Evidence-based enthusiasm

Economic data

Market skittishness has been a defining theme this month, with investors taking stock of current valuations. It’s not without reason: equity valuations remain rich, and credit spreads are hovering near decade-long lows. Given these conditions, a pullback was always a reasonable possibility. Still, it’s important to remember that the TSX is up nearly to 20% year-to-date, while the S&P 500 and Nasdaq are both up by more than 10%. A major driver of recent conversations has been AI, and the extraordinary levels of anticipated investment. Forecasts now range into the trillions over the next five years, prompting the understandable question: “are we heading toward a dot-com repeat?” In our view, it’s still too early to draw definitive parallels. As with any transformative technological shift, there will be clear winners and losers, which only reinforces the importance of strong fundamental research—AI-assisted or otherwise. Despite the volatility, there are plenty of reasons for optimism as we move toward the holiday season. Corporate performance remains exceptionally strong. As of early this week, with over 90% of S&P 500 companies reporting Q3 results, more than 82% have delivered positive results. Blended earnings growth sits above 13%, compared to expectations of 7.9%, marking the highest net profit margin since 2009 and the seventh consecutive quarter of positive earnings growth. And it’s not just this quarter, corporate guidance continues to improve, both in the US and globally. Combined with robust capital investment plans for 2026, the end of the government shutdown, and continued expectations for fiscal and monetary support, there’s a justifiable foundation for optimism as we head into 2026.

With the US Government shutdown now over, US economic data has started to come in, albeit at a delayed pace. This week we received the non-farm payroll report for September, with the headline number coming in at 119,000, well above expectations of +53,000. Still, the overall number was somewhat of a mixed bag, with revisions from the past two months coming in negative, and the unemployment rate rising to 4.4% from 4.3%. Additionally, growth in average hourly earnings was also modestly softer than expected on a month-over-month (MoM) basis. Overall, the report was not enough to move the market, given the data was somewhat stale and was not expected to have a material impact on a potential December rate cut. Notably, no further employment data will be released ahead of the US Federal Reserve’s next rate decision on December 10th, with both the October and November labor data points scheduled to be released on December 16th. In Canada, the Consumer Price Index (CPI) for October was released, which was roughly in line with expectations at 2.2% year-over-year (YoY), with core levels modestly falling to 3.0%, also in line with expectations. There were also further signals of optimism, with the Canadian Federation of Independent Business (CFIB) Monthly Business Barometer moving higher by 8.7 points to 55.5, with favorable outlooks for both firm performance and hiring intentions. Lastly, Canadian retail sales for September were released, which were in line with expectations of -0.7% MoM, but excluding vehicles and parts were up 0.2%. While the flash number for October was flat, overall, the number was better than expected and supports the Bank of Canada (BoC) remaining on hold in December.  

Global market reaction

Global risk assets trended lower this week, with market volatility climbing sharply. This decline persisted even as Nvidia reported better-than-expected revenue and earnings, which did little to alleviate investor concerns about the risk that major tech companies may be overspending on capital expenditures. Meanwhile, economic uncertainty lingered, as the recent government shutdown—which ended last week—has led to delays and the absence of key employment reports. On the geopolitical front, the US attempted to restart negotiations between Russia and Ukraine by proposing a revised plan to end the conflict, including a suggestion for Ukraine to cede territory.

Equity markets posted notable negative returns, with significant declines observed across major global indices. European and Japanese equities both fell by approximately 3%, retreating from recent all-time highs. Emerging market equities also suffered substantial losses, declining by around 2.7% during the period. Bond markets weakened as well, with pronounced softness in Japan, where 10-year and 30-year yields rose by nearly 15 and 20 basis points, respectively, amid concerns about increased spending as the new government prepares fresh stimulus measures. European 10-year yields also increased, though the moves were relatively muted in comparison. The US dollar advanced by about 1%, reversing last week’s decline, continuing to trade near multi-month highs. Oil prices finished roughly unchanged, giving up earlier gains on a potential easing of geopolitical risks. Cyclical metals slid by about 3% as concerns of a slowdown in global growth outweighed ongoing supply constraints and persistently tight copper inventories.

Bond market reaction

Bond yields moved lower over the week as risk‑off sentiment deepened, weighing on risk assets. In the US, the end of the government shutdown restarted the flow of economic data, with delayed releases now scheduled in the weeks ahead. US Treasuries outperformed Government of Canada Bonds. Futures markets now imply roughly an 80% probability of a Fed rate cut at the December 10 meeting, up from less than 50% a week ago. Corporate credit softened modestly amid the risk‑off tone, but primary issuance remained robust and generally oversubscribed. This November is tracking as the busiest on record for Canadian investment‑grade supply, with more than $13.7 billion priced compared to a five‑year average of about $9.5 billion. While investors have resisted limited concessions in some deals, spreads remain tight relative to historical ranges, and supply continues to be met by strong demand.

Stock market reaction

Equity markets anxiously waited for NVDA earnings, which fundamentally were strong, but the initial rally ran out of steam, sending US indices into negative territory for the week. The S&P/TSX Composite, while also down on the week, outperformed both the S&P 500 and the Nasdaq. The results from Nvidia were hard to argue with, as revenue was up 62.5% YoY and ahead of consensus estimates. More importantly, the outlook for next quarter also exceeded expectations, but longer term targets were hinted at perhaps already being too conservative. Following earnings, shares were up 5% on Thursday, but ended the day down 3%. This wasn’t the only Nvidia news for the week, as Brookfield Asset Management announced the launch of its inaugural AI fund strategy: Brookfield Artificial Intelligence Infrastructure Fund, or "BAIIF", with a formal target fund size of $10 billion. The fund has secured $5 billion of capital commitments already: $2 billion from Brookfield, with the rest from Nvidia and the Kuwait Investment Authority. The BAIIF is part of a broader announced $100 billion AI infrastructure program.

In other earnings news, Walmart also beat expectations and increased 2026 growth forecasts, driven by a surge in e-commerce. That, combined with positive commentary that the holiday season is off to a good start, sent shares 6% higher on Thursday. Lastly, earlier in the week, the Financial Times reported that activist investor Elliott has taken a $700 million position in Barrick Mining Corporation. This is reminiscent of Elliott's position in Suncor Energy, which drove significant turnaround in operations. Similar to Suncor, Barrick boasts high-quality assets that were at times mismanaged, which resulted in underperformance in relative share price. Barrick has now shown signs of operational improvement, and this coincides with rumours that Barrick is considering a split of the company into North America and Asia/Africa in an effort to surface value for shareholders. We view the recent steps taken by Barrick as positive.

What to watch in markets next week

Next week in Canada, we’ll get the Survey of Employment, Payrolls and Hours (SEPH) report and GDP for both September and Q3. In the US, we’ll see more data, mainly from September, including advance goods trade data, housing starts, building permits, new home sales, retail sales, Producer Price Idec (PPI), and durable goods orders. Additionally, we’ll get the Conference Board Consumer Confidence data for November.

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Authors: Adam Ditkofsky, Pablo Martinez, Sandor Polgar, Steven Lampert, Craig Jerusalim, Diana Li, Mickey Ganguly, Kwaku Apraku, Greg Gipson, Eric Morin, and Vasilios Tsimiklis

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