Markets experienced modest weakness this week as narrow leadership and softer breadth created a more cautious tone. Earnings remain strong on both sides of the border, with Canada’s latest jobs report showing surprising strength.
Our portfolios are positioned defensively with elevated cash levels, ready to take advantage of opportunities as conditions stabilize. While large-cap technology and AI leaders continue to drive returns, we are watching closely for signs of sector rotation and a broader market recovery.
Key Points:
Market Consolidation with Narrow Leadership
- Equity markets softened modestly last week, with the S&P 500 down about 1.6% and the TSX off roughly 2%. While these moves were small, weakness felt more pronounced as market breadth remained narrow and leadership concentrated in a few large-cap names. Defensive and low-volatility sectors held up better than high-growth or speculative stocks.
Strong Canadian Employment Report
- Canada’s October jobs report surprised to the upside, adding 66,000 new positions versus expectations for a decline. Most of the growth came from part-time employment, but the unemployment rate improved to 6.9% from 7.1%, underscoring resilience in the domestic labor market.
Corporate Earnings Continue to Exceed Expectations
- Earnings season has been solid. In the U.S., companies are delivering low double-digit EPS growth against 6% forecasts, while in Canada, firms have posted approximately 4% revenue growth and 6.5% earnings growth. Standouts included Imperial Oil, Tamarack, and Celestica, each reporting better-than-expected results.
Prudent Positioning with Ample Flexibility
- Portfolios remain positioned cautiously with 15–20% cash, allowing us to act quickly as opportunities arise. We have realized profits in gold and reduced exposure to smaller, more volatile names such as Kraken Robotics, Shopify, and Stantec. Should markets stabilize, we are ready to redeploy; if weakness persists, we will continue to protect capital.
AI and Technology Leadership Under Review
- AI-related companies remain key drivers of performance, though volatility and profit-taking have increased. Nvidia remains the most influential name ahead of next week’s earnings report. Growth among the MAG 7 has moderated from last year’s highs but still outpaces the broader market roughly three-to-one.
Watching for a Broadening Market and Sector Rotation
- A durable market recovery will require broader participation beyond large-cap technology. Early signs of renewed strength in areas such as healthcare could mark the beginning of that rotation. We continue to monitor these developments closely and will adjust exposure accordingly.