MARKET UPDATE: DURABLE GOODS, CONSUMER CONFIDENCE, FOMC AND BANK OF CANADA INTEREST RATE DECISIONS, US PCE CORE PCE

What We Are Watching This Week 

  • ISM Manufacturing and Services 
  • Job Openings 
  • ADP Employment Report 
  • US employment Report 

Highlights From Last Week 

  • Durable Goods 
  • Consumer Confidence 
  • FOMC and Bank of Canada Interest rate decisions 
  • US PCE Core PCE 

U.S. stocks ended the week mostly lower, with the Dow Jones Industrial Average marking its third consecutive week of gains, while the Nasdaq Composite saw significant declines. A major factor behind the Nasdaq’s drop was a 17% plunge in NVIDIA shares on Monday, triggered by competitive concerns after Chinese AI developer DeepSeek unveiled a more efficient large language model. Meanwhile, earnings season provided mixed momentum, as companies representing 40% of the S&P 500 reported results. Positive earnings surprises, particularly from major tech firms like Meta and Apple, helped offset earlier losses and provided late-week support for the market.  

Canada’s main stock index struggled for direction on Friday as investors awaited the government’s response to U.S. President Donald Trump’s upcoming tariffs on Canada and Mexico, set to take effect this weekend. The TSX dropped 275.15 points, or 1.1%, to close at 25,533.10, though it still posted a weekly gain of 64.1 points, or 0.25%. On the economic front, Statistics Canada reported a 0.2% GDP decline in November, with contractions in both services and goods-producing sectors. The Canadian dollar weakened, slipping 0.14 cents to 68.85 cents U.S. With the deadline for Trump’s trade duties looming, investors were assessing the potential economic impacts on Canada and its trading partners. 

The pan-European STOXX Europe 600 Index rose 1.78% to hit a record high, driven by strong earnings and the European Central Bank’s (ECB) decision to cut interest rates. Germany’s DAX gained 1.58% and reached a new intraday peak, Italy’s FTSE MIB added 0.75%, France’s CAC 40 rose 0.28%, and the UK’s FTSE 100 climbed 2.02%, helped by a weaker pound sterling supporting multinational companies. The ECB cut its key deposit rate by 0.25% to 2.75%, with President Christine Lagarde noting that disinflation is progressing but that policy remains restrictive. Lagarde refrained from predicting when rate cuts would end, emphasizing that it is too early to make that determination. 

In late 2024, US manufacturing and business investment showed signs of recovery, though uncertainty remains regarding the end of a two-year industry slump. Core durable goods orders, excluding transportation, rose 0.3% in December and increased in four of the past five months, indicating underlying demand. However, durable goods orders fell 2.2% overall due to a drop in Boeing bookings. For 2024, core orders rose just 0.6%, declining from 1.7% in 2023 to 6.5% in 2022. Manufacturers are cautiously optimistic heading into 2025, with hopes pinned on lower inflation, reduced interest rates, and more clarity on Trump’s tariffs. However, high interest rates and lingering inflation remain challenges. Business investment improved toward the year’s end, with core orders rising 0.5% in December following a 0.9% gain in November. While the manufacturing sector still holds economic influence, its recovery path remains unclear amid ongoing headwinds.1 

In January 2025, the Conference Board Consumer Confidence Index fell 5.4 points to 104.1, marking its second consecutive monthly decline. The Present Situation Index, reflecting views on current business and labor market conditions, dropped sharply by 9.7 points to 134.3. The Expectations Index also declined by 2.6 points to 83.9, though it remained above the recession warning threshold of 80. Despite weaker assessments of current business and job conditions, positive signs emerged. Consumers felt more optimistic about their family’s finances, with six-month expectations for financial improvement reaching a record high. Recession concerns remained stable near series lows, and over half of consumers (52.9%) anticipated stock prices would rise in the coming year. Inflation expectations increased slightly to 5.3%, driven by recent price stickiness, and 51.4% of consumers anticipated higher interest rates. Consumer purchasing plans for homes, cars, and big-ticket items mainly were flat, though vacation plans declined further. Current business conditions deteriorated, with fewer consumers (18.4%) rating them as “good” and more reporting job availability as “hard to get” (16.8%). Expectations for future business conditions and job growth were also less optimistic, with slight increases in those expecting worsening conditions. Confidence varied by demographics, with consumers under 55 leading the decline. Households earning over $125K experienced the largest drop in confidence, while lower-income groups reported gains. Overall, consumer confidence remains in a relatively stable, narrow range despite short-term setbacks.2 

 On Wednesday morning, the Bank of Canada reduced its overnight rate to 3% and ended quantitative tightening, planning gradual asset purchases in March to support growth. The January MPR highlights global uncertainty, particularly potential US trade tariffs. Canada’s GDP is expected to grow 1.8% annually in 2025-2026, with inflation stabilizing near 2%. While past rate cuts have boosted consumer spending and housing, business investment remains weak. The Bank will monitor trade risks and economic conditions to guide future policy adjustments.3 

On Wednesday afternoon, the Federal Reserve maintained its federal funds rate at 4.25%-4.5%, citing steady economic growth, a stable low unemployment rate, and robust labor market conditions. While inflation remains elevated, the Fed repeated its goal of returning it to its 2% target while ensuring maximum employment. The Committee will evaluate economic data, risks, and financial developments to guide future policy changes. It continues reducing asset holdings and remains prepared to adjust policies if risks threaten its dual mandate.4 

The US Labor Department reported that for the week ending January 25, seasonally adjusted initial jobless claims totaled 207,000, down 16,000 from the previous week’s unrevised figure of 223,000.  

The 4-week moving average declined by 1,000 to 212,500. Continued benefit claims across all programs for the week ending January 11 reached 2,272,805, a decrease of 28,554 from the previous week. In comparison, 2,081,002 claims were filed during the same week in 2024.5 

The Federal Reserve’s key inflation gauge accelerated in December, complicating its goal of achieving 2% inflation and reducing the likelihood of a near-term rate cut. The PCE index rose 0.3%, the highest increase since last April, while core inflation, excluding food and energy, grew 0.2% and remained at 2.8% year-over-year. Despite core inflation being a more reliable predictor of future trends, it has only slightly declined from 3% a year ago. The Fed expects it may take another year or two to hit its 2% target. It should be noted that persistent inflation and a strong economy will require more time before rate cuts become feasible. Fed Chair Jerome Powell expects inflation to ease, though he did not specify a timeline. The Fed forecasts PCE inflation to end 2025 at 2.5%. However, new Trump administration policies aimed at boosting growth and restricting imports and immigration could elevate costs, adding uncertainty to the inflation outlook. Powell emphasized it’s too early to gauge their economic impact. Hawkish Fed Governor Michelle Bowman expects inflation to decline in 2025 but warns of potential price pressures. December’s annual inflation rate hit a seven-month high of 2.6%, up from 2.4% in November, reversing a September low of 2.1%. With inflation rising, the Fed kept its benchmark fed funds rate unchanged on Wednesday. This rate influences broader borrowing costs for households and businesses, reflecting the Fed’s cautious approach amid economic uncertainty.6 

Next week, a range of key U.S. economic data will be released, starting with the ISM Manufacturing and Services reports, which are expected to show slight improvements. Following that, attention will shift to job openings, the ADP employment report, and the Labor Department’s U.S. employment data on Friday. Job openings are projected to remain relatively steady at 8.1 million, while the Labor Department’s employment report is anticipated to show 175,000 new jobs, down from the previous 256,000. The U.S. Federal Reserve keeps a close eye on these employment-related reports as they provide crucial insights into the health and dynamics of the labor market. 

WKYear To Date
Dow0.27%4.70%
S&P500-0.50%2.70%
Nasdaq-1.64%1.64%
S&P400 Mid-cap-1.12%3.87%
Russell-0.87%2.58%
TSX0.30%3.30%
Oil-1.60%2.40%

  1. https://www.census.gov/manufacturing/m3/adv/current/index.html 
  2. https://www.conference-board.org/topics/consumer-confidence 
  3. https://www.bankofcanada.ca/2025/01/fad-press-release-2025-01-29/ 
  4. https://www.federalreserve.gov/newsevents/pressreleases/monetary20250129a.htm 
  5. https://www.dol.gov/ui/data.pdf 
  6. https://www.bea.gov/news/2025/personal-income-and-outlays-december-2024

Important Information:

Warren Gerow is an independent investment wealth consultant to Sightline Wealth Management.

Sightline Wealth Management LP (“Sightline”) is an investment dealer and is a member of the Canadian Industry Regulation Organization (CIRO) and the Canadian Investor Protection Fund (CIPF).

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The opinions and information contained in this article are those of Sightline Wealth Management (“Sightline”) as of the date of this article and are subject to change without notice. Sightline endeavours to ensure that the content has been compiled from sources that we believe to be reliable. The information is not meant to be used as the primary basis of investment decisions and should not be constructed as advice. Each investor should obtain independent advice before making any investment decisions.

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