Market Recap: U.S. and Canada

It was a shortened, four-day week thanks to the Martin Luther King Jr. holiday, but the markets still managed to pack in plenty of movement. Things were volatile, especially once fresh Trump tariff threats toward Europe and Canada started circulating again. That kept investors on edge, more focused on what could go wrong than on pushing markets higher. It was a week with plenty of movement, but not much confidence behind it.

Looking at the numbers, the Nasdaq 100 stood out, finishing up 1.3% on the week. The TSX eked out a modest gain of 0.13%. The S&P 500 slipped 0.35%, while the Dow lagged further, down 0.53%. For a short week, it sure gave us a lot of action.

Major Economic Stories

Economic Recap

It was another week of catch up in the U.S., with the long-delayed PCE numbers for October and November finally being released, and we also had the latest inflation update here in Canada. Another report that’s a tad heavy on charts, but there’s a lot to cover. Here we go.

Canada Inflation Picks Up Again

Canada’s latest inflation reports delivered a hotter headline number, but calmer underlying trends.

Headline CPI rose to 2.4% in December from 2.2%, the highest level in three months and coming in above expectations. Much of the increase reflected base effects from the expiration of last year’s temporary GST and HST break, which pushed prices sharply higher for restaurant meals, alcohol, and discretionary items such as toys. At the same time, shelter inflation continued to cool and transportation prices fell back into negative territory

More importantly for policymakers, core inflation continued to ease, with the median core measure slowing to 2.5% and broader core inflation easing to 2.8% year over year. Monthly core prices declined by 0.4%, a sign that underlying demand pressures are softening even as headline inflation fluctuates.

• Headline inflation distorted by tax-related base effects

• Restaurant and discretionary categories drove December’s jump

• Shelter and transportation prices offered offsetting relief

• Core inflation trends continue to move in the right direction

US Core PCE Still Sticky

On a year-over-year basis, U.S. core PCE edged up slightly to 2.8% from 2.7%. That’s a clear sign that progress toward the Fed’s target has slowed. The data, released later than usual due to the government shutdown, shows inflation is proving sticky rather than reaccelerating. For policymakers, this keeps the focus on patience rather than quick policy adjustments.

• Monthly inflation gains remain stable but unspectacular

• Annual core inflation ticked modestly higher

• Data supports a wait-and-see policy stance

• Disinflation progress appears to be flattening

US Consumers Earn More, Spending is Flat

U.S. personal income rose in November, extending a six-month streak of gains led mainly by higher wages and employee compensation, while at the same time, spending held steady.

Personal income rose by 0.3%, while personal spending increased 0.5% for a second consecutive month, with solid growth across durable goods, non-durable goods, and services. Dividend income also rebounded, adding another support to household balance sheets. Together, the data suggests consumers are still willing and able to spend, even as inflation progress slows and interest rates remain restrictive.

• Wage growth continues to support household incomes

• Consumer spending remains broad-based across categories

• Services spending stayed resilient into year end

• Strong demand may slow inflation’s final descent

TOP INSIGHTS

Inflation Look Louder Than It Really Is

The rise in Canadian headline inflation grabs attention, but a big part of it comes from one-off factors like tax changes rather than a fresh surge in pricing pressure. When you look past that headline number, the measures that matter most for policy are still moving in the right direction. Inflation progress has slowed, but it hasn’t reversed.

For households, though, the experience feels different. Price increases tend to show up where people notice them most, like restaurants and everyday discretionary spending. That gap between the data and lived experience is important. Only time will tell whether these categories cool off quickly or keep inflation feeling sticky into early 2026.

Central Banks Are In Wait Mode

Both the Bank of Canada and the Federal Reserve are seeing data that supports patience. For the most part, inflation is no longer accelerating, but it’s also not easing fast enough to confidently cut rates. That keeps policymakers in a holding pattern.

For borrowers and households, this likely means that interest rates will stay higher for longer than many would hope. For investors, it means more volatility around each inflation release. The big tell over the next few months will be whether the all-important core inflation sees steady progress or whether it stalls.

Consumers Remain The Swing Factor

What continues to impress me is how resilient consumers remain, particularly in the U.S. Rising wages and steady income growth are supporting spending across goods and services. That strength helps the economy, but it also makes the final stretch of inflation control harder.

At the household level, reliable paycheques make higher prices easier to absorb, and that slows the pullback in spending. For the Fed, that resilience may delay rate cuts even if inflation edges lower. What I’m watching is whether spending naturally cools in early 2026 or stays strong enough to keep inflation from fully settling down.

TOP STORY
Private Credit Risks Becoming a Concern

• Private credit growth has accelerated rapidly with limited transparency

• Recent bankruptcies exposed hidden links between banks and lenders

• Valuation practices raise questions about delayed loss recognition

• Defaults expected to rise as weaker borrowers face pressure

Private credit has been quietly expanding for years, but a series of bankruptcies last fall has pushed the market into sharper focus. After banks stepped back from riskier lending following the financial crisis, nonbank lenders stepped in, and that has helped fuel a fast-growing segment of finance that operates largely outside o the public markets. Recent failures in the auto sector have revived concerns that stress within private credit may not remain isolated. Fears have cooled without further high-profile collapses, but investors are being cautious, and firms most exposed to private lending continue to trade well below recent highs.

Why Transparency Remains a Concern

A major issue is that private credit loans are valued by the same firms that originate and hold them. Not surprisingly, that structure encourages close monitoring of borrowers, but it also creates incentives to delay recognizing trouble if there is hope of recovery. Recent cases where loans were marked at full value shortly before being written down entirely have reinforced unease around how clearly risk is being priced.

Why Banks Still Matter Here

Private credit operates outside of traditional banking, but banks have helped fund its growth by lending to nonbank financial institutions. As competition intensifies and deregulation frees up capital, underwriting standards could come under pressure. I’m not saying there’s an immediate crisis forming, but as private credit grows more central to the financial system, questions around visibility and risk containment are becoming harder to ignore. If you are old enough to remember the GFC, you might be recognizing some similarities.

Read the full story here.

As you just read, private credit has grown quickly outside of the traditional banking system, although banks, pensions, and insurers are still deeply connected to it. With transparency limited and regulation lighter, the real question is where stress would surface first if conditions turn. I look forward to seeing your vote and hearing your thoughts on this week’s question:

LAST WEEK’S POLL RESULTS

In last week’s poll, I asked whether using tariffs to achieve political goals rather than economic ones is justified, and it wasn’t even close. An overwhelming majority viewed this approach as unacceptable, with only a small share seeing it as necessary or simply risky. As always, thanks to everyone who voted.

READER’S COMMENTS

Risky

"I personally find Trump's use of tariffs as 'unacceptable', but I chose 'risky' since the question wasn't necessarily directed only at Trump's tariffs.

Why risky?  If you regularly use tariffs as a political weapon, allies and trade partners will likely act in kind.  This is exactly what's happening now with Canada & Europe making new trade deals with China.  In doing so, they'll be less reliant on the United States for trade, potentially in perpetuity.

The investing community enjoy taking advantage of Trump's "TACO" tendencies by 'buying the dips', but the real damage goes far deeper.  While the damage being done today might be less apparent, the implications of the tariffs (and other bullying for that matter) will have dire consequences for the U.S. longer term IMHO.

Mark Carney's news conference where he stated "the new world order" in describing Canada's trade deals with China hit hard and was very prescient, again IMO." — callawayguy

"The US administrations approach of using tariffs to "Blackmail" other countries is regrettable.   Ultimately, the result is that the USA can not be trusted and is now a unreliable trading partner.   The damage is already done, even if the USA changes tactics.

Even more disappointing is the hostility displayed by the US administration towards its previous allies. EDIT

Good that Canada is trying to diversify trade and reduce dependance on the USA." — philip.swan

Unacceptable

"This is a bullying tactic not a negotiation." — gjdublyou

"This latest tariff toll is so far from the first section 232 security protection terms that Trump used first. I don't know how congress can keep up this charade. This is blatant political cry baby terms because everything did not go as planned. I'm have to stop now I feel a rant coming on...lol." — ddamude

"Trump is using tariffs to bully other countries into doing what he and the Republican Party want. They’ve been drinking their own USA koolaid for so long, they think the world will bow down and do whatever they say.

What they’re actually doing is telling the world the word of the US means nothing and power does not transfer seamlessly between one administration to the next.

They are single handedly destroying the world order, at least on this side of the planet, and are edging us closer to WW3. Have us humans learned nothing from WW2?

I hope Europe continues to stand up for Greenland. I’m disappointed and angry that the Canadian government is not standing with them. When are we going to find our own two feet?! Trying to appease a bully doesn’t solve the problem. You have to be firm and united to take this kind of bully down.

This is starting to feel a lot like I’m re-reading WW2 history with Hitler.

Scary times!" — michelleepereira

"Using tariffs this way is a bully tactic that only the largest economies can participate in which makes it unfair for the majority of markets and economies " — realtymediaservices

AUTO INDUSTRY AND INTERNATIONAL TRADE (PT 2)
Premium Ford Calls for Boycott of Chinese EVs

• Ontario premier urges consumers to avoid Chinese-made vehicles

• Auto industry warns of job losses and supply chain damage

• Labour leaders frame moment as existential for sector

• Federal and provincial talks set to follow

Last week I wrote (in this exact same spot) about how the Canadian government had just announced a new deal with China on automobiles. In response, Ontario Premier Doug Ford is now urging Canadians to boycott Chinese-made electric vehicles after that deal opened the door to tens of thousands of imports each year. Ford argues the agreement threatens domestic auto jobs and was reached without adequate consultation, especially given Ontario’s central role in Canada’s auto sector. Industry leaders and unions echoed those concerns and are warning the move could accelerate layoffs and weaken long-term investment.

Industry Pushback Intensifies

Auto executives and labour leaders argue Canada’s industry depends on deep integration with the U.S. market and that Chinese EV makers have little incentive to build meaningful production capacity in Canada. With layoffs already underway, unions say the timing adds pressure to an industry already facing global competition and shifting trade rules.

What Comes Next

Ford plans to meet with federal leaders to hear how Ottawa intends to protect auto workers. While he remains skeptical that Chinese manufacturing can meaningfully support Canadian jobs, the dispute highlights the growing tension between trade diversification and domestic industrial policy.

Learn more here.

LITIGATION
Trump Sues JPMorgan Over Account Closures

• Trump alleges politically motivated account closures by JPMorgan

• Bank denies bias and cites regulatory obligations

• Lawsuit adds to growing debate over “debanking”

• Regulatory rules around account closures face renewed scrutiny

President Donald Trump has filed a $5 billion lawsuit against JPMorgan Chase and CEO Jamie Dimon, claiming the bank improperly closed his accounts for political reasons following the January 6 Capitol riot. JPMorgan rejects the accusations, and says the suit has no merit and that account closures are driven by legal and regulatory risk, not political views. The case adds to Trump’s broader legal push against major institutions, including earlier actions targeting media companies and other banks.

Why Debanking Is Back in The Spotlight

Banks have faced mounting pressure from conservative groups accusing them of denying services based on ideology. A number of financial institutions have countered the claim saying that decisions are rooted in compliance and risk management, especially when clients face legal exposure. JPMorgan says it serves tens of millions of customers and does not close accounts for political or religious reasons.

Why The Stakes Extend Beyond This Case

This latest lawsuit comes as regulators are reviewing rules governing when and how banks can close accounts. Tighter limits could reduce political friction but also increase legal and financial risk for banks. Even without an actual trip to a courtroom, this case keeps pressure on regulators to clarify where discretion ends and obligation begins.

Read the full story here.

HOT DOGS
Nathan’s Famous Sold to Smithfield

• Iconic brand changes hands in $450 million deal

• Rising food costs pressured margins and pricing

• Buyer expects savings through scale and efficiency

• Flagship contest and brand identity remain intact

I’m not even going to try and turn this into an actual ‘financial’ story, but I couldn’t close out this week’s Pulse edition without covering the latest news in the frankfurter space.

Nathan’s Famous, the century-old hot dog brand rooted in Coney Island, has been sold to Smithfield Foods in an all-cash $450 million deal. Smithfield, which is already a long-time producer and distributor of Nathan’s products, will acquire the brand as food companies continue to grapple with higher costs and tighter margins. The transaction values Nathan’s at $102 per share and is expected to close in the first half of the year.

Why Inflation Mattered

I’ve followed the annual tradition for decades, and never would have dreamt that rising input costs, including a sharp increase in hot dog production expenses, could touch Nathan’s. But although the brand remains profitable, inflation has weighed on earnings, making the backing of a larger food company with scale advantages more attractive. Smithfield expects to generate meaningful cost savings within two years of closing.

All Is Not Lost

The brand’s cultural touchstones, including the famous July 4 hot dog-eating contest, will live on. In actuality, little is expected to change day to day, but behind the scenes, the deal is a modern day reality of how even iconic food brands are adapting, or not, to cost pressures.

Full story here.

Court Pauses TikTok Canada Shutdown: A federal court halted Ottawa’s order to wind down TikTok’s Canadian operations, keeping offices open during a renewed security review and temporarily reducing uncertainty for creators, advertisers, and employees tied to the platform.

Supreme Court Signals Fed Independence Support: US Supreme Court comments suggest resistance to efforts aimed at removing a Federal Reserve governor, reinforcing expectations of central bank independence and limiting near-term political risk around monetary policy decisions.

Danish Pension Fund Trims US Treasuries: A Danish pension fund plans to sell US Treasury holdings, citing political and fiscal concerns, a symbolic move that highlights how geopolitical uncertainty can influence foreign appetite for American government debt.

GIC Yields Top Bank Dividends, With a Catch: Rising GIC yields are now beating Canadian bank dividends, but tax treatment, liquidity, and growth potential mean headline income comparisons can be misleading for investors focused on long-term after-tax returns.

Winter Storms Leave Travellers Stranded Again: Severe winter weather disruptions are grounding flights across the US, reviving questions about airline obligations, passenger compensation, and the financial limits of consumer protections during weather-related travel chaos.

Another Major Winter Storm Takes Aim: A powerful winter storm system threatens widespread snow, ice, and travel disruption, adding economic strain to transportation networks and businesses already grappling with repeated weather-related interruptions this season.

Europe Braces for New US Trade Pressure: Trump’s renewed tariff threats tied to European trade talks and Greenland have rattled officials, raising concerns about escalating trade friction and the economic fallout for exporters, supply chains, and diplomatic relations.

Ford Recalls Vehicles Over Fire Risk: Ford is recalling more than 119,000 vehicles over a potential fire hazard, highlighting ongoing quality risks that can weigh on automaker costs, brand trust, and regulatory scrutiny.

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