Earnings, inflation and AI drove performance
The major North American stock markets started the week on a down note, as renewed conflict in the Middle East pushed oil prices sharply higher and revived inflation concerns. Canada’s TSX slipped 0.15% on Monday, while U.S. markets posted broader declines. The Dow fell 0.26%, the S&P 500 dropped 0.79% and the Nasdaq lost 1.55%. Technology shares were among the biggest drags, with AI-related stocks coming under pressure amid ongoing questions about valuations and future demand. Investors also prepared for the start of second-quarter earnings season and key inflation reports.
Sentiment improved on Tuesday after U.S. consumer price data came in lower than expected. This helped ease concerns that rising oil prices would accelerate inflation, and reduced expectations for near-term interest-rate increases. The Nasdaq led the major U.S. indexes higher, gaining 0.90%, as investors bought back into semiconductor and AI-related stocks. The S&P 500 advanced 0.38% and the Dow edged up 0.02%. Strong quarterly results from several major U.S. banks also helped bolster investor confidence. The resource-heavy TSX rose 0.19%, supported by gains in the basic materials sector with gold prices climbing sharply.
Stock markets extended their gains on Wednesday following another encouraging U.S. inflation report and a fresh round of stronger-than-expected corporate earnings. The Dow added 0.29%, the S&P 500 rose 0.38% and the Nasdaq gained 0.62%. The TSX advanced 0.27%, supported by strength in financial stocks.
The benchmark indexes pulled back on Thursday. Canada’s TSX fell 0.21%, pressured by weakness in the materials sector, as gold prices tumbled. U.S. markets also moved lower, with the Dow losing 0.20%, the S&P 500 falling 0.51% and the Nasdaq dropping 1.47%. Semiconductor and AI-related stocks led the decline, as investors continued to debate whether spending on AI infrastructure can justify the sector’s strong gains over the past year. Shares of several chipmakers moved lower despite Taiwan Semiconductor reporting stronger-than-expected results and raising its capital spending outlook.
Markets finished the week in negative territory, as AI-related stocks and escalating tensions in the Middle East continued to weigh on investor sentiment. The TSX fell 0.22% on Friday, while U.S. markets posted broader declines. The Dow dropped 0.77%, the S&P 500 fell 1.01% and the Nasdaq lost 1.40%. Several high-profile technology companies, including Nvidia, came under pressure, while Netflix shares declined following an underwhelming revenue outlook.
The Bank of Canada kept rates unchanged
Canada’s central bank left its benchmark overnight rate unchanged at 2.25% on Wednesday, marking the sixth consecutive meeting without a change in monetary policy. The decision was widely expected and reflected the bank’s view that interest-rate levels remain appropriate as the economy continues to recover and inflation gradually moves back toward its 2% target.
In its policy statement, the bank noted that “Canada’s economy is showing signs of improvement” and that “growth is picking up.” The bank also acknowledged that inflation remains elevated, largely because of higher energy costs linked to conflict in the Middle East. However, policy-makers continue to view most of those pressures as temporary. Excluding gasoline, inflation was just 2.2% in May, while measures of core inflation remained close to the bank’s target.
The bank now expects the Canadian economy to grow 0.7% in 2026 before strengthening to 1.8% growth in both 2027 and 2028. While labour-market conditions remain soft and uncertainty remains elevated, policy-makers expressed growing confidence that the recovery is gaining traction.
U.S. inflation cooled while consumer spending remained resilient
On Tuesday, the U.S. Consumer Price Index report showed inflation slowed to 3.5% in June from 4.2% in May, coming in below economists’ expectations. Investors welcomed the surprising news, which eased concerns that rising energy prices and renewed tensions in the Middle East would drive inflation higher and lead to additional interest-rate hikes. Instead, expectations for a July rate increase declined following the release.
More encouraging news arrived Wednesday when the Producer Price Index, which measures inflation at the wholesale level, unexpectedly fell 0.3% in June. The decline suggested that businesses are facing less pricing pressure than anticipated, potentially reducing the risk of higher costs passing to consumers in the months ahead.
On Thursday, retail sales data indicated that consumer spending remains resilient in the U.S. Retail sales increased 0.2% in June following a 1.0% gain in May, while core retail sales, which feed directly into gross domestic product calculations, rose 0.5%. Spending was supported by vehicle purchases and online shopping activity, even as some consumers became more selective in their purchases.
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Canadian inflation and retail sales data for June
Investors will receive further insight into the state of the economy when Statistics Canada releases its latest Consumer Price Index report on Monday (July 20) and retail sales figures on Wednesday (July 22).
More important dates
- July 28 to 29: U.S. Federal Reserve interest-rate decision
- August 3: Canadian markets closed for civic holiday
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