To my clients:

Reminder: I’ll be away for holiday the next two weeks and there will be no updates during my absence. Next update scheduled for January 9th. Although I will be connected while away, given the time of year, I’ll be checking email and monitoring the markets much more sporadically than usual. Let me again take this opportunity to wish all clients a very happy holiday season. I look forward to reconnecting with all of you in 2026!

It was a mixed week for North American stock markets with the Canadian TSX finishing up 0.7%; the U.S. Dow Jones Index down 0.7%; and the U.S. S&P 500 up 0.1%.

There were some significant data releases this week which I will briefly comment upon before calling it a year.

On Tuesday, the delayed U.S. Employment Reports for both October and November were released. The October report showed a loss of 105,000 jobs, while the November report showed a gain of 64,000 jobs. Now the October report included a significant decline in federal workers (approximately 165,000) who accepted deferred retirement packages as part of the DOGE (Department of Government Efficiency) program formerly led by Elon Musk, so it should perhaps be viewed as a bit of a one-off. But, even factoring for this one-time decline, it still looks as though employment gains in October and November might otherwise have averaged about 60,000. Such gains, while positive, nonetheless are approaching stall speed for the labor market and underscore why the Federal Reserve felt the need to lower interest rates last week.

Then yesterday, inflation data came in MUCH better than expected for November. However, here too there are caveats. Both headline inflation and core inflation (not including food and energy) came in 0.4% better than expectations and bettered the prior September reading by a similar amount (October inflations was not, and will not, be released owing to the government shutdown). BUT, because October data was skipped owing to an inability to collect the relevant data, there were assumptions made about what those data points might have revealed, and many economists think that these assumptions are well off the mark. So the suspicion is that November inflation was understated. That said, the magnitude of improvement is still noteworthy and, even if it is subject to upward revision in the months ahead, it may still indicate an improving trend. Markets yesterday and today reacted very well to this inflation surprise and turned what was likely to be a significant down week into one which was much more benign (see my usual weekly stock market results above).

So, 2025 looks like it will mark the third consecutive year of double-digit market results. With no credible probability of imminent recession, the official RBC outlook sees, as its base case, another positive year in the markets for 2026. However, return expectations should be downshifted to single digits. I share this outlook, although I can see a path to double digit returns once again if corporate earnings growth maintains its established multi-year trend. But I would not expect any further expansion in price-earnings multiples (i.e. how much an investor is willing to pay for a dollar of earnings). In my estimation, those ratios are high enough and I’d actually become uncomfortable if they rose further. Let’s hope that earnings growth alone does all the heavy lifting for market returns in 2026.

That’s it for this year! All the best,

Nick

Nick Scholte, CIM, FCSI

Senior Portfolio Manager
RBC Dominion Securities Inc. │ Tel: 604.257.7569
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