Investment update

Weekly insight into the marketplace.

February 17 to 21, 2025

Markets fell sharply from all-time highs

In a holiday-shortened week for both the Canadian and U.S. equity markets, the benchmark stock indexes suffered heavy losses. The latest updates from U.S. President Donald Trump’s return to power, along with incoming economic data, and the future path of monetary policy in the U.S continued to collide and cloud the picture for investors. On Tuesday, the S&P 500 slipped 0.01% and the Dow declined 0.4%, while the tech-heavy Nasdaq eked out a 0.4% advance. On the same day, the U.S. Department of Commerce reported that retail sales in January fell 0.9% (the most in nearly two years). Retail sales were likely weighed down by cold temperatures, wildfires and motor vehicle shortage, but the report still raised concern of a slowdown in Q1 for economic growth. On Wednesday, the Wall Street benchmarks all notched moderate gains no higher than 0.2% as investors analyzed the minutes from the Federal Reserve's January policy meeting and digested Trump's most recent plan to slap tariffs on automobiles, pharmaceuticals and semiconductors. Walmart, the world’s largest retailer, reported quarterly earnings on Thursday that beat expectations, but the retailer’s dour forecast led to losses for the S&P 500, the Nasdaq and the Dow of 0.4%, 0.5% and 1%, respectively. In Canada, the TSX closed higher on Tuesday (powered by energy and financial sectors) but posted consecutive losses over the next three days, tumbling to a five-week low on Friday. Wall Street also saw a sharp sell-off on Friday with concerns growing that government policies are starting to damage the economy.

Canadian inflation rose to 1.9% in January

Canada’s annual inflation rate inched slightly higher last month to 1.9% (from December’s 1.8%) according to data released by Statistics Canada on Tuesday. The price of gasoline was a major factor in January’s uptick, climbing 8.6% year-over-year, versus the 3.5% increase in December. Prices for the food component of the consumer price index (CPI), which benefited from a full month of the GST/HST tax break, fell 0.6% on a year-over-year basis — the first yearly decrease since May 2017. Rent prices also saw a slight drop — the first since August 2022 — and market trends suggest more decreases might be on the way. Mortgage interest costs rose by just 0.2% monthly, but it was the slowest pace of inflation since mid-2022. The Bank of Canada's preferred measures of inflation, which exclude the impact of the tax break and volatile CPI components like food and gas, also edged up in January. CPI-median increased to 2.7% (from 2.6% in December), while CPI-trim accelerated to 2.7% (from 2.5%). In a separate economic report released on Friday, Statistics Canada said retail sales grew by 2.5% in December from November, led by food and beverage retailers and motor vehicle and auto part dealers.

U.S. Federal Reserve wants to see “further progress on inflation”

According to the Federal Reserve’s (The Fed’s) January 28 to 29 policy meeting minutes, policy-makers do not feel an urgent need to lower interest rates on an expediated basis. Pointing to current inflation data, which remains slightly elevated, the Fed held its key interest rates steady at a range of 4.25% to 4.5% at the January meeting. According to the minutes, policy-makers agreed the bank “was well positioned to take time to assess the evolving outlook for economic activity, the labor market, and inflation.” The minutes also outlined how “elevated uncertainty regarding the scope, timing and potential economic effects of possible changes to trade, immigration, fiscal, and regulatory policies” could impact future rate decisions. Fed officials also recognized the challenges y they may face in differentiating between long-term trends and more temporary market reactions: “In the period ahead, it might be especially difficult to distinguish between relatively persistent changes in inflation and more temporary changes that might be associated with the introduction of new government policies.”