Market Recap: U.S. and Canada

It was a choppy start that gave way to a strong finish. Early in the week, selling pressure was concentrated in tech, with the Nasdaq 100 dropping sharply before recovering. The Dow and the TSX held up comparatively well through the turbulence. By midweek the tone shifted, and all four indices pushed higher in a sustained move that carried through to Friday's close. The week ended with broad gains across North American markets.

As for the numbers, the Dow Jones led the way with a weekly gain of 2.13%, followed by the TSX at 1.87%. The Nasdaq 100 recovered from its early-week lows to finish up 1.22%, while the S&P 500 posted the smallest gain of the group at 0.88%..

Major Economic Stories This Week

Canada's Inflation Jumps, But The Core Story Is Calmer

Headline CPI rose to 2.8% in April, a two-year high, driven almost entirely by a huge spike in energy prices.

The headline number is real, but we do need to add some context. Transportation inflation nearly doubled from March to April, and energy is doing most of the work. Strip that out, and we see the picture shift. The Bank of Canada's preferred core measures, trimmed-mean and median, both fell to their lowest levels in five years, landing at 2.0% and 2.1% respectively, below what markets expected. Food inflation is easing, shelter is barely moving, and goods prices broadly remain contained. The BoC has already flagged that it doesn't see energy price pressures spreading into broader inflation expectations, and this print supports that view. For those keeping score, the core story matters far more than the headline here.

• Headline CPI: +2.8% annually, up from 2.4% in March; market consensus was 3.1%

• Energy: +19.2% vs. +3.9% in March; transportation: +7.6% vs. +3.7%, steepest monthly acceleration in both categories

• Trimmed-mean core: 2.0%; median core: 2.1%, both within the BoC's 1–3% target band; five-year lows

• Food: +3.5%, down from 4.0%; shelter: +1.8%, up from 1.7%, non-energy components broadly contained

Canadian Core Inflation Drops To Softest In Over A Year

Core CPI, which excludes food, energy, and mortgage interest costs, eased to 2.1% in April, the lowest reading since January 2025.

Even though the headline inflation numbers gets all the attention, this is the number the Bank of Canada cares most about, and it moved in the right direction. Monthly core prices rose 0.2%, matching March's pace, no acceleration, no deterioration. The annual rate fell from 2.5% to 2.1%, comfortably within the BoC's target band. That creates an interesting policy tension: the headline rate is rising on war-driven energy costs, but the underlying domestic price pressures the BoC actually controls for are softening. That's not a case for hiking. If anything, it keeps the door open for further easing if the labour market continues to soften.

• Annual core CPI: 2.1%, down from 2.5% in March; lowest since January 2025

• Monthly core CPI: +0.2% for a second consecutive month, trend has stabilized with no acceleration

• Core sits just 0.1 percentage points above the BoC's 2.0% target midpoint, effectively at goal

• Headline-to-core gap: 0.7 percentage points, widest in recent months, entirely attributable to energy and food

US Housing Starts Pull Back As Mortgage Rates Bite

Total housing starts fell 2.8% in April to a seasonally adjusted annual rate of 1.465 million, even as March was revised higher to its best level since December 2024.

The headline dip is less alarming than it looks when you look at the split underneath. Single-family construction dropped 9% to 930,000 units, that's where high mortgage rates are doing the most damage, as it directly affects would-be homeowners and the builders who serve them. Multi-family, on the other hand, jumped 14.3% to 529,000 units, evidence that rental demand is keeping apartment construction active even as the for-sale market slows. The March revision upward to 1.507 million also caught my attention. The prior month was stronger than initially reported, which frames this month's dip as a partial pullback rather than a trend break. Builders are navigating a bifurcated market, and for now the numbers reflect that tension more than any broader collapse.

• Total starts: 1.465 million SAAR, down 2.8% from March's upwardly revised 1.507 million

• Single-family starts: -9% to 930,000, high mortgage rates weighing directly on for-sale construction

• Multi-family starts: +14.3% to 529,000, rental demand keeping apartment pipeline active

• Northeast: +16.1% to 180,000; Midwest: +2.5% to 206,000, regional gains partially offset national weakness

TOP INSIGHTS

Canada's Inflation Split Is Actually Good News For Borrowers

What's easy to miss in a headline that reads "two-year high" is that Canada's inflation story this month is almost entirely imported. The domestic price pressures the Bank of Canada can actually influence, like wages, services, shelter, aren’t the ones driving the number higher. Remember that core inflation just hit its lowest point in over a year.

For the average Canadian houshold, the pain at the pump is real and immediate. Energy costs affect everything downstream, commuting, groceries, utilities. But the BoC's policy tools are blunt instruments that take months to filter through the economy, and raising rates to fight an oil shock caused by a war in the Middle East would slow domestic demand without touching the actual cause of inflation. Canadians carrying variable-rate debt or watching for mortgage renewal relief should take note: this print does not close the door on further rate cuts.

That said, my read is that the Bank of Canada stays the course for now. The core numbers give them cover to hold or ease, and the headline number gives them a convenient reason not to move aggressively in either direction. Watch the next two months of energy prices, if the war-related spike fades, headline CPI comes back down quickly and the conversation shifts back to when, not whether, the next cut comes.

The Stock-Bond Divergence Is Approaching A Breaking Point

Once again, the largely ignored bond markets have been sending a clear message for weeks, and the equity markets keep looking the other way. That's not unusual in the short run, stocks and bonds can diverge for stretches, especially when corporate earnings are holding up and momentum is strong. But the gap between record consumer pessimism and record stock prices is the widest it's been in years, and if we study historical patterns we know it doesn't stay that way indefinitely.

What makes this divergence particularly interesting is its cause. Consumer sentiment isn't low because people are being irrational, it's low because gas prices are high, mortgage rates are high, and inflation expectations are rising. Those are the same forces pushing bond yields higher. Equity investors are betting on corporate earnings insulating markets from macroeconomic deterioration and yes, that bet has paid off so far. But it requires either consumer confidence to recover or earnings to keep surprising to the upside.

Here's what I'm watching: the 10-year Treasury yield. It's already well above where it sat before the Iran war, and if it keeps climbing, the math on equity valuations starts to shift. High yields compete directly with stocks for capital, and they raise borrowing costs for the companies whose earnings are doing the heavy lifting. At some point, the bond market's warning becomes the equity market's problem. We may not be there yet, but the distance is shrinking. With all of the moving pieces out there today, this is what has me most concerned.

Housing's Structural Split Has Long-Term Consequences

The monthly housing starts number tells one story, but the story underneath, single-family construction falling while multi-family rises, tells a more important one. What's happening in the US housing market right now looks like a structural reorientation, driven by mortgage rates that have pushed homeownership out of reach for a growing cohort of buyers.

The big issue here is that this matters in ways that extend well beyond monthly rent versus mortgage comparisons. Homeownership has historically been the primary vehicle for wealth accumulation among middle-income families. If we go through a prolonged period in which single-family construction stalls and for-sale inventory stays constrained, it doesn't just delay purchases, it widens the wealth gap between those who bought before rates rose and those who couldn't.

And this is a trend that won’t reverse quickly. Builders are rational actors, and right now the math on single-family construction is difficult. Until mortgage rates come down to a more acceptable level or incomes rise enough to offset the carrying costs, we can expect multi-family to keep doing the work. The longer this holds, the harder it becomes for first-time buyers to get a foothold, and the more political pressure builds around housing affordability on both sides of the border.

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TOP STORY
Bond Markets Are Sounding An Alarm Stocks Keep Ignoring

• Bond investors lose patience with rising government debt loads

• US Treasury yields up over 0.25% in just one month

• Japan's rate surge risks triggering global capital repatriation

• Stock markets remain calm, but history suggests that won't last

As I just noted in the economic update above, the concern in the bond market has been growing for months. This week, the urgency went up another notch. We saw a wave of selling across global bond markets and that pushed yields higher, with no single catalyst but a long list of contributors: Britain's fiscal uncertainty, Japan's spending surge, US political pressure on the Fed, and an Iran war that's proving more inflationary than markets initially priced in. What's driving all of it, underneath, is a fundamental reckoning with how much debt Western governments have accumulated and whether investors still believe they have a credible plan to manage it.

Why Japan Matters More Than People Think

In February, I posted a YouTube video that highlighted that for years, ultra-low rates at the Bank of Japan encouraged Japanese investors to borrow cheaply at home and invest abroad, including in US and Canadian bonds. Now that Japanese rates are rising sharply, up a third of a percentage point in just the past month, that trade is reversing. As Japanese capital comes home, bond prices in other countries are feeling the pressure. It's a transmission mechanism most investors aren't watching closely enough, and it's already moving markets.

When Does The Stock Market Notice?

Bond and stock prices typically move in tandem, when yields rise, equities face competition from safer assets. But that relationship has broken down in recent weeks, and stocks have been holding at near records even as yields have been climbing. Today's yield levels are only now returning to where they stood just before the 2008 financial crisis, after 15 years of artificially cheap credit inflated asset prices. Just how long stocks can continue to ignore that context is the question worth asking.

Read the full story here.

Bond markets have been flashing warning signs for weeks, but a lot of investors pay no attention to yield curves and Treasury spreads. Some people track bond markets as closely as stock prices, others find the whole thing abstract and far removed from their day-to-day financial decisions. Both reactions are understandable, and I’m curious to learn what our community does. Please vote on this week's question:

LAST WEEK’S POLL RESULTS

In last week's poll, I asked what the smarter first-time buyer move was, a condo in the city, a townhouse in the suburbs, or a detached home further out. The city condo edged out the other two options at 37%, with the townhouse and detached home splitting the remaining vote evenly at 32% each. As always, I appreciate everyone who voted.

READER COMMENTS

Townhouse

"Feel like the condos way overpriced for how much you get. Depending on the person a little more commute can be better if you get more value out of the townhouse in the suburbs. " — angellodarko

Condo

"If you insist on buying I would advise that you buy in the city. Even though it's probably the most expensive per sq/ft you'll benefit from the convenience to get around and maybe not having to buy a car which will save you a ton of cash. And you shouldn't have too much of a problem selling in the future." — aloquicious

THE STOCK MARKET
Wall Street Logs Eight Straight Weeks Of Gains

• Stocks near record highs as consumer sentiment hits record low

• University of Michigan index breaks below its 2022 trough

• One-year inflation expectations climb to 4.8% among US households

• Fed's Waller signals no rate hikes yet but won't rule them out

Wall Street wrapped up its eighth consecutive winning week, the best such streak since 2023, while a University of Michigan survey showed US consumer sentiment falling to a record low, breaking below the trough hit in 2022 when inflation was running above 9%. The divergence between financial markets and household experience has rarely been this stark, and it's getting harder to ignore.

What's Holding The Market Up

Corporate earnings have been the anchor. Companies across retail, software, and communications delivered better-than-expected results, and that has reinforced the view that profit growth can hold even though the broader economy faces headwinds. Lower-income households and those most exposed to oil prices are feeling the squeeze hardest, but what’s muddying the waters is that their spending patterns don't always show up immediately in corporate earnings, especially for companies serving higher-income consumers who are still spending freely.

The Risks Building Underneath

We may be seeing a shift. The same forces weighing on consumers are starting to threaten the conditions that have kept stocks elevated. Oil price volatility tied to the Iran conflict is keeping inflation expectations elevated, with households now forecasting inflation at 4.8% over the next 12 months. AS we just saw, yields have responded, pushing the average long-term US mortgage rate to its highest level since last summer and threatening to slow the AI data centre buildout that has been a key driver of economic growth. Fed Governor Christopher Waller said the central bank is watching closely and hasn't ruled out raising rates if inflation expectations become unanchored.

Read the full story here.

THE FEDERAL RESERVE
Warsh's Fed Overhaul Targets The Balance Sheet First

• The Fed’s balance sheet has grown to $6.8 trillion since 2008

• Warsh favours a smaller Fed footprint in day-to-day markets

• Changes could affect Treasury yields, mortgage rates, and bank liquidity

• Former officials say any shift will take years, not months

There’s an interesting narrative developing at the Fed. Incoming Chair Kevin Warsh has been talking about "regime change" at the central bank, and markets have been focused on the obvious implications, interest rates, personnel, communication style. But the more consequential shift may be less visible: a fundamental rethink of how the Fed uses its $6.8 trillion balance sheet, and whether it should continue playing an active role in day-to-day financial markets at all.

What The Balance Sheet Debate Is Really About

Before the 2008 financial crisis, the Fed's balance sheet sat at roughly $800 billion. Today it represents about 23% of the entire US economy. Warsh has called it "bloated" and has signalled he wants to reduce the Fed's footprint, potentially shifting from the current system of "ample" reserves to a pre-crisis model of "scarce" reserves. One analyst has suggested Warsh could elevate the overnight repo rate as the primary policy tool, a move that would allow the Fed to satisfy political pressure for lower rates and at the same time maintain tighter underlying financial conditions.

Why This Won't Happen Overnight

Not everyone at the Fed agrees. Governor Michael Barr has pushed back directly, arguing that shrinking the balance sheet could undermine bank resilience and  might actually increase market volatility. The Fed operates by consensus, and major structural changes move slowly through that process. Former officials across the political spectrum are consistent on one point: this is a medium-term project, not a day-one agenda item. The framework for when and how the balance sheet gets used has never been clearly communicated, and fixing that may end up being Warsh's most durable contribution.

Read the full story here.

TAX INEQUALITY
Bezos Says Taxing The Rich Won't Fix Inequality

• Bezos argues higher wealth taxes won't help average Americans

• New York's mayor fires back, defending his progressive tax agenda

• Luxury Manhattan apartment sales surged after Mamdani's election win

• Broad public support for wealth taxes exists across party lines

Jeff Bezos made headlines this week when he argued that raising taxes on the wealthy is more of a political strategy than an economic solution, and he says that income inequality requires different tools than redistribution. It's a familiar argument from the billionaire class, but the timing is notable, New York's democratic socialist mayor, Zohran Mamdani, has been building a national profile around the opposite view, and early evidence from the city's economy is complicating the usual predictions about what happens when you tax the rich.

The Bezos Argument

Bezos framed his position as concern for working Americans rather than protection of his own wealth. He suggests that policymakers should consider exempting lower-income earners from taxes altogether, but his math is a bit shaky. An estimated 40% of US households already owe no individual income taxes, but his broader point, that vilifying billionaires doesn't solve structural economic problems, is a view that’s widely held across the business community.

What's Actually Happening In New York

Mayor Mamdani's election was supposed to trigger a flight of capital and business from New York City, but that hasn't materialized. JPMorgan opened its new global headquarters in Manhattan, American Express announced a new downtown HQ hosting over 10,000 employees, and luxury apartment sales spiked in the months following the election. Sales of units priced over $10 million jumped 80% in May from a year ago. The political momentum behind wealth taxes is also growing nationally, Washington state approved a millionaires tax in March, and similar proposals are advancing in several other states.

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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