MARKET UPDATE – March 10^th – March 21^st, 2025

In a Nutshell: Markets remained volatile over the past two weeks but subsided somewhat as retaliatory tariff threats began to calm down and investors began to focus on underlying economic data.  Markets digested weaker corporate results and the Federal Reserve policy meeting.

 

U.S. Labour Markets

Initial Jobless Claims: Increased slightly to 223K, just below the 224K forecast.  Compared to the previous week’s 221K, this marks a small 2K rise signaling a marginal increase in unemployment.  Despite fluctuations, claims remain historically low, suggesting a stable labour market.

Job Openings (JOLTS Report): Job openings surged by 232K to 7.740 million in January, exceeding expectations of 7.65 million.  December’s figure was revised downward to 7.508 million.  Hiring and layoffs remained steady, but uncertainty looms due to tariff policies and government job cuts.  However, trade tensions and government spending cuts pose risks to labour market stability.

 

 

U.S. Economy

The Federal Reserve chose to leave interest rates unchanged as expected at its latest policy meeting, noting that it will take a cautious approach to future decisions due to uncertainty around President Donald Trump’s tariff plans.

Consumer prices rose 2.8% annualized, slowing from 3.0%, with core inflation at 3.1%.  The figure eased from 0.5% to 0.2% monthly.  These figures will likely be closely monitored by Federal Reserve officials wary of the potential impact of President Donald Trump’s policies on inflation.

Key Economic Indicators:

• Retail sales rose 0.2% in February, rebounding from a 1.2% decline in January, signaling moderate economic growth despite consumer caution.
• Producer prices slowed to 3.2% YoY, with no monthly change, easing inflation concerns.
• Business inventories increased 0.3%, potentially supporting Q1 Gross Domestic Product (GDP) growth.

Trade & Market Risks:

• U.S. container imports rose 4.7% YoY, but could decline due to trade tensions.
• Consumer credit surged to $18.08 billion, exceeding forecasts, suggesting continued consumer confidence, but slightly below prior levels.

Overall, the U.S. economy remains stable with steady consumer spending, moderate inflation, and strong manufacturing output, but trade uncertainty and Fed policy remain key risks.

 

Canadian Economy

Bank of Canada (BoC) cut its overnight rate to 2.75% to counteract trade-related economic risks, despite solid 2.6% GDP growth in Q4 2024.  With inflation near the 2% target, robust GDP growth and an uncertain economic outlook, tariffs the BoC saw cutting rates as a reasonable course of action.

Inflation surged to 2.6% in February, surpassing expectations due to the end of tax breaks and rising consumer prices, marking the highest increase in eight months.

Canada is set to impose C$29.8 billion in retaliatory tariffs against the U.S. in response to President Trump’s steel and aluminum tariffs, which now extend to derivative goods like metal furniture. Economists warn the tariffs could raise costs on consumer goods and slow economic growth.

Key Economic Indicators:

• Population growth slowed to 0.2% in Q4 2024, the weakest since 2020, with a decline in non-permanent residents.
• Home sales dropped 9.8% in February, the sharpest decline since May 2022.
• Unemployment remained at 6.6% in February, but job growth slowed significantly, adding only 1,100 jobs, compared to 76,000 in January.

The Canadian economy remains resilient but faces increasing risks from trade conflicts, slowing housing demand, and uncertainty in the labour market.  The Bank of Canada is expected to continue rate cuts to support growth.

 

 

Eurozone and UK Economy

The Bank of England (BoE) held interest rates at 4.5% and warned against assumptions of imminent cuts amid global economic uncertainty.  While policymakers believe rates will eventually decline, they remain cautious due to trade tensions and domestic economic challenges.

Key Economic Indicators:

• UK GDP contracted by 0.1% in January, reversing December’s 0.4% growth, increasing pressure on the BoE to ease monetary policy.
• UK Inflation held at 3% in January, prompting continued scrutiny from policymakers, while unemployment remained at 4.4%, the highest since May, but wage growth stayed strong at 5.9%, preventing rapid rate cuts.
• German inflation was revised down to 2.6% for February, indicating a slight easing of price pressures in Europe.
• Eurozone industrial production grew by 0.8% in January, exceeding expectations, boosted by Germany’s 2.3% expansion.  However, overall output remains 3% below 2021 levels.
• French inflation fell below 1% in February for the first time since 2021, reaching 0.9% year-on-year, mainly due to lower energy prices. This marks a sharp decline from 1.8% in January.

 

The UK economy continues to struggle with stop-start growth, complicating efforts by Finance Minister Rachel Reeves to stimulate recovery.  Meanwhile, rising geopolitical tensions between the U.S. and the European Union (EU) have raised fears of a trade war, as President Donald Trump threatens tariffs on European goods.

 

Energy

U.S. Energy Secretary Chris Wright estimated that refilling the Strategic Petroleum Reserve (SPR) to full capacity would require $20 billion and take years.  President Donald Trump aims to restore the SPR after former President Joe Biden’s administration sold nearly 300 million barrels, including 180 million in 2022 after Russia's invasion of Ukraine, pushing reserves to a 40-year low.

Recent crude oil inventory reports indicate mixed demand signals though the latest reporting suggests a 4.2 million barrel increase in crude stockpiles, surpassing forecasts and suggesting weaker demand, which is bearish for oil prices.

Meanwhile, the latest Natural Gas report showed storage declines, exceeding expectations but still lower than the previous week’s, suggesting gradual recovery in demand.

 

Reuters Market Updates http://www.reuters.com

Bloomberg Market Updates - https://www.bnnbloomberg.ca/markets

 

Market Data	S&P/TSX	S&P 500	DOW	NASDAQ	STOXX EU	WTI	GOLD
Last Week	-0.8%	-2.3%	-3.1%	-2.4%	-1.3%	0.2%	3.0%
This Week	1.7%	0.5%	1.2%	0.2%	1.1%	1.7%	0.9%

Market data taken from https://www.marketwatch.com/

 

CIBC Economics CIBC Economics: Quick Take:  Canadian CPI (Feb) (Summarized version) by Katherine Judge

Canadian inflation surged in February to 2.6% year-over-year, up from 1.9% in January, exceeding the expected 2.2%. The increase was partly due to the end of the temporary GST holiday, but even excluding tax effects, core inflation accelerated.

Certain volatile categories contributed to inflation, notably travel tour costs, which jumped 23% month-over-month, driven by strong U.S. demand.

The rise in core inflation is concerning, as it does not yet factor in the impact of upcoming tariffs, which are expected to push headline CPI above 3% in the coming months.

 

 

Credit Spreads: Recession Indicator or Market Correction? by Lawrence Gillum, CFA, Chief Fixed Income Strategist Link to Article

The recent downturn in equity markets has sparked recession fears among investors, driven by new tariffs, economic slowdown concerns, and persistent inflation.  Alongside falling stocks, credit spreads—the difference between corporate bond yields and U.S. Treasury yields—have widened, signaling increased risk aversion and unease about the economic outlook.

The ICE B of A U.S. High Yield Index Option Adjusted Spread (OAS) has risen to 340 basis points (bps), its highest since September 2024, marking an 80 bps increase since President Donald Trump’s inauguration on January 21.  Despite this rise, spreads remain below historical recessionary peaks, which have exceeded 1,000 bps in past crises like the Dot-Com Bubble, Great Financial Crisis, and COVID-19 Pandemic. Credit spreads were historically low at 259 bps during Trump’s inauguration, close to their record low of 241 bps.

 

The Recent Uptick in Credit Spreads Appears Low Relative to History

Source: LPL Research, St. Louis Federal Reserve 03/13/25;

Disclosures: Indexes are unmanaged and cannot be invested in directly.
Past performance is no guarantee of future results.

While some fear this signals a looming recession, it may be more of a market correction than a recession indicator.  Key economic data—employment, consumer spending, and corporate earnings—haven't shown sharp declines, indicating that the spread widening may reflect market repricing rather than systemic economic weakness.

 

It’s Not All About Tariffs by Brian S. Wesbury Link to Article

While have tariffs contribute to market uncertainty, the underlying issue lies in overvalued stock prices. Key valuation models, like the Buffet Indicator and Shiller CAPE PE Ratio, show that the stock market is expensive by historical standards.  The Fed Model and Capitalized Profits Model also indicate low stock returns relative to bond returns, suggesting the market is overvalued.

Despite this, that not all stocks are overpriced, and the S&P 500's concentration in 10 large-cap stocks makes it difficult for other stocks to balance out declines. The forecast for the S&P 500 by the end of 2025 is around 5,200, but the market may remain overvalued unless earnings grow significantly or bond yields fall.

 

S&P 500 Price/Book ratio  and Price/Earnings ratio - U.S. Stocks are historically expensive

Policy changes like lower taxes, cutting regulations, and reducing government size will support long-term growth, even though the U.S. economy may grow more slowly in the short term due to the unwinding of artificial stimulus.

Despite the market volatility we’ve seen in recent times, it’s not a reason to abandon stocks.  While valuations are high, there are still opportunities, and careful market analysis can help investors navigate the current environment.