| | Close
May 16 | Close
May 9 | Weekly
Change | Net Weekly
Change % |
| DJIA | 42,654.74 | 41,249.38 | +1,405.36 | +3.41% |
| Nasdaq | 19,211.10 | 17,928.92 | +1,282.18 | +7.15% |
| S&P 500 | 5,958.38 | 5,659.91 | +298.47 | +5.27% |
| S&P TSX | 25,971.93 | 25,237.74 | +614.19 | +2.42% |
Source: Globe & Mail
From Grizzly to Giddy in 40 Days
Douglas Porter, CFA
BMO Chief Economist
Six short weeks ago, markets were staring down the barrel of the third-worst four-day stretch for stocks over the past 25 years, and were within a whisker of bear market terrain. From those lows, the S&P 500 has since snapped back 19%, including a jump of 5% this week alone, to lift it back into the black for 2025 and since the November election. The rebound has been fired up by the U.S. Administration backing off from the most extreme trade position, first by dialing down the reciprocal tariffs on April 9, and then by reeling in the triple-digit charges on China this week, both for a 90-day pause. For equities, this has gone way beyond the pause that refreshes, with investors behaving almost as if the trade war is over and done. While the trade news is no doubt less awful, it’s still far from reassuring.
To recap the net moves, the U.S. has imposed a baseline 10% reciprocal tariff on almost all goods, save for those that are USMCA-compliant. Aside from that, there is now a 25% charge on non-U.S.-content autos, as well as on steel and aluminum, and an extra 20% on Chinese products (on top of the 10% base). We peg the combined average U.S. tariff rate at just above 14%, the highest in almost a century (and some estimates are higher yet), versus about 2% in 2024. If this is where we eventually settle—and there is no guarantee on that, with many nations likely facing a higher base rate—the economic effects have only just begun to ripple.
The hard data for April continued to flow last week, and were mild-mannered, echoing the earlier positive payrolls result. Retail sales followed a March spike with a tiny 0.1% gain, leaving them up more than 5% y/y. Industrial production was flat, while housing starts edged up from low levels. Importantly, prices were well-behaved in the first real month of the trade war, with CPI rising just 0.2% m/m for both headline and core, clipping the overall rate to a four-year low of 2.3% y/y. Producer and import prices were even milder, pointing to a moderate 0.1% m/m rise in April core PCE prices—a remarkably calm result amid the wild storm in tariff policy last month.
This initial mild impact on prices fits well with our bias that the trade war is a bigger concern for growth than inflation. However, it’s early days. Walmart warned this week that a broad range of prices will be going higher in the weeks ahead, as the pre-tariff inventories are now running low (presumably including dolls and pencils). And consumers are fully convinced inflation is on its way; the University of Michigan survey finds that five-year expectations have vaulted to a 35-year high of 4.6% from 3.0% at the start of the year. But even with all the warnings on rising prices, note that the latest NFIB survey of small businesses found that a non-descript 28% of them planned on raising prices on net, compared with a 10-year average of 26%, and more than 40% in 2021/22. The fact that oil prices remain subdued at around $62—after a brief spike on the China pause—supports the view that inflation is unlikely to break out in a big way.
On the growth front, in spite of our ongoing concerns about the new tariff world, we will readily admit the risks have been tempered by the semi-ceasefire with China. With both stepping back from the trade abyss, we are nudging up our 2025 GDP calls for China (by two ticks to 4.4%) and the U.S. (also by two ticks, as it were, to 1.3%). To be clear, both are still well below last year’s pace, and also below potential, so the trade war is still very much leaving a mark. But we’ve moved away from a possibly much darker outcome for the global economy. The question is whether that modest step is enough to warrant the newfound optimism among investors.
With the trade war partly on hold, and the Fed sidelined for an extended period, market focus on the policy front is now turning to the fiscal outlook. Washington is getting down to the gritty details on the budget deal, with the battle between budget hawks and self-declared moderates within the Republican party. With a razor thin majority in both chambers, and zero chance of support from the Democrats, almost all members must be brought onside. The early indications—stress on early—are that the final package will lean heavier on tax relief than spending savings, pushing the deficit higher yet. Treasury reported this week that even with a solid surplus of $258 billion in tax-heavy April, the 12-month running tally is still a towering $2.03 trillion budget deficit. Meantime, the debt ceiling limit looms, with the zero hour now pegged in August. Despite these realities, the Treasury market saw only a trifling net rise in yields, with 10s finishing just above 4.4% after a mid-week test of 4.55%.
Canadian markets followed a broadly similar pattern, highlighted by a record close in the TSX on Thursday. While the U.S.-China truce has few direct implications for Canada, the less negative backdrop for the U.S. and global economies is a small indirect positive. Non-energy commodity prices have mostly regained their footing after a brief, but intense, downdraft in early April. And the reality is that Canada currently faces about the lightest touch overall on broad U.S. tariffs—albeit with a heavy hand on the important auto and metals sectors.
So similar to our revisions elsewhere, we are nudging up our GDP growth call on Canada by three ticks this year (to 1.0%) and two ticks in 2026 (to 1.2%). Both are far from strong, at below potential (of closer to 1.8%) and below the average soft pace of the past two years (1.5%).
We had been holding off on revising our Canadian projection earlier, awaiting more details on the domestic fiscal front. There were two key pieces of news this week, helping clarify the outlook. First, Ontario delivered its budget, the last and the biggest of the 10 provinces. The plan was relatively heavy on the spending side to support the economy through the trade trauma, taking the deficit from $6 billion in FY24/25 (or 0.5% of GDP) to $14.6 billion in 25/26 (1.2% of GDP). This brings the combined provincial deficits to an expected $45 billion this fiscal year (or 1.4% of GDP), more than double the prior year.
The other key piece of fiscal news is that we will not be getting a federal budget anytime soon, with Finance Minister Champagne pointing to a Fall Economic Statement instead. Suffice it to say this is a surprise. While Ottawa can certainly enact tax and spending measures in the interim—the 1 point cut in the lowest personal marginal rate was signed off last week for July 1—it leaves us with a combination of last December’s economic statement and the Liberal election platform as a fiscal guide. The latter looked for a budget deficit of around $62 billion this fiscal year, or 2% of GDP, up from $48 billion of 1.6% of GDP last year (latest official forecast). Taken together, the combined provincial and federal deficits will likely weigh in around 3½% of GDP this year, up more than 1 ppt from last year, albeit about half the expected gap in Washington.
Frank and Mark.
Source: Globe & Mail, BMO Capital Markets, Bank of Canada, Bloomberg.
Canada
The S&P/TSX Composite Index closed at 25,971.93 last Friday, marking a weekly gain of 614 points or 2.4%. This performance extends the index’s winning streak to six consecutive weeks, reaching a new record high.
Last week the investor optimism was bolstered by easing global trade tensions, notably a 90-day pause in the U.S.-China tariff dispute, and softer U.S. inflation data. These developments spurred gains in industrial and financial sectors.
Oil prices declined but are set for a second straight weekly gain due to improving trade relations. Conversely, gold prices have fallen, heading toward their biggest weekly drop in six months, while copper shows modest gains.
The Canadian dollar dipped slightly, closing at 71.53 cents U.S., down 0.13 cents.
YTD, the TSX up 5.03%, and the benchmark 10-year yield ended the week to yield 3.17%.
U.S. & Global
The S&P 500 and Dow Jones Industrial Average turned positive again for the year, sitting on a 1.3% and 0.3% gain, respectively in 2025 after last week's moves.
The market was enthused by a notable easing in the trade war with China. Both the U.S. and China agreed to a 90-day reduction in tariffs, which went into effect Wednesday. The U.S. dropped tariffs on China from 145% to 30% and China dropping tariffs on the U.S. from 125% to 10%.
The good news for the market is that the reductions were larger than expected. The less than good news for the market is that the reductions expire in 90 days if both sides can't reach a more permanent trade deal.
The market was focused on the positive takeaway, fueling an everything-rally. Moves were helped by short-covering activity and a fear of missing out on further gains.
Also, there was an emerging view that stocks were due for a period of consolidation after a big run since the April lows, but that didn't materialize in a meaningful way. The continued resilience acted as an additional upside catalyst for stocks.
Increased attention to mega caps and large-cap tech stocks had an outsized impact on the major equity indices. The Vanguard Mega Cap Growth ETF (MGK) jumped 7.2% last week. NVIDIA (NVDA) surged 16% and Apple (AAPL) was up 6.4% from the previous Friday.
Treasury yields moved noticeably higher, but that didn't deter stocks. The 10-yr yield rose above 4.50% at its high last week before settling at 4.44%, which is six basis points higher than the previous Friday. The 2-yr yield jumped ten basis points from previous week to 3.98%.
YTD, the DJIA is up 0.26%, the NASDAQ is down 0.52%, and the S&P 500 is up 1.30%. The 10-year Treasury yield ended the week to yield 4.44%.
Source: BMO Capital Markets
The Good: New Motor Vehicle Sales +9.0% y/y (Mar.); Housing Starts +30.1% to 278,606 a.r. (Apr.)
The Bad: Manufacturing Sales Volumes -1.1%; Wholesale Trade Volumes -0.3% (Mar.); Existing Home Sales -0.1% (Apr.)—or 9.8% below a year ago; MLS Home Price Index -3.6% y/y (Apr.); Building Permits -4.1% (Mar.); Global investors sell Canadian stocks for the 3rd month in a row (Mar.)
The Good: Consumer Prices +0.2% (Apr.); Producer Prices -0.5% (Apr.); Initial Claims flat at 229,000 (May 10 week); Housing Starts +1.6% to 1.36 mln a.r. (Apr.)
The Bad: U of M Consumer Sentiment Index -1.4 pts to 50.8 (May P)—2nd lowest since at least the 1950s; Retail Sales (control measure) -0.2% (Apr.); Industrial Production unch (Apr.)—and manufacturing -0.4%; NFIB Small Business Optimism Index -1.6 pts to 6-mth low of 95.8 (Apr.); NAHB Housing Market Index -6 pts to an 18-mth low of 34 (May); Building Permits -4.7% to 1.41 mln a.r. (Apr.); Retail Inventories -0.2% (Mar. F)
Source: Canoe.com/Associated Press
Vancouver Island University students create world's largest Nanaimo bar
A Nanaimo bar whose recipe called for butter equivalent to the weight of a baby elephant has been certified as the world’s largest.
Baked by students at Vancouver Island University, the record-setting bar is 21.3 metres long, 0.9 metres wide and weighs nearly 500 kilograms.
“I will really remember this experience for the rest of my life, just seeing the Nanaimo community come down and celebrate us, and seeing all the people cheering for us and excited for us to see and to break this record and have the record really hold in Nanaimo,” said Lily David, a student from VIU’s Professional Baking and Pastry Arts program.
Aron Weber, the program’s chair, said students got the idea a few years ago when they were brainstorming ways to generate publicity and excitement for a business.
Weber said they looked up world records and found that the largest Nanaimo bar was made in 2020 by a chocolatier from Levack, Ont., with a 240-kilogram bar.
The new record-holding bar recipe includes 125 kilograms of butter, 91 kilograms of confectioners’ sugar, 77 kilograms of graham cracker crumbs and 68 kilograms of dark chocolate.
“You have a nice, crunchy base that has some walnuts and some coconut, and then a really nice, soft, fluffy custard, and then a perfect temperature ganache on top,” David said.
The record has been certified by two national organizations that represent VIU Trades students: the Baking Association of Canada and the Culinary Federation of Canada.
Weber said it’s like a dream come true that students and faculty worked together to create the bar.
“Everything we do here, like, what a great learning experience for our students, too,” Weber said.
“It’s not every day you get to build something so huge.”
VIU said in a statement that the Nanaimo bar is a world-renowned dessert, and it was featured on the menu when U.S. President Barack Obama hosted a state dinner in 2016 for Prime Minister Justin Trudeau in Washington, D.C., and it has received the stamp of approval from Canada Post in 2019.
Nanaimo Mayor Leonard Krog said the bar is much more than a “sweet, mouth-watering dessert.” He said it’s “an icon of the city.”
“It only makes sense that the largest Nanaimo bar ever made is put together here. Many thanks to these talented VIU students for beating the record right here at home,” said Krog.
The goal of the event was more than just setting a new world record. It also raised money to buy new ovens for the university’s culinary programs, since the current ovens are nearing the end of their lifespans.
The project also brought faculty members and students together. Weber said four alumni who initially came up with the idea for the world’s biggest Nanaimo bar years ago came back for this event, with two of them coming all the way from Scotland.
“They are all very successful in the baking industry and we’re super proud of them,” said Weber, adding that he is thankful for all the support.
