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The Week in Review

Weekly Market Recap: U.S. and Canada

It was another mixed week for the markets, with major indices heading in different directions. The TSX held onto gains, while U.S. markets felt some pressure from renewed economic worries. Talk of possible U.S. tariffs on Canadian goods and cautious signals from the Fed weighed on investor sentiment, especially in tech.

In terms of performance, the TSX edged higher, gaining 0.34% for the week. The Dow Jones also posted a modest increase, rising 0.27%. On the flip side, the S&P 500 slipped by 1.00%, while the Nasdaq 100 took the biggest hit, falling 1.36%.

Major Economic Stories

This week was all about central banks setting the tone for 2025. The Bank of Canada and the Federal Reserve took different paths, offering contrasting views on inflation, growth, and monetary policy outlooks.

Here’s the latest.

Bank of Canada Cuts Key Rate Again

As was widely anticipated, the Bank of Canada lowered its key rate by 25 bps to 3%.

The Bank has now cut 200 basis points since June 2024. The central bank also ended quantitative tightening and plans to restart asset purchases in March to boost economic activity.

• Key interest rate cut by 25bps to 3%.

• 200 bps total rate cuts since June 2024.

• Quantitative tightening officially ended.

• Asset purchases to resume in March 2025.

• Read the Full Release

Federal Reserve Pauses Rate Cuts

Ignoring Canada’s lead, the Fed held rates steady at 4.25%-4.5%.

After three cuts in 2024, the Fed paused to assess inflation progress. Chair Powell signaled caution, citing solid economic growth but persistent inflation risks.

• Fed funds rate held at 4.25%-4.5%.

• Pause after three cuts totaling 1% in 2024.

• Inflation progress no longer emphasized in statement.

• Labour market remains strong with low unemployment.

• Read more here.

US Core PCE Inflation Holds Steady

Core PCE inflation stayed at 2.8% in December.

Monthly growth rose slightly to 0.2%, another sign that inflation pressures haven’t gone away just yet. Core PCE remains above the Fed’s 2% target, which influenced the pause in rate cuts.

• Core PCE rose 0.2% month-over-month.

• Annual core PCE steady at 2.8%.

• Inflation above Fed’s 2% target.

• Slight rebound from six-month low in prior month.

• Read the full Core PCE Report

Key Takeaways From this Week’s Economic News

Bank of Canada’s Rate Cut: A Shift Toward Growth

The Bank of Canada’s 25 basis point rate cut to 3% isn’t just another move in the rate cycle - it signals a shift toward supporting growth more aggressively. Ending quantitative tightening and planning asset purchases confirm the BoC is serious about boosting liquidity. Inflation hovering around 2% gave them room to act, but what really stands out is their concern about U.S. tariffs. That’s a wildcard that could weigh heavily on Canadian exports, and the Bank seems to be pre-emptively cushioning the economy.

Fed Hits the Brakes on Rate Cuts

While the BoC pushes forward with easing, the Fed is hitting pause. Holding rates at 4.25%-4.5% is a more cautious approach. If you watched Chair Powell’s press conference Wednesday, you’d have seen that his tone was clear - they’re not in a rush. Inflation isn’t falling as quickly as hoped, and strong labour markets reduce the urgency for cuts. Interestingly, the Fed dropped language about “ongoing progress” toward the 2% target, which hints they’re less confident about disinflation’s momentum. From a CAD perspective, this divergence between the Fed and BoC will create more downward pressure.

Sticky Inflation: Core PCE at 2.8%

The U.S. core PCE inflation holding steady at 2.8% is a reminder that inflation’s decline isn’t linear. Monthly gains were modest at 0.2%, but it’s still above the Fed’s 2% target. As I noted above, this “sticky” inflation played a key part in the Fed’s decision to pause cuts. It also raises questions about how much further inflation can fall without a significant economic slowdown. For markets, I expect we’ll continue to see more volatility and hopes for aggressive rate cuts in 2025 might need to be tempered.

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

Let’s stick with the biggest story this week, and share our thoughts on the threat (soon to be reality?) of Trump’s tariffs. There’s been lots of bluster so far, but how far do you really think Canada and the U.S. will go down this road? Are we headed for a full-scale tariff war?

Share your thoughts by voting this week!

LAST WEEK’S POLL RESULTS

I love a close call! Last week, I asked what you would do if you had some extra cash lying around, and we ended up with a very close call! The ‘Invest’ group came in just ahead of the more cautious one, which says to me that there is a lot of uncertainty out there. Thanks to everyone who shared their thoughts.

Comments of the Week

📈 Invest

“There are some opportunities at the moment inbound that long term would result in benefits but right now things are very tight as well. Ultimately though I would take the chance to invest in a few plays that will benefit me down the road while doing my best to save whatever else I can for emergencies.” - edwardmawusi

“Although the whole stock market seems overvalued, not all companies have extraordinary high P/E. I will try to find value stocks or invest in dividend growth stocks.” - tochitocchi

“Continue to invest in the US market. I am still optimistic that there is continued opportunity for growth. Financial and Energy are my go to right now. I'm over weight in Tech but not prepared to take profits right now.” - thompsond1951

⚠️ Save

“Until we know what the bully next door will be doing to us, we need to stay focused and careful, else we will get a sucker bunch which may hurt. Therefore, I will be cautious for a while and add to my protection (Padding)... unfortunately.” - g_bujold

“With the uncertainty of the tariffs and what that will look like, I'm keeping any extra cash aside and not investing it. I may need it. Only time will tell.” - amandalw78

“I’m really on the fence. I think there’s the likelihood of a correction coming within a couple of quarters, so I might sit back a bit with new cash and wait for a pullback, but I also think the markets have further to run up, and are not in a bubble.” - kiminpr

“With Trump in power, I’m predominantly cash at this time, with the US deficit growing just with the cost of debt and him pissing off the world, I’m very afraid of where this is going. The market reacts to political influence rather than financials. Very Scary.” - kellyo2515

TRADE WAR
Trump’s Tariff Threat: A New Economic Era

• Trump plans to impose 25% tariffs on Canadian and Mexican goods.

• Canada’s auto industry could face production shutdowns within days.

• Economists predict a potential GDP drop of up to 2.5%.

• This move threatens nearly a century of Canada-U.S. trade ties.

I really had hoped that by the time this week’s newsletter went live, we’d have up-to-date news on President Trump’s latest threat to impose 25% tariffs on Canadian goods, but alas, I’ve seen nothing new today. It looks like something will happen though, and if it does, it could hit key sectors like oil and autos, with ripple effects across the Canadian economy. Economists are already sounding alarms, projecting a GDP contraction of up to 2.5%, which would rival the severity of the 2009 recession. (Raise your hand if you’re old enough to remember that?) The economic numbers are concerning, but what’s really more unsettling is how this could fundamentally change the Canada-U.S. relationship - one that’s been built over nearly 90 years of trade cooperation.

The Immediate Impact: Economic Shockwaves

If Trump’s plan is fully implemented, it will have swift and severe consequences. Kevin Page, Canada’s former parliamentary budget officer, warns that the impact could mirror the 2009 downturn, with rising deficits and job losses. The auto sector is especially vulnerable. A 25% tariff wouldn’t just slow production; it could halt it altogether. Flavio Volpe, head of Canada’s auto-parts lobby, says it would “shut down the industry across North America - within the week.” That’s not just a worst-case scenario - it’s the likely outcome if this escalates without intervention.

Beyond the Numbers: A Shift in North American Trade

The economic hit is bad enough, but the bigger story is what this means for North American trade as a whole. This isn’t just about tariffs - it’s about undoing decades of integration. To me, that’s the worst aspect of all of this. Canada has bet heavily on its U.S. partnership and we’ve distanced ourselves from other global players like China, but now that bet looks riskier than ever. Even if Trump reverses course later, the damage to investor confidence might already be done. Companies hate unpredictability, and this sends a clear message: cross-border trade is no longer as stable as it once seemed.

Read the Full Story here.

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TAXATION (HOW NOT TO DO IT)

Canada’s Capital Gains Tax Hike Delayed - For Now

• The capital gains tax hike is postponed until January 2026.

• Business groups welcome the delay but want the plan scrapped.

• The government had expected to raise $19.4 billion from the tax.

• Political uncertainty continues to create challenges for businesses.

Full credit to my personal accountant for his crystal ball acumen. When we spoke recently, he predicted that the federal government would delay its planned capital gains tax hike and that’s exactly what’s happened. Originally set to take effect in mid-2024, the proposal is now pushed back to January 1, 2016. It would have increased the taxable portion of capital gains from 50% to 66.67% for higher-income earners. The delay gives businesses and investors some breathing room, but it doesn’t eliminate the uncertainty. In light of all the political turmoil we’re going through these days, this latest move feels less like a thoughtful policy shift and more like a political move to avoid controversy ahead of an election.

Business Reactions: Relief Mixed with Frustration 

Business groups are relieved, but they’re not exactly celebrating. The Canadian Chamber of Commerce described the tax as harmful to investment and economic growth and is still urging the government to scrap it altogether. Conservative critics argue that the government created unnecessary confusion by pushing the policy without solid legislative backing and, no doubt, they’ve got a point. The back-and-forth silliness has left businesses in limbo, trying to plan around rules that could change again with the next political shift.

Political Dynamics: A Policy in Limbo

At the end of the day, the delay may provide temporary relief, but it looks suspiciously like this is all about politics. With a federal election just around the corner, the government wants to avoid alienating voters who are already wary of tax hikes. Conservative leader Pierre Poilievre has promised to eliminate the tax if elected, but even Liberal leadership contenders seem divided on its future. Another side effect? This delay also puts a dent in Ottawa’s fiscal plans since the projected $19.4 billion in new revenue is now on hold. For businesses, the message is clear: the uncertainty isn’t gone - it’s just been kicked down the road. Stay tuned.

Read the Full Story here.

RATES AND HOUSING

Bank of Canada Rate Cut: A Break for Homeowners

• The Bank of Canada has cut interest rates for the sixth time in a row.

• Variable mortgage holders will see lower monthly payments.

• The prime rate is expected to drop to around 5.2%.

• Economic uncertainty remains, with U.S. tariff threats looming.

The Bank of Canada has cut its key interest rate by another 0.25%, bringing it down to 3%. This is the sixth consecutive rate cut, and it offers some much-needed relief for homeowners with variable-rate mortgages. For many, it’s been a very, very tough go over the past couple of years. This decision is a reflection of a mix of easing inflation and a cautious approach to supporting economic growth. The good news? The rate cuts will lower borrowing costs. The bad news? Broader economic challenges - like potential U.S. tariffs - could throw a wrench into the picture.

Impact on Homeowners: Small Gains, But Welcome Relief 

If you’ve got a variable-rate mortgage, this rate cut should translate into lower monthly payments right away. Ratehub.ca estimates an average homeowner could save around $87 per month. That might not seem like much, but in today’s economic climate, every little bit helps. Fixed-rate mortgages will also see some reductions as bond yields adjust, but the changes won’t be as dramatic. Interest rates are lower than they were a year ago, but they’re still well above the rock-bottom levels we saw during the pandemic.

The Bigger Picture: Uncertainty Lingers

So, it’s great that the rate cut will provide short-term relief, but it’s not a silver bullet for the broader economy. The real concern right now is the looming threat of U.S. tariffs, which could undo some of the gains from lower interest rates. (Again, dang, I wish there was more news out already.)

Read the Full Story here.

DIVERSITY, EQUITY, INCLUSION
Companies Hold the Line on DEI Despite Political Pressure

• Some companies are scaling back DEI programs, but a growing list are standing firm.

• Delta Airlines and the Cleveland Cavaliers continue to support DEI initiatives.

• Report: DEI is linked to stronger business performance and employee retention.

• Political pressure is growing, but many companies see DEI as a long-term priority.

The topic of DEI has sure taken its share of the spotlight lately. A lot of companies have announced they are pulling back on diversity, equity, and inclusion (DEI) programs in the face of political pressure, but some others are standing their ground. Delta Airlines and the Cleveland Cavaliers, for example, are doubling down on their DEI commitments, even as major corporations like Walmart and Target scale back. What should be obvious is that this isn’t just about corporate values - it’s about business strategy. There’s a large contingent that believes DEI programs aren’t just feel-good initiatives; they’re linked to better financial performance, stronger employee engagement, and increased innovation.

Why Some Companies Are Sticking with DEI

Interestingly, Delta and the Cavs aren’t just keeping their DEI programs - they’re actively expanding them. Companies that have integrated DEI into their culture see it as more than a checkbox - it’s part of what drives success. A McKinsey study backs this up, showing that companies with diverse leadership are 39% more likely to be profitable. DEI isn’t just the right thing to do - it’s smart business.

The Political Backdrop: Navigating the Pushback

Not to state the obvious, but the political climate has shifted dramatically of late. Even then though, companies that are fully committed to DEI programs aren’t backing down. President Trump’s executive order eliminating DEI programs from federal agencies has emboldened critics, but many businesses are pushing back against the pressure. It’s not just about standing up to politics; it’s about protecting long-term value. Companies that genuinely believe in diversity aren’t reacting to trends - they’re investing in strategies that they feel will ultimately pay off, both morally and financially.

Read the Full Story Here.

OTHER NEWS FROM THE PAST WEEK

Trump Slams Fed After Holding Rates Steady
President Trump criticized the Federal Reserve for pausing rate cuts, arguing it’s stifling economic growth. His comments add pressure on the Fed amid rising political tensions over monetary policy. 

Telus Offers Buyouts to 700 Employees Across Canada
Telus is offering voluntary buyouts to around 700 employees as part of cost-cutting efforts. The move reflects broader industry trends amid economic uncertainty and shifting consumer demands. 

The Loonie Braces for Trump Tariffs
Predictions of where the Canadian Dollar will head if Donald Trump imposes his threatened tariffs has speculators wondering how the Loonie will fare.

Nvidia CEO Huang Meets with Trump at White House
Nvidia CEO Jensen Huang met with President Trump to discuss tech policy and supply chain issues. The meeting highlights the growing influence of semiconductor companies in economic strategy. 

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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