Market rally takes a breather, as focus returns to inflation and Fed policy
Key takeaways
- This past week, stock markets gave back some of the robust post-election gains. The S&P 500 was down about 2% for the week, while the Canadian TSX index was up about 0.5%. Nonetheless, gains for the full year still exceed 23% for the S&P 500 and 18% for the Canadian TSX.
- U.S. consumer price index (CPI) inflation data for the month of October was in line with expectations. While there continues to be a downward trend in inflation broadly, there are components of prices that remain elevated. Areas like shelter, rent, and even motor vehicle insurance have not moderated as much or as quickly as expected. Nonetheless, we continue to see potential for inflation to gradually reach the Fed’s 2.0% target in the months ahead and perhaps settle in the 2.0% – 3.0% range longer-term.
- The uncertainty around U.S. policy, particularly around tariffs, has also sparked some caution in markets. While tariffs can be a tax on consumers, history shows us that over time the impacts of tariffs, especially targeted tariffs, tend not to be a long-term driver of inflation.
- Overall, we are entering a seasonally stronger period for financial markets during the last couple months of the year. While some of this return may have been pulled forward after U.S. elections, positive fundamentals continue to underpin the bull market. We would expect policy uncertainty to spark bouts of volatility in the months ahead, but we…
