How Economic Indicators Influence the Stock Market
Ever wonder how the broader economy ties into your investments? Economic indicators like Gross Domestic Product (GDP), unemployment rates, and inflation serve as the heartbeat of the economy, giving us a window into its health and influencing stock market movements. Understanding these metrics can feel like unlocking a cheat code – helping you spot trends, anticipate changes, and make decisions with confidence. Let us explore these key indicators and their influence on your investments.
Gross Domestic Product (GDP)
Think of GDP as the economy’s report card. It measures the total value of goods and services a country produces within a specific timeframe—usually quarterly or annually. When GDP is climbing, it signals a thriving economy. Businesses are booming, sales are up, and profits are flowing, conditions that often drive stock prices higher.
But it is not always sunshine. A falling GDP can hint at an economic slowdown or recession. With lower consumer spending and shrinking corporate profits, stock prices often take a hit. While Canada has not technically seen a GDP decline, growth has been sluggish, largely fuelled by high immigration rather than increased productivity. Meanwhile, the US continues to benefit from more robust economic expansion.
Unemployment Rate
The unemployment rate is another key barometer of economic health. Low unemployment means more people with jobs, more disposable income, and more spending – music to the ears of companies and their shareholders. This virtuous cycle often supports rising stock prices.
Rising unemployment is often a warning sign for the economy. With fewer people earning paychecks, consumer spending tends to drop, which can lead to weaker corporate earnings and downward pressure on the market. Keeping an eye on unemployment trends provides valuable insights into consumer behaviour and overall market sentiment.
Inflation
Inflation measures how much prices for goods and services are increasing over time, eroding your purchasing power bit by bit. It is often tracked using metrics like the Consumer Price Index (CPI) or the Personal Consumption Expenditures (PCE) Price Index. The CPI highlights how inflation hits your wallet directly, while the PCE offers a broader perspective that is favoured by the US Federal Reserve for shaping policy.
Moderate inflation is a sign of a growing economy – it is like the Goldilocks zone, boosting confidence without overheating the system. But when inflation spirals out of control, it drives up business costs and squeezes profit margins, often dragging stock prices down. Central banks respond by raising interest rates, which can make borrowing more expensive and weigh on corporate earnings, further pressuring markets.
Bringing It All Together
Economic indicators do not operate in isolation—they are all deeply connected. High unemployment can weigh on GDP, while surging inflation often prompts higher interest rates, slowing economic growth and affecting jobs. When the economy strikes the right balance—rising GDP, low unemployment, and moderate inflation—investor confidence grows, and stock prices tend to climb. But when that balance tips, markets can face turbulence.
Conclusion
GDP, unemployment, and inflation are more than just headlines— they are powerful tools for understanding market trends. While they will not make you a market psychic, staying informed about these relationships can sharpen your decisions and strengthen your long-term strategy. With patience and sound judgement, you will be well-equipped to ride out market ups and downs.
Now that we have covered the basics, let’s see how one of these indicators, the latest US inflation data, shaped North American markets this past week.
Items that may only interest or educate me ….
Canadian Economic news, US Economic news, ….
Canadian Economic news
This past week’s key economic data that the Bank of Canada (BoC) considers when deciding whether to raise or lower the interest rate.
Bank of Canada makes another super sized cut
For the second consecutive time, the Bank of Canada delivered a super-sized 0.5% rate cut, bringing its benchmark interest rate down to 3.25%. This marks the fifth straight reduction and underscores the central bank’s efforts to support a faltering economy while keeping inflation within its 1% – 3% target range.
The decision follows weaker-than-expected economic growth in the third quarter and a rise in unemployment to 6.8% – a near eight-year high when excluding the pandemic years. BoC Governor Tiff Macklem noted that while further rate cuts remain an option, the Bank plans to take a more measured approach moving forward, potentially opting for smaller 0.25% cuts or even pausing reductions. He also reassured Canadians that a recession is not on the horizon.
However, challenges persist. Canada’s recent economic growth has been heavily reliant on immigration, which is projected to slow in the coming years. Additionally, the looming threat of tariffs from the incoming Trump administration could add uncertainty to trade and economic stability.
On the positive side, the rate cut is expected to provide relief for debt-burdened Canadians, particularly those with variable-rate mortgages. The Bank also highlighted the temporary GST holiday, which could drive consumer spending during the holiday season and provide a short-term boost to the economy. While this may nudge inflation upwards, any effects are expected to fade once the holiday ends.
Overall, it is a solid announcement. Canadians benefit from lower interest rates, with many banks already reflecting this change. That said, some clouds loom on the horizon, hinting at challenges that could shape the road ahead.
Canadian market volatility
Canada’s Volatility Index (CVIX) had a relatively calm week, starting at 9.12 and hovering mostly between 8 and 9. Midweek excitement struck when the Bank of Canada announced a 0.5% rate cut, causing the CVIX to spike sharply to 10.49. However, the excitement was short-lived, as the index gradually descended through the remainder of the week, closing at a serene 7.39.
Tracked under the ticker VIXI on the Toronto Stock Exchange (TSE), the CVIX gauges how much market volatility investors expect. A reading below 10 points to a calm, stable market, while numbers between 10 and 20 signal typical market fluctuations with moderate volatility. But when the index climbs above 20, it is a sign of rising uncertainty and the potential for a bumpy ride ahead.
US Economic news
This past week’s key data points that the Federal Reserve (Fed) considers when deciding whether to raise or lower the interest rate.
Consumer price Index (CPI)
The Labor Department’s November CPI report landed right on target, showing inflation ticking up slightly. Monthly inflation rose 0.3%, edging higher than October’s 0.2% increase, while the annual CPI climbed to 2.7%, up from 2.6% the previous month.
In the details, the ‘Used cars and trucks’ category posted the biggest monthly gain, jumping 2.0%, while ‘Electricity’ costs dipped 0.4%. Year over year, the ‘Transportation services’ category continued its sharp ascent, rising 7.1%, while the ‘Fuel oil’ prices category plunged 19.5%. On the housing front – a key area for many households – ‘Shelter’ costs rose 0.3% in November, a slight cooldown from October’s 0.4%. Annually, shelter costs increased 4.7%, easing from 4.9% in the prior month.
Core CPI, which excludes the often-volatile food and energy categories, rose 0.3% monthly for the fourth consecutive month and climbed 3.3% annually for the third month in a row.
This latest data suggests that while inflation has come down from last year’s highs, the pace of improvement has stalled above the Fed’s 2% target. Fortunately, there were no surprises in the report, reinforcing expectations that the Fed will move ahead with its third straight rate cut – likely a 0.25% reduction—at next week’s meeting. We will find out next week!
American market volatility
The CBOE Volatility Index (VIX), often called the market’s “fear gauge,” began the week at 13.37 and mostly traded within a tight 13.0–14.0 range. Midweek, the VIX briefly spiked above 14 on inflation concerns but settled back down as the CPI report met expectations and helped calm investor nerves. By the end of the week, the VIX closed slightly higher than where it started at 13.81.
For some context, the VIX tracks expected market volatility over the next 30 days. When it is below 12, it signals a calm market. Readings between 12 and 20 reflect normal market swings. But once the VIX climbs into the 20-30 range, it indicates increased investor anxiety. Anything above 30 typically means the market is stressed, often a precursor to major turbulence or even a crisis.
Weekly Market Review
Monday: the markets took a breather as all four indexes – the Toronto Stock Exchange Composite Index (TSX), the S&P 500 Index (S&P), the Dow Jones Industrial Average (DJIA), and the Nasdaq Composite Index (Nasdaq) – ended lower. Oil prices rose as China’s interest rate adjustment spurred hopes of increased demand, while the fall of the Syrian government added to supply concerns in the Middle East.
In Canada, despite touching an intraday high and higher commodity prices, the TSX was unable to overcome losses in the majority of sectors. In trading, the Basic Materials (miners and fertilizer manufacturers) sector gained the most, while the Utilities sector had the largest decline.
In the US, the three American indexes were weighed down by news that Nvidia (NASD: NVDA) was being investigated by China on antitrust issues. Many investors saw the investigation as a response to the US restricting semiconductor sales to China. Nvidia’s drop dragged other technology shares lower. In trading, Healthcare was the only sector to end in the green, while the Financials sector was the deepest in the red.
Tuesday: not a great day in the markets as all four indexes ended in the red. Oil prices were little changed despite the potential disruption caused by the overthrow of the Syrian government.
In Canada, investors appear to be taking a breather as investors await the BoC’s latest interest rate announcement. Many analysts are expecting a jumbo sized 0.5% rate cut after the latest labour data showed a sharp increase in unemployment. In trading, it was a day of broad-based declines, with only the Consumer Cyclicals sector able to post a gain. Healthcare saw the biggest decline.
In the US, investors are waiting for tomorrow’s CPI inflation report to provide clues about whether they should expect a rate cut at the Fed’s meeting next week. In trading, the Communications Services sector recorded the biggest increase following Google’s announcement of their new quantum computing chip (see Portfolio Updates, Portfolio 1). On the downside, the Technology sector suffered the biggest decline.
Wednesday: the markets rebounded with all but the DJIA ending in positive territory. Oil prices rose following China’s latest efforts to kickstart their slumping economy caused investors to anticipate greater demand for oil. Also boosting oil prices was news that the European Union agreed to further sanctions of Russia that could impact global oil supplies.
In Canada, the BoC lowered interest rates by 0.5% making it cheaper to borrow money, sending the TSX into the green. In trading, the Basic Materials sector rose the highest, while the Healthcare sector dropped the most.
In the USA, mild inflation data increased investor confidence that the Fed will lower rates at their meeting next week, sparking a run in the heavyweight technology companies that led to the Nasdaq breaking 20,000 for the first time. The mini rally also dragged the S&P into the green, while the DJIA was weighed down by health insurers following the introduction of a bill that is seen as limiting their profits. In trading, Communication Services was the big winner, while Healthcare saw the biggest decline.
Thursday: another down day in the markets following hotter than expected inflation data from the US Producer Price Index (PPI) report raised concerns about the Fed’s upcoming rate decision. Oil prices remained steady as over supply concerns were counterbalanced by expectations of lower interest rates.
In Canada, the TSX was weighed down by lower commodity prices, and concerns about the economy amid looming tariff threats. In trading, Consumer Staples was the only sector to squeak out a gain, while Basic Materials suffered the largest decline.
In the US, doubt creeped into investors’ minds after producer prices came in higher than anticipated, dragging all three indexes into the red. It was a day of broad-based losses, as Consumer Staples was the only sector to rise, while Consumer Cyclicals dropped the farthest.
Friday: a mixed day in the markets to end a tough week, with the TSX, S&P, and DJIA all losing ground, while the Nasdaq gained ground. Oil prices ended higher due to supply concerns following new sanctions on Iran and Russia, coupled with expectations that lower interest rates would boost demand.
In Canada, lower commodity prices dragged the TSX into negative territory. In trading on Bay Street, Technology was the only sector to advance, the Basic Materials sector sank the furthest.
In the US, the DJIA ran its daily losing streak to seven, weighed down by health insurance companies, while a rally in the heavyweight technology companies was enough to lift the Nasdaq into positive territory. In trading on Wall Street, the Technology sector recorded the biggest increase, while the Communication Services sector saw the biggest decrease.
Weekly Market and Portfolio Review
For the week, the TSX (SPTSX) fell 1.6%, the S&P 500 (SPX) dropped 0.6%, the DJIA (INDU) declined 1.8% and the Nasdaq (CCMP) bucked the downward trend and gained 0.3%.
| Index | Weekly Streak |
| TSX: | 1 – week losing streak |
| S&P: | 1 – week losing streak |
| DJIA: | 2 – week losing streak |
| Nasdaq: | 4 – week winning streak |
The markets struggled to maintain the previous week’s upward momentum, with a downward trend taking over – aside from a brief midweek rally. The spotlight was on US inflation data, sparking both excitement and uncertainty.
Ahead of the CPI report, markets drifted lower, but when the numbers met expectations, investor enthusiasm soared. The Nasdaq celebrated a historic milestone, crossing the 20,000 mark for the first time and reaching another all-time high. This rally was fueled by hopes for another Fed rate cut and continued optimism around AI and the technology heavyweights, even as Nvidia faced potential headwinds from a Chinese antitrust investigation – widely seen as more political than legal.
Later in the week, hotter-than-expected PPI numbers reignited inflation concerns, which tempered some of the optimism. Despite this, many analysts and investors are still betting on a 0.25% rate cut in next week.
In Canada, the TSX saw its winning streak snapped, weighed down by falling commodity prices and looming tariff threats. While the BoC’s rate cut offered some relief for borrowers, many saw it as a sign that the economy could be in rougher shape than previously thought. They might not be wrong. ☹
This week was a clear reminder of how swiftly market sentiment can shift. Don’t get caught up in the short-term noise – it pays to stay focused on the bigger picture: growing your wealth! 😊 And hey, the Santa Claus rally could kick off any time now.
| Portfolio | Weekly Streak |
| Portfolio 1: | 1 – week losing streak |
| Portfolio 2: | 1 – week losing streak |
| Portfolio 3: | 1 – week losing streak |
As shown in the weekly percentage change chart below, it was a tough week for all three portfolios, with each losing over 1% in value during a challenging week for the markets. Portfolio 1 led the pack with the highest percentage of weekly gainers among the three – but at just 38%, it wasn’t much to celebrate. Winning percentages that low make it hard to make headway.
After last week’s strong performance, Portfolio 1 gave back much of those gains, slipping 2%. Only 38% of its holdings managed to end the week in the green, and unfortunately, Nvidia wasn’t among the winners this time. ☹ While there were not any standout gainers, Cameco (TSE: CCO) took a significant 10% hit.
On a brighter note, members of the Magnificent 7 in the portfolio – Apple (NASD: AAPL), Amazon (NASD: AMZN), and Alphabet (NASD: GOOGL) – reached record highs, offering a silver lining. Celestica (TSE: CLS) also made its mark as the only Canadian company in the portfolio to achieve an all-time high.
Portfolio 2 had the roughest week, with just 18% of its holdings posting gains. A sharp 27% drop in MongoDB (NASD: MDB) – one of the portfolio’s larger holdings – was a key factor in its struggles.
Portfolio 3 held up slightly better than the others, dropping “only” 1.4%. That said, it still underperformed both the Nasdaq and the S&P. Only 38% of the companies in the portfolio posted a weekly gain, making it challenging to offset the losses. Enghouse Systems (TSE: ENGH) was a major drag, tumbling 12% after lower-than-expected revenue in their fourth quarter earnings report.
Overall, it wasn’t a good week for the portfolios, with none seeing more than 38% of their holdings in the green. It’s tough to advance when declines outweigh gains. Here’s hoping for some positive economic news next week, coupled with a rate cut from the Fed, to give markets – and the portfolios – a much-needed boost to get back into the win column. 😊
Companies on the Radar
No new companies caught my attention this week, but I did whittle my radar list down to four. Dropping off the list was Genuine Parts Company (NYSE: GPC), the American auto and industrial parts distributor. With a dividend yield under 1%, it did not make the cut as an income generator. And while it is a solid, steady-growth company, I am after faster-growing names – preferably with the kind of explosive growth we have seen from Nvidia, which has soared 382% over the past two years. 😊 It is all about finding the right mix of income and growth to match my strategy!
- On Holding AG (NYSE: ONON), a medium cap Swiss company, founder-run, sports products company.
- Domino’s Pizza (NYSE: DPZ), the well-known American pizza giant.
- Topaz Energy Corp. (TSE: TPZ), a mid-cap Canadian energy investment firm that focuses on strategic investments in premium energy assets operated by top-tier Canadian companies, and currently pays a 4.89% dividend.
- Topicus.com Inc. (TSE.V: TOI), a mid-cap spinoff from Constellation in 2020, focusing on delivering vertical software solutions in the European Union market.
As always, these are not buy recommendations – be sure to do your own research and make decisions that align with your personal financial goals!
The Radar Check was last updated December 13, 2024.
Portfolio Update
Portfolio 1
Portfolio 1 for the week ended December 13, 2024: DOWN 
- In a firm response to US government trade sanctions, China’s antitrust regulator, the State Administration for Market Regulation, announced an investigation into Nvidia. The probe centres on suspicions that Nvidia breached the terms of the conditional approval granted by China in 2020 for its acquisition of Israeli networking firm, Mellanox Technologies.
On a more positive note, Nvidia recently added 200 employees in China to their autonomous vehicle (AV) research unit as the company seeks to integrate itself further into the growing AV industry. - Alphabet’s Google claimed it made a breakthrough in quantum computing. Google claims its new ‘Willow’ quantum chip was able to solve a mathematical equation in five minutes, whereas a supercomputer would take over ten septillion years, which is longer than the entire history of the universe.
- General Motors (NYSE: GM) announced they were ‘restructuring’ their Cruise robotaxi unit and focusing their energies on self driving technologies that can be used by everyone. The Cruise unit will be combined with GM’s autonomous driving unit. GM said increasing competitiveness in the robotaxi market led to their decision, leaving Tesla (NASD: TSLA) and Alphabet’s Waymo unit alone in the robotaxi market.
Activity
Sold: Rivian Automotive (NASD: RIVN) After two rounds of investments in Rivian Automotive and a loss of 75% of the total investment, I finally decided it was time to pull the plug. I held on for three years, rooting for the company’s success. Unfortunately, Rivian is still not profitable, continues to burn through cash, and has seen its negative profit margins grow.
The EV market is becoming increasingly competitive, with fierce rivals like Tesla, General Motors, and a slew of new entrants. Adding to the uncertainty, the incoming US administration has threatened to eliminate subsidies, casting doubt on the future of EV sales and the stability of some EV companies.
While it was a tough decision to sell my shares in Rivian, I believe there are better opportunities to grow the portfolio both within the current holdings and beyond. I have to take my lumps on this investment, but by reallocating the funds to more promising companies, I have a better chance at growing my wealth elsewhere.
Sold: Boston Omaha (NASD: BOC) I made my initial investment in Boston Omaha back in May 2020, partly because one of the co-founders is a relative of Warren Buffet – who has not done a bad job with Berkshire Hathaway (NYSE: BRK.B) 😊. I doubled down in October 2021 after the share price had more than doubled. However, since then, the stock price has plummeted and then remained relatively flat, with a slight decline recently. This lack of growth is concerning. While the company might start to grow in the future, I do not want to wait for it to become another Berkshire Hathaway. 😊
Given that Boston Omaha represents a very small portion of the overall portfolio, it was an obvious choice as I continue to trim Portfolio 1’s holdings to a more manageable number. Over the past year, Boston Omaha’s stock has underperformed compared to the broader market. While the S&P saw a return of around 30% (as of December 13), Boston Omaha’s share price dropped by 3.82%. Overall, the investment lost 14%, which, while not as significant as the loss with Rivian, is still a loss. More importantly, I do not see the share price climbing out of that hole any time soon. With that in mind, I decided to move on and look for better opportunities to grow my wealth elsewhere.
Dividends
Dividends Received this week for the following companies:
Canadian $
Cameco Corp (TSE: CCO)
US $
No US$ dividends this past week.
Quarterly Reports
Costco Wholesale Corporation
First quarter 2025 financial results on December 12, 2024
Portfolio 2
Portfolio 2 for the week ended December 13, 2024: DOWN
- When GM announced it was shutting down its robotaxi ambitions, Microsoft (NASD: MSFT) incurred a US$800 million charge tied to its 2021 investment in the venture.
Activity
No significant activity to report this week.
Dividends
Dividends Received this week for the following companies:
Canadian $
Fortis Inc. (TSE: FTS)
US $
No US$ dividends this past week.
Quarterly Reports
MongoDB, Inc.
Third quarter 2025 financial results on December 9, 2024
Portfolio 3
Portfolio 3 for the week ended December 13, 2024: DOWN
Activity
No significant activity to report this week.
Dividends
Dividends Received this week for the following companies:
Canadian $
No C$ dividends this past week.
US $
Microsoft (NASD: MSFT)
Quarterly Reports
Enghouse Systems Limited
Fourth quarter 2024 financial results on December 12, 2024