Stock market news

Stocks end the week on a strong note: Stocks in the U.S. and Canada closed sharply higher on Friday, as strong earnings reports from mega-cap technology firms Alphabet (Google) and Microsoft, as well as inflation data in the U.S. that was in line with expectations, supported a rebound in market sentiment. Despite a volatile week, the S&P 500 closed higher by over 2.6% this week and the Canadian TSX was up over 0.7%*. However, after five straight months of gains across the S&P 500 and Nasdaq, the indexes are all on track for a losing month in April. This would also mark the first correction in stocks for the year, as uncertainty around Fed rate cuts and the path of inflation sparked volatility in equity and bond markets. While U.S. Treasury yields moved lower on Friday, they remain on pace for substantial gains for the month. For example, the 2-year Treasury yield, often considered a proxy for the fed funds rate, went from about 4.6% to 5.0% in April, at highs of the year*. The sharp move higher in yields has weighed particularly on interest-rate-sensitive parts of the market, including small-cap stocks, sectors like real estate, and investment-grade bonds.

^*FactSet

Between a barrage of earnings, the first-quarter U.S. GDP report, and the release of the Fed's preferred measure of inflation, investors had plenty to digest as markets continue to navigate a bumpy start to the second quarter. While new data flooded in, the narrative stayed largely unchanged in our view, and stocks recovered half of the April losses on the back of tech strength. Corporate profits are rising and the economy continues to chug along, though at a slower pace. But inflation pressures persist in the U.S., driving rates higher. We think this backdrop remains favourable for equities, despite the higher volatility associated with Fed-policy uncertainty. However, it likely delays the rebound in bonds, which we think is still coming later this year. We offer our take on last week's developments, along with portfolio implications.

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