fed?

Inflation’s unexpected rise in January throws a wrench into the narrative of steady disinflation that markets were hoping for. The climb to 3%, with core inflation also edging up, says that while we may not be heading back to the peak inflation days, we’re certainly not out of the woods. Energy costs resurging and transportation prices accelerating show just how volatile the inflation landscape still is. For the Fed, this likely means keeping rates higher for longer. I think investors need to brace for more hawkish rhetoric and perhaps a delay in the much-anticipated rate cuts.

Retail Sales Slump: A Warning Sign or Just a Blip?

OK, so this was big. A 0.9% drop in retail sales isn’t just a miss—it’s a glaring signal that consumer spending, a key pillar of the U.S. economy by the way, is feeling the pinch. Yes, severe weather and fires played a part, but the breadth of the decline is a real sign that consumers are becoming more cautious. This also brings into play concerns about GDP growth in the first quarter. I’m curious to see if this is a one-off event or the start of a broader trend, especially with current interest rates still weighing on household budgets.

Core Inflation Surprise: Not the News Markets Wanted

The jump in core inflation to 3.3% caught a lot of prognosticators off guard. Shelter costs, even though easing, are still a major contributor, and categories like motor vehicle insurance climbed again. My take? The Fed will again emphasize the need for more data, but this print alone might extend the higher-rate environment. If you’re betting on a dovish push you may need to recalibrate your expectations, at least for the next few months.

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

Inflation in Canada eased in December, but U.S. inflation is proving more stubborn than many expected. This leads me to this week’s poll question: Rising inflation makes it difficult for the Fed to cut rates, but rate cuts may be necessary if the economy slips into recession. Which do you think is the bigger risk right now?

Share your thoughts by voting this week!

LAST WEEK’S POLL RESULTS

About two thirds of our readers believe that the current “Buy Canadian” sentiment will be around for a while, and isn’t just a passing phase. By definition it will take a while to see how long our shopping behaviour continues, but it’s definitely an interesting situation we find ourselves in.

Comments of the Week

Long-Term Shift

“Given the way things are happening in the US with Trump allowing Musk to rummage through the Treasury and close down departments unchecked it's just the beginning of the US downturn in my point of view. It's better we start to focus on things we produce here and also broaden our horizons to other countries' products because this is not about to turn around for us any time soon.” - edwardmawusi

“It's an opportunity for Canada to diversify it's client base we export to and remove the crazy provincial border restrictions. This will increase our ability to weather economic storms and make us stronger on the international stage.” - faucherp

“Trump has made it clear that Canada is no longer their friend or ally.  The "Buy Canadian" movement will last as long as Trump continues to threaten Canada... which will be the entire 4 years of his administration.   If that behavior shift continues for 4 years, then it is a fundamental shift and will continue long afterwards.” - philip.swan

Passing Fad

“Buy Canadian to counter the US is not viable. Costs are to high.

For many years economists have been saying that Canada must diversify its economy away from a single market dependency. If we are finally going to do this we must do it now as everything seems to be aligned to accomplish it.

Our new trade agreements CETA, CPTPP, CKFTA, CCFTA, & CIFTA to name several. Also the embargos on Russian products.

If we just look at the Russian situation we have a ready market in Europe. If we stop shipping energy to the US and now supply LNG & Oil to Europe. This is more feasible due to CETA & we accomplish two things 1} We implement new trade under our CETA Free Trade with Europe 2} We strike a blow against the US tariffs; remember USA can never be trusted again & if we do we are fools.

Time to take advantage of our FTA’s, and remove our domestic tariffs. If we wish to survive we must act now, not 10 or 15 years from now or when another despotic manchild gets elected in US.” - entender1012

“I think it is going to be difficult to "Buy Canadian" for a good majority of purchases, simply because we don't make them in Canada. I do think that when we have a choice, the shift will be to Canadian made, but as indicated, I don't think in the bigger "picture" it will not make a big difference to the Canadian market place. I think sourcing products from other markets (rather than the US) I would totally support.” - thompsond1951

THE ECONOMY
Ottawa’s GST Tax Holiday: More Headaches Than Revenue

• GST tax holiday aimed to boost spending but backfired for businesses.

• Retailers struggled with implementation and saw minimal sales impact.

• Lost tax revenue outweighed any short-term economic benefits.

• Calls for better-targeted fiscal measures are growing.

The Canadian government’s GST tax holiday, which was supposed to stimulate consumer spending, ended up creating more challenges than benefits for businesses, according to many. More than a few retailers reported confusion and additional administrative burdens, with the expected sales boost not really materializing.

Retailer Challenges

The biggest frustration? Retailers railed about the lack of clarity and short notice.

Katie Mackinnon is a Toronto toy store owner and she said the benefits she had hoped for never happened.

The program’s complexity left many small businesses overwhelmed, with some even opting out.

Policy Scrutiny

From the outset, I was critical about the policy’s design, and in my opinion, the minimal bump in sales didn’t justify the tax revenue loss and all the hassle for so many businesses. As former Finance Minister Chrystia Freeland said back in December, the program seemed more politically motivated rather than an attempt to actually spur on the economy.

Read the Full Story here.

THE FEDERAL RESERVE
Powell Faces Congress with Mixed Data, Rising Uncertainty

• Fed Chair Powell presented inflation data showing lingering pressures.

• Economic uncertainty looms as markets anticipate future rate decisions.

• Lawmakers pressed for clarity on rate cut timing amid volatility.

• Powell emphasized data dependence and cautious optimism.

Federal Reserve Chair Jerome Powell’s testified before Congress this week, and he highlighted the Fed’s balancing act. As noted above, persistent inflation is complicating potential rate cuts, even though there are growing signs that economic uncertainty is mounting.

Inflation Worries

Powell acknowledged inflation’s stickiness, and he says that they’ve made progress, but the journey isn’t over. His remarks underlined the Fed’s cautious stance, and he didn’t explicitly give any clear sign on immediate rate adjustments.

Market Implications

Markets reacted with tempered expectations for rate cuts in 2025, and pretty much summed up the widespread market sentiment that Powell’s testimony reinforced a higher-for-longer rate path.

Read the Full Story here.

THE BULL MARKET

Wall Street Traders Stay Fearless Amid Tariff War

• Wall Street traders remain bullish despite ongoing U.S.-China tariff war.

• Volatility spikes have not deterred aggressive trading strategies.

• Institutional investors hedge risks but maintain strong equity positions.

• Analysts warn of potential long-term economic fallout.

The markets climb a wall of worry, but it seems today, even in the face of escalating tariffs between the U.S. and China, Wall Street traders have shown remarkable resilience. The volatility that has shaken global markets seems to have emboldened, rather than deterred, many market participants. If find myself, once again, marveling at this whole investing journey. For so many who have been in this game for a while, our heads are shouting caution, but our hearts are wanting this bull run to continue.

Risk Appetite Remains High

Chris Zaccarelli from Northlight Asset Management reminds us of the psychological aspect of investing.

High-frequency trading firms, in particular, have thrived on the volatility, while hedge funds have strategically added to positions during market dips.

Economic Caution vs. Market Optimism

Not everyone shares this fearless sentiment, however. Most economists I’ve read are warning that prolonged tariff battles could strain global supply chains and hurt corporate earnings. If we ignore the long-term damage tariffs can inflict, the current optimism may be short-lived.

Read the Full Story here.

TRUMP/MUSK PURGE
Washington Unemployment Spikes Amid Government Cuts

• Unemployment in Washington, D.C. surged as government layoffs began.

• Federal downsizing efforts by Trump and Musk administration hit hard.

• Local businesses face challenges as demand drops.

• Economists fear ripple effects across the broader D.C. economy.

We’re only four weeks into the new administration, but the sweeping government cuts under the Trump-Musk administration have led to a sharp rise in unemployment in Washington, D.C. The layoffs, part of efforts to reduce federal bureaucracy, have hit the capital’s workforce hard.

Immediate Impact

In some cases, entire departments are being gutted. Local businesses reliant on government workers are also feeling the strain, with many reporting declining sales and foot traffic.

Long-Term Concerns

Make no mistake; these layoffs could have lasting effects on D.C.’s economy, which is heavily reliant on government jobs. Unless new sectors emerge to fill the gaps, recovery could be painstakingly slow.

Read the Full Story Here.

OTHER NEWS FROM THE PAST WEEK

American Malls Transform Into Mixed-Use Spaces
Struggling U.S. malls are embracing mixed-use developments, adding apartments and offices to survive. Developers aim to attract new tenants and revitalize aging retail spaces.

OpenAI Board Rejects Musk’s Purchase Offer
OpenAI’s board declined Elon Musk’s bid, citing governance concerns. Musk’s growing influence in AI raises questions about competition and innovation in the sector.

Fed May Adjust Inflation Averaging Strategy
The Fed is considering tweaks to its inflation averaging policy amid criticism. Analysts believe changes could provide more flexibility in responding to economic shocks.

Study Finds Best Time to Nap
New research reveals the best time to nap for maximum productivity and alertness. Experts say a mid-afternoon nap can enhance cognitive performance without disrupting nighttime sleep.

Restaurant First Dates on the Decline
First dates at restaurants are becoming less popular as singles opt for casual and cost-effective meeting spots, reflecting changing social norms and economic realities.

Back in 1997, Reed Hastings and Marc Randolph co-founded Netflix, initially offering DVD rentals by mail. Legend has it that Hastings was inspired to start the company after incurring a hefty late fee for a rented VHS tape of "Apollo 13." Frustrated by traditional rental models, he envisioned a service without due dates or late fees. This innovative approach eventually led Netflix to revolutionize the entertainment industry, transitioning from DVDs to streaming and original content.

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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