What We Are Watching This Week
- US Producer Price Index
- US Consumer Price Index
- Retail Sales
- Housing Starts and Building Permits
Highlights From Last Week
- ISM Services
- Job Openings
- ADP Employment
- Consumer Credit
U.S. equities declined during a shortened trading week due to a market closure honoring former President Jimmy Carter. Small-cap stocks underperformed large caps, with the Russell 2000 Index entering correction territory. Value stocks outperformed growth stocks, while the Nasdaq Composite dropped 2.34%, its largest weekly decline since mid-November. The week began positively after reports suggested the incoming Trump administration might take a softer stance on tariffs, lifting most indexes on Monday. However, optimism waned as President-elect Trump refuted the reports and economic data raised concerns about persistent inflation. Markets remained volatile, with traders anticipating continued choppiness due to upcoming corporate earnings, policy updates from the new administration, and Federal Reserve guidance.
Canada’s main stock index dropped over 1% on Friday as stronger-than-expected U.S. payroll data fueled concerns about a cautious approach to interest rate cuts by the Federal Reserve this year. The TSX fell 305.78 points, or 1.2%, to close at 24,767.73, its worst performance since December 18 and ending a three-week winning streak. The index lost nearly 306 points for the week, or 1.12%. The Canadian dollar increased by 0.16 cents to 69.27 cents U.S. Meanwhile, Statistics Canada reported that the economy added 91,000 jobs (+0.4%) in December, lowering the unemployment rate by 0.1 percentage points to 6.7%. Building permits fell by $739.5 million (-5.9%) to $11.7 billion in November, reflecting a slowdown in construction activity.
The pan-European STOXX Europe 600 Index rose 0.65% in local currency terms, with notable gains in Italy’s FTSE MIB (+2.82%), Germany’s DAX (+1.55%), and France’s CAC 40 (+2.04%). The UK’s FTSE 100 edged up 0.30%. Investors still expect the European Central Bank to cut interest rates in January despite rising inflation. In the UK, fiscal concerns and broader market pressures drove bond yields higher, with the 10-year gilt yield reaching 4.8%, its highest since August 2008. These increases were fueled by concerns over President-elect Trump’s policies, a hawkish U.S. interest rate outlook, and questions about the Labour government’s fiscal management. Chancellor Rachel Reeves called for initiatives to boost economic growth amid mounting investor unease. In the eurozone, inflation accelerated to 2.4% in December, surpassing the 2% target due to higher energy and services costs, while core inflation held steady at 2.7%. Retail sales showed minimal growth in November after a decline in October, but the jobless rate remained at a record low of 6.3%. These mixed data points reflect both challenges and resilience in the eurozone economy.
U.S. job openings unexpectedly increased in November, signaling steady labor demand despite signs of a slowing labor market. According to the Labor Department’s Job Openings and Turnover Survey (JOLTS), job openings rose by 259,000 to 8.098 million by the end of November. October’s figures were revised upward to 7.839 million from 7.744 million, surpassing economists’ predictions of 7.70 million vacancies. While layoffs remained low at 1.765 million, hiring slowed, with hires falling by 125,000 to 5.269 million in November. Employers, cautious after post-pandemic hiring surges, are adding workers more conservatively. In December, the Federal Reserve implemented its third consecutive interest rate cut, reducing the benchmark interest rate by 25 basis points to 4.25%-4.50%. However, the Fed now anticipates only two rate cuts in 2024, down from an earlier forecast of four, reflecting the economy’s resilience and the labor market’s sustained strength.1
Despite historical trends suggesting a drop in the Services ISM composite index in December, the PMI rose to 54.1%, a 2-point increase from November, driven by expansions in all four key subindexes. This improvement stands out against previous years, including a 2022 contraction marked by a sharp decline in the Employment Index. However, the number of industries in expansion dropped to nine, down from 14 in November. Notably, Real Estate, Rental & Leasing showed improvement while remaining in contraction. The Employment Index remained resilient at 51.4%, staying in expansion territory. However, if interest-rate cuts pause, it could limit investments in productivity-enhancing technologies, potentially driving companies to rely more on hiring workers. The November JOLTS report showed 8.1 million job openings, exceeding expectations. Survey respondents reported continued hiring, supported by the services sector’s strength over the past three months and improved hiring conditions. The Business Activity Index rose by 4.5 percentage points to 58.2%. While some respondents expressed concerns about potential tariffs and a possible strike at East and Gulf Coast ports, inventory data did not indicate widespread anxiety. This reflects a generally stable environment for business activity despite external uncertainties. The Inventories Index increased by 3.5 percentage points to 49.4%, while the Inventory Sentiment Index fell to 53.4%. Steve Miller, Chair of the ISM Services Business Survey Committee, attributed much of the buying activity to year-end patterns and risk management efforts. Historically, a post-holiday lull follows December, but the sector showed resilience with a strong start in January 2024. While Miller noted that the composite index could dip, December’s robust performance lays a solid foundation for the sector’s outlook. Moving forward, the impact of tax relief and tariff policies under the new administration will play a critical role in shaping profitability and performance across the services industry.2
The December ADP National Employment Report revealed that private-sector employment increased by 122,000 jobs, while annual pay grew by 4.6% year-over-year. Based on anonymized payroll data from over 25 million U.S. employees, this independent measure offers a near real-time view of the labor market. The report highlighted a deceleration in job and pay growth during the final month of 2024, reflecting a broader downshift in the labor market. Despite the slowdown, the healthcare sector emerged as a key driver of job creation in the second half of the year, leading all other sectors in employment gains.3
November’s Federal Reserve consumer credit report showed a notable decline in borrowing, reversing recent trends of rising credit balances. Revolving credit, such as credit cards, dropped by 12%, the steepest decline since August 2020, while nonrevolving credit, like auto loans, grew modestly at an annualized 2%. Overall, credit fell by $7.5 billion, with revolving credit outflows of nearly $14 billion offsetting October’s $15 billion growth. This decline, the third of the year, may reflect consumers prioritizing debt repayment amid high borrowing costs. Credit card APRs averaged 21.4% in November, significantly higher than pre-pandemic levels, and personal loan rates rose to 12.3%, making debt more expensive. Inflation and lingering high prices likely compounded the financial strain. Consumer behavior also shifted, with increased use of installment payment options like buy now and pay later. Despite trimming credit balances, retail spending rose by 0.7% in November, suggesting consumers temporarily paused borrowing to manage finances during the holiday season. Whether this decline signals a sustained trend or a temporary adjustment remains uncertain. December’s data will clarify whether consumers continue to reduce variable-rate debt or resume borrowing as interest rates remain elevated.4
For the week ending January 4, seasonally adjusted initial jobless claims fell to 201,000, a decrease of 10,000 from the previous week’s unrevised level of 211,000. The four-week moving average also declined to 213,000, down by 10,250 from the prior week’s average of 223,250. Continuing claims for all unemployment benefit programs totaled 1,886,283 for the week ending December 21, marking a decrease of 88,519 from the previous week. In comparison, 1,927,770 claims were filed during the same week in 2023.5
The December jobs report showed a surprising gain of 256,000 new jobs and a declining unemployment rate, signaling positive news. However, it highlights underlying softness in the labor market. Job growth was concentrated in just four sectors—health care, government, retail, and leisure and hospitality—while most industries saw minimal hiring. Retail jobs saw a significant rebound, increasing by 43,000 after a 29,000 drop in November, mainly due to seasonal adjustment distortions from a late Thanksgiving. Similarly, leisure and hospitality gains may reflect holiday hiring or recovery after fall hurricanes. Despite the solid headline numbers, job openings have sharply declined over the past year, and hiring has slowed. Long-term unemployment is a growing concern, with the number of people searching for work for over six months increasing by 50% since 2022 to 1.6 million. Economists caution against placing too much emphasis on December’s data due to seasonal volatility and potential revisions. While the report’s details appear favorable, the broader labor market remains less robust than the headline figures suggest.6ist until rates fall and Trump’s economic policies take shape.5
WK | Year To Date | |
Dow | -1.86% | -1.42% |
S&P500 | -0.50% | -0.93% |
Nasdaq | 0.71% | -0.77% |
S&P400 Mid-cap | -1.67% | -0.69% |
Russell | -3.49% | -1.84% |
TSX | -1.24% | 0.20%* |
Oil | 3.70% | 6.90%* |
- https://www.bls.gov/news.release/jolts.nr0.htm
- https://www.ismworld.org/supply-management-news-and-reports/news-publications/inside-supply-management-magazine/blog/2025/2025-01/report-on-business-roundup-december-2024-services-pmi/
- https://adp-ri-nrip-static.adp.com/artifacts/us_ner/20250108/ADP_NATIONAL_EMPLOYMENT_REPORT_Press_Release_2024_12%20FINAL.pdf?_ga=2.75054930.1995087915.1736342654-1500461244.1732224236
- https://www.federalreserve.gov/releases/g19/current/g19.pdf
- https://www.dol.gov/ui/data.pdf
- https://www.bls.gov/news.release/archives/empsit_01102025.htm
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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