To my clients:
It was an up week for North American stock markets with the Canadian TSX finishing up 1.7%; the U.S. Dow Jones Index up 1.1%; and the U.S. S&P 500 up 1.2%.
Shorter update this week…
The Federal Reserve, as expected, cut rates by 0.25% on Wednesday. As I have previously written, there was an outside chance at a 0.50% cut. While this didn’t happen, the Fed did signal that another two cuts might be forthcoming before year end. Moreover, the strategists at PIMCO (the world’s largest bond fund managers and one of the two managers I use for fixed income assets held by my discretionary clients) believe that through mid-year 2026, the Fed will make up to another five 0.25% cuts in addition to this week’s cut. In other words, the Fed looks set to backstop a slowing labor market with a material reduction in interest rates and, when the Fed is so inclined, the old saying “Don’t Fight the Fed” comes to the fore. This aphorism notes that history shows a strong correlation between a Fed in active rate cutting mode and rising stock markets. For the week the markets embraced this perspective (see my traditional opening market summary above).
Encouragingly, the most significant data release this week tempers (though doesn’t yet eliminate) some of the recent labor market concerns. I speak of the weekly jobless claims which had been consistently rising the past 6 weeks and, if they continued along this recent trajectory, were in danger of “spiking” to over 300,000 claims for the week. Weekly jobless claims are a metric RBC has long prioritized as a timely indicator of possible recession. Had claims indeed spiked to over 300,000, I’d likely have taken some initial modest defensive action in client portfolios with potentially more such actions to come. Thankfully, this week’s data was much better than expected and the near-spike was fully erased and then some. Specifically, weekly claims fell by 33,000 to 231,000 following the previous week’s 28,000 increase to 264,000. For what its worth, a reading of 231,000 is only slightly above the average for the past 12 months. Hopefully next week’s reading confirms the decline seen this week and this metric can be put on the backburner.
That’s it for this week. All the best,
Nick
Nick Scholte, CIM, FCSI
Senior Portfolio Manager
RBC Dominion Securities Inc. │ Tel: 604.257.7569
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