Investment update

Weekly insight into the marketplace.

January 27 to 31

Stock market performance was mixed

The week began with global stock markets suffering steep loses, as investors reacted to reports that Chinese startup DeepSeek had developed a competitive AI model at much lower cost than its U.S competitors. As a result, the tech-heavy Nasdaq dropped 3.07%, and the S&P 500 fell 1.46%. AI chipmaker Nvidia took the biggest tumble, plunging nearly 17%, which amounts to approximately US$600 billion in market capitalization — the largest one-day loss for a stock in history. Meanwhile, the broader-based Dow gained 0.65%, supported by rising shares of Salesforce, Johnson & Johnson and Travelers. Canada’s TSX ended a nine-session win streak, losing 0.70%, as the stumbling tech sector weighed on performance. Tech stocks bounced back on Tuesday, helping the Nasdaq lead the Wall Street benchmarks higher. The TSX rose 0.52%, with shares of online retailer Shopify jumping 10%. On Wednesday, markets were mixed following interest-rate decisions by central banks. Again, the TSX closed in positive territory after the Bank of Canada announced a quarter-point rate cut. But the major U.S. stock indexes all fell after the U.S. Federal Reserve (the Fed) held its policy rate steady. The TSX gained another 1.31% on Thursday, and closed at a record high, supported by strong performances from the tech-sector and base metal stocks. The Wall Street benchmarks edged up following a slew of tech-company earnings reports. Meta saw its share price rise 1.6% after beating profit expectations and providing an upbeat view of its AI investments. Tesla and IBM also rose on the back of positive reports. On Friday, North American stock markets fell, and the Canadian dollar weakened, after the White House confirmed it would proceed with its plans to impose tariffs against Canada and other trading partners on Saturday.

The Bank of Canada cut interest-rates again

On Wednesday, as widely expected, the Bank of Canada cut its overnight policy rate by 25 basis points to 3%. It was the sixth-consecutive cut, bringing the cumulative reduction to 200 basis points since the current rate-cutting cycle began in June of last year. The bank also announced its plan to end quantitative tightening by starting to gradually unwind its pandemic asset purchases in early March. Despite the positive news, the threat of U.S. tariffs loomed large over the announcements. While the Bank’s economic forecast did not take tariffs into account, it did present a detailed scenario of how broad 25% tariffs on U.S. goods would affect Canada’s economy (assuming the tariffs were permanent and that all of America’s trade partners retaliated in kind). The bank expects a 2.5% hit to real GDP in the first year, along with higher inflation, which would put the economy in recession territory. The potential implications of this scenario on monetary policy are unclear, and the main message from Bank of Canada governor Macklem was: “we can’t lean against weaker output and higher inflation at the same time,” adding that policy-makers would need to assess the inflation forecast amid a weakening economy as the situation unfolds.

The Fed held rates steady

The Fed left its benchmark interest rate unchanged on Wednesday after cutting it three times in a row last year, from 5.3% to 4.3%. The official statement noted: “Recent indicators suggest that economic activity has continued to expand at a solid pace. The unemployment rate has stabilized at a low level in recent months, and labour market conditions remain solid. Inflation remains somewhat elevated.” Fed chair Jerome Powell noted that the Fed is in no hurry to make policy moves, as the economy remains strong and the tariff impact is unclear. “The range of [tariff] possibilities is very, very wide,” he said. “We don’t know for how long or how much, what countries. We don’t know about retaliation. We don’t know how it’s going to transmit through the economy to consumers. That really does remain to be seen.”