Global Equity Weekly

June 14, 2024 | 16:34

Dot Plot Twist

Economist

Robert Kavcic

Senior Economist and Director
Economics

Robert has been with BMO Capital Markets since 2006. He plays a key role... (Read more)

Robert Kavcic

Senior Economist and Director
Economics

Robert has been with BMO Capital Markets since 2006. He plays a key role... (Read more)

Equity markets were mixed this week, as encouraging U.S. inflation data helped sentiment, but most of the strength was confined to technology. The S&P 500 rose 1.6%, while the Nasdaq powered ahead by 3.2%. Indeed, technology added 6.4% within the S&P 500 and, along with communication services and consumer discretionary, were the only sectors up on the week. Meantime, the TSX slipped 1.7% amid broad-based weakness outside of technology. That included a 2.7% decline in banks, which saw National Bank announce a takeover of Canadian Western Bank at a large premium. Overseas, the uncertainty surrounding a snap election in France pulled that index down more than 6% on the week and into negative territory for all of 2024.

Wednesday was a big day, with the May U.S. CPI report and the FOMC announcement crammed into a six-hour window. Inflation came in widely better than expected, with the headline rate cooling to 3.3% y/y from 3.4% y/y in the prior month, and core inflation ebbing two-ticks to 3.4% y/y. May itself was especially soft with core inflation rising just 0.2%, and ‘supercore’ actually falling for the first time since 2021. The 3-month annualized trends are still not our friends, with core and supercore both still sporting three-handles, but they saw much needed improvements after a tough early-year run.

With that in hand, the Federal Reserve left rates unchanged as widely expected. The Fed gave a nod to that encouraging CPI report, shifting their tone from there being “a lack of” further progress to there being “modest” further progress towards the 2% target. But, the median participant now only sees one rate cut this year compared to three previously, although more easing is now expected in 2025 and ultimately leaves rates headed to the same end-point in 2026.

Source: Bloomberg

All told, markets came out of thew week in pretty good shape, with stocks holding most of their gains and the bond market still pricing in 50 bps of Fed rate cuts by the end of the year, with September still well in play. There are three CPI reports, three PCE reports and three employment reports before that September meeting, which leaves potentially enough new info in the pipeline to allow for a move—but those inflation figures have to keep cooperating.

Interestingly, a little bit of good news on the U.S. inflation front was noticeable in Canada too, with the market now pricing in better than 50/50 odds of a July rate cut. Those U.S. inflation prints are key when many consider the Bank of Canada at least somewhat bound by Fed policy—even if Governor Macklem downplayed that at the last press conference.

Major Index Performance

North American Sector Performances

(% change over period)

Table 1 - S&P 500 Sector Performance

Source: BMO Economics, Bloomberg

Table 2 - TSX Sector Performance

Source: BMO Economics, Bloomberg

TSX Relative Sector Performance

(relative to the index, year-ago = 100; dashed line = 200-day m.a.)

S&P 500 Relative Sector Performance