Happy Canada Day!

 

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North American markets were higher on the week with new all-time-highs hit south of the border for the first time since February  as we had a de-escalation of the situation in the Middle East and a White House that said the upcoming July 9^th deadline for trade deals is “not critical”. Markets had been monitoring developments on trade deals and counting down the days for the 90-day pause. While there hasn’t been a flurry of “deals”, it sounds like sufficient dialogue has been made to appease the US President.

It was otherwise a quiet week for markets, but we did have US Federal Reserve Chair Jerome Powell speaking to US Congress, and despite the pressure from his “boss”, Powell reiterated the Feds stance that interest rates are going to stay steady for a little while longer. With the economy resilient and inflation concerns lingering, the Fed will likely take the summer off as it waits for more clarity before making any changes to its policy. But that doesn’t mean the easing cycle is over.

Despite diverging views, the median dot plot still reflects expectations for two rate cuts in 2025. For 2026, officials now project just one cut (down from two), and another in 2027, implying a shallower path than in March and slightly more cautious than market expectations. Still, the gap is not wide: markets see a 3.2% rate by the end of 2026 versus the Fed’s 3.6%.

In our view, higher inflation and a gradual uptick in unemployment put policymakers in an interesting position. But we think the fog should begin to lift after summer. The Fed’s bias remains toward eventually moving from restrictive to neutral policy. A slow, shallow rate-cutting cycle—similar to the mid-1990s—could yield better market outcomes than the aggressive, recession-driven cuts seen in 2001, 2008 and 2020.

Meanwhile, BMO’s Chief Investment Strategist Brian Belski published an updated price target for the S&P 500. Or more accurately, revisited his prior target from just two months ago. Belski has restored his 6,700 S&P500 target for 2025 as markets turn their attention away from trade uncertainty and back to fundamentals. This would equate to roughly 10% from today’s level.

The signposts he called out in April are largely in place – markets are transitioning TO ‘show me’ FROM ‘scare me’. Like us, Belski believes performance is broadening, reactions from daily rhetoric are calming, and actual corporate guidance will increase coming out of the 2Q earnings reporting period. For the most part, economic and earnings projections have stabilized and, in several instances, are reverting to pre-tariff levels.

As you often hear us say, in times of uncertainty and fear, look to fundamentals. Facts over feelings WIN AGAIN. Investment decisions should never be defined by emotions or personal opinions. Unfortunately, fear and rhetoric have a way of accelerating binary decisions in life and investing – and the stock market environment is a potential “white paper” in the making. The death of “American Exceptionalism” was widely exaggerated and too vehemently applauded to hold any merit or duration. Doubling down, Belski continues to believe US stocks are the best global equity asset, offering the most consistent fundamentals, ingenuity, and diversification than any other market in the world. While we don’t agree that the entirety of the US market is the best asset class, it is undeniable that certain segments of that market offer growth opportunities that are otherwise not available in most international markets. This is why we always preach the benefits of a diversified portfolio, not only in terms of stock and bonds, but also in respect to having international exposure.

 

Sources: BMO Capital Markets US Strategy Comment Same as It Ever Was, BMO Economics EconoFACTS: Powell: Unbending Under Pressure

 

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