What We Are Watching This Week
- Durable Goods
- Consumer Confidence
- FOMC and Bank of Canada Interest Rate Decisions
- US PCE Core PCE
Highlights From Last Week
- US Leading Indicators
- Existing Home Sales
- S&P Flash US Services and Manufacturing
Major indexes ended the holiday-shortened week higher, with the S&P 500 reaching a new record high on Thursday before a slight decline on Friday. Growth stocks outperformed value stocks for the first time this year, and large-cap indexes outperformed smaller-cap peers. The week’s headlines were dominated by political developments following President Donald Trump’s inauguration. Notably, Trump did not impose new tariffs on his first day in office, alleviating some investor concerns. Instead, he ordered a review of U.S. trade policies and pledged to impose 25% tariffs on Canada and Mexico in February. Trump also signaled a preference to avoid tariffs on China, fueling optimism for a potential trade deal between the two largest economies. These developments supported positive market sentiment early in the week.
Canadian stocks wrapped up a strong week with modest gains on Friday, as investors remained optimistic about the Trump administration’s economic plans for the U.S. economy. The TSX index rose 34.41 points to close at 25,468.49, marking a weekly gain of 410 points, or 1.64%. For the month, the index has climbed 2.8%. Meanwhile, the Canadian dollar inched up 0.02 cents to 69.70 cents U.S. Despite the gains, trade tensions lingered as the U.S. signaled dissatisfaction with the trade surpluses of allies like Canada and the European Union while renewing threats of new tariffs. Earlier in the week, President Trump mentioned possibly imposing 25% duties on imports from Canada and Mexico starting in February. On the economic front, Statistics Canada reported a 0.1% month-over-month decline in the new housing price index for December. Among the 27 census metropolitan areas (CMAs) surveyed, prices decreased in seven, remained unchanged in 13, and rose in the remaining seven.
The pan-European STOXX Europe 600 Index rose 1.23% after U.S. President Trump refrained from announcing new tariffs in his initial days in office. European stocks also gained on growing expectations that the European Central Bank (ECB) might continue cutting interest rates. France’s CAC 40 Index climbed 2.83%, Germany’s DAX gained 2.35%, and Italy’s FTSE MIB fell 0.18%. The UK’s FTSE 100 remained primarily unchanged. In the eurozone, business activity returned to marginal growth in January, with the composite output index rising to 50.2 from 49.6, signaling slight expansion. The services sector grew modestly for the second consecutive month, while manufacturing stayed in contraction but showed optimism for future output. France’s activity remained in contraction, but Germany’s downturn stabilized, ending six months of declines. Elsewhere in the bloc, business activity expanded modestly for the 13th consecutive month.
In December 2024, the US Conference Board Leading Economic Index (LEI) declined by 0.1% to 101.6, following a revised 0.4% increase in November. Over the second half of 2024, the LEI fell by 1.3%, an improvement from the 1.7% decline in the first half. Factors like low consumer confidence, weak manufacturing orders, rising unemployment claims, and fewer building permits contributed to the decline, though half of the index’s components showed positive contributions. Despite ongoing challenges, reduced negative growth rates suggest fewer economic headwinds, with real GDP growth expected at 2.3% in 2025. The Conference Board Coincident Economic Index (CEI) rose 0.4% in December to 114.1, following a 0.2% rise in November. It grew by 0.9% in the latter half of 2024, slightly outpacing the 0.7% increase in the first half. Improvements were seen across all four components—industrial production (notably recovering after earlier declines), personal income, payroll employment, and manufacturing and trade sales. The Conference Board Lagging Economic Index (LAG) increased by 0.1% to 118.5 in December, following a 0.2% rise in November. However, its six-month growth rate remained negative at -0.5%, reversing part of the 0.8% gain from the year’s first half.1
The LEI is no longer signalling a risk of recession
For the week ending January 18, the US Department of Labor reported that seasonally adjusted initial unemployment claims rose to 223,000, an increase of 6,000 from the prior week’s unchanged level of 217,000. The 4-week moving average also increased slightly, reaching 213,500, up by 750 from the previous week’s unrevised average of 212,750. In the week ending January 4, the total number of continued weeks claimed across all benefit programs was 2,301,359, reflecting an increase of 87,908 from the previous week. By comparison, there were 2,148,149 claims filed during the same week in 2024.2
On Friday, the National Association of Realtors reported that existing home sales increased by 2.2% in December to a seasonally adjusted annual rate of 4.24 million, marking the strongest pace since February 2024 (4.38 million). Sales were up 9.3% year-over-year, the largest annual gain since June 2021 (+23.0%). The median existing-home sales price rose 6.0% from December 2023 to $404,400, representing the 18th consecutive month of year-over-year price growth and the largest increase since October 2022 (+6.5%). Despite the strong fourth-quarter performance, annual existing home sales fell to 4.06 million in 2024, the lowest level in nearly 30 years. Meanwhile, the median price reached a record high of $407,500 for the year. At the end of December, the inventory of unsold existing homes decreased by 13.5% from the prior month, totaling 1.15 million, equivalent to a 3.3-month supply at the current sales pace.3
US business activity continued growing in January, albeit slower than December’s peak. The manufacturing sector expanded for the first time in six months, while service sector growth decelerated but remained robust. Firms expressed optimism about future output, driven by confidence in new government policies, which fueled the fastest hiring rate in two and a half years. Service sector hiring surged, and manufacturing employment rose modestly. However, inflationary pressures intensified, with input costs and selling prices increasing at the highest rates in four months. Rising material and staff costs drove inflation in both manufacturing and services, with higher costs passed on to customers. The S&P Global US PMI Composite Output Index fell to 52.4 in January from December’s 55.4, reflecting slower growth, particularly in services, where output rose at its slowest pace since April. Manufacturing output grew slightly after previous declines, supported by improved domestic demand and a reduced loss in export orders, though adverse weather and falling overseas orders weighed on some businesses. Future sentiment remained strong, with optimism about the economy and government policies boosting confidence, especially in manufacturing. However, concerns lingered about potential tariffs, supply chain disruptions, high prices, and interest rate hikes. While manufacturers saw marginal improvements in output and new orders, challenges such as cost pressures, supply chain delays, and inventory reductions persisted. Despite these hurdles, the PMI for manufacturing edged into growth territory, signaling cautious optimism for 2025.4
Consumer sentiment declined for the first time in six months, falling 4% from December. While personal financial assessments improved for the fifth month, all other index components weakened, with declines observed across income, wealth, and age groups. Buying conditions for durable goods softened but remained significantly better than six months ago, as many consumers aimed to avoid anticipated price increases. Despite reporting higher incomes, concerns about unemployment rose, with 47% of consumers expecting joblessness to increase—the highest level since the pandemic recession. Inflation expectations surged, with year-ahead expectations rising from 2.8% in December to 3.3%, the highest since May 2024. Long-term inflation expectations also increased from 3.0% to 3.2%, matching November 2024 levels. These increases were consistent across income and educational groups and reflected concerns about anticipated policies, such as tariffs. Many consumers expressed urgency in purchasing to avoid future price hikes, with robust auto and retail sales data supporting this trend. The survey, completed on Inauguration Day, revealed mixed consumer sentiment as the public awaited further clarification and implementation of the new administration’s policies. Inflation concerns, mainly linked to expected policy changes, were prominent in consumer interviews. While optimism about personal finances persisted, broader economic uncertainty and rising inflation expectations tempered overall sentiment.5
| WK | Year To Date | |
| Dow | 2.15% | 4.42% |
| S&P500 | -2.40% | 3.73% |
| Nasdaq | 1.65% | 3.33% |
| S&P400 Mid-cap | 1.11% | 4.96% |
| Russell | 1.40% | 3.48% |
| TSX | 1.64% | 2.80% |
| Oil | -3.70% | 8.61% |
- https://www.conference-board.org/topics/us-leading-indicators
- https://www.dol.gov/ui/data.pdf
- https://www.nar.realtor/newsroom/existing-home-sales-ascended-2-2-in-december
- https://www.pmi.spglobal.com/Public/Home/PressRelease/93dcd42e0e5f44d3899605d537b6c350
- http://www.sca.isr.umich.edu/
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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