By Douglas Porter

November 7, 2025

We’ve looked at stocks from both sides now, from up and down and still somehow, it’s stocks illusions we recall; we really don’t know stocks, at all.

Today marks the birthday of the great Canadian singer-songwriter Joni Mitchell, and hence the brief tribute to her classic 1966 song. It’s not obvious that Joni was predicting the markets, but her words sync remarkably well with the two-sided economy, and perhaps the deep political divide as well.

Following a near-continuous upward march since the spring, equity markets stumbled somewhat this week on valuation concerns and the now-record long U.S. government shutdown. As we noted in last week’s Focus, the latter is slowly but steadily making more of an impact on the real economy—although the full extent of the damage may not be known due to the absence of data, due to the shutdown.

The stumble is still relatively minor, with the S&P 500 off little more than 3% since last Tuesday’s record close, but it’s broken below its 50-day moving average (and it hadn’t done so since February!). Given the steady market gains this year and the fact that November is typically a solid month for stocks, the recent stutter does raise the antenna.

Even with the softening in stocks, bonds did not benefit much. After dipping below 4% for the first time in a year in mid-October, 10-year Treasury yields have nudged back up to around 4.1%. They jumped at one point Wednesday, perhaps as many Supreme Court justices sharply questioned the emergency rationale for tariffs, raising the possibility of the “mess” of refunds—should the Administration lose.

However, there are many “ifs” involved there, and the current case is not going to bring an end to plentiful tariff revenue. Realizing that reality, yields barely moved on net this week, as the ongoing void in official data is keeping a dense fog around the economy, and the various private sector reports are spinning off mixed signals.

The October ISM showed some softness in manufacturing, but a small rebound in services. Auto sales fell to 15.5 million units last month, tying January for the weakest month in the past year and a half, but that reflected the end of EV credits, and sales are still on track for a healthy year overall. The generally solid auto sales and business surveys fly wildly in the face of extremely downbeat consumers. According to the preliminary University of Michigan survey, consumer sentiment on current conditions fell to its lowest level on record in November.

Granted, a recent shift to more online responses makes historical comparisons tougher, but this survey dates back to 1951 and through 11 different recessions, and sentiment is allegedly worse than it was in the 2020 pandemic, the Great Recession in 2009, the deep downturn in 1982, and the double-digit inflation of the 1970s. There clearly is a political angle to this result—the government shutdown can’t be helping—and note that the Conference Board survey is nowhere near as downbeat.

We’ve seen both sides now of Canada’s famously flighty job market. After a pair of very weak results in the middle of summer, which likely helped prod the Bank of Canada back into easing mode, employment roared back with even larger gains in the past two months.

But it is fair to say that a wide swathe of the population is much more concerned about the outlook than the upswing in stocks would suggest. It’s a key reason that talk of a K-shaped economy has roared back to life this year amid the split screen of record stocks and softening job markets.

On the employment front, with another missed establishment survey, ADP is garnering much more attention. Unfortunately, it too was a bit muddled. Payrolls did perk up to 42,000 in October, reversing a 29,000 setback the prior month. But that wasn’t enough to keep yearly growth from cooling to just 0.7%, or about half the average pace of the past 10 years. And layoff announcements mounted last month, with Challenger reporting the highest October tally since 2003, and up 65% y/y so far this year.

Even as the job market struggles, estimates of Q3 GDP keep nudging higher; the Atlanta Fed is now looking at 4.0% for the quarter, at least based on the limited data on hand. The split between sturdy headline growth and soft jobs is a tantalizing hint that productivity is gathering steam, and in a serious way, albeit it also helps explain the deepening divide between how the stock market and many households see the economy.

We’ve seen both sides now of Canada’s famously flighty job market. After a pair of very weak results in the middle of summer, which likely helped prod the Bank of Canada back into easing mode, employment roared back with even larger gains in the past two months. Against expectations of a pullback in October, the economy instead added a frothy 66,600 net new jobs last month, carving the unemployment rate two ticks to 6.9%. Suffice it to say that we were handling a variety of questions over the validity of the data, but the details made some sense.

All the gains were in part-time positions, with almost all the strength in Ontario and in the sectors related to spectator entertainment. It doesn’t require much sleuthing to recognize that the Blue Jays’ long playoff run juiced hiring activity, with upwards of 50,000 jobs possibly driven by October baseball. So, despite a series of unfortunate events in left field last weekend, these figures don’t come out of left field.

The solid jobs report nearly doused any flickering embers around the chances of a follow-up rate cut by the Bank of Canada in December. In fact, if the job strength proves persistent, our call of a trim in early 2026 looks to be in danger. However, we suspect that the strength will be short-lived, and still look for the jobless rate to push back above 7% in coming months.

The fact that the housing market refuses to respond to the deep 275 bps of rate cuts since last June implies that the BoC has not overdone it on the easing cycle. The early read on October home sales is that buyers are turning cautious again, given the tough trade backdrop and layoffs in manufacturing. (Side note: the biggest surprise in the jobs data may have been that factory payrolls rose 8,700 in October and are now up slightly from year-ago levels; we can’t thank the Jays for that one.)

Housing was an area of focus in this week’s hotly anticipated federal budget, but there was actually precious little new news for the sector. That could have been a theme, overall, as many of the budget’s measures were flagged well ahead of time, or re-packaged earlier announcements. This is not to downplay the import of the many measures that have been unveiled this year, largely aimed at spurring investment, and heavily supporting infrastructure and defence.

One key takeaway is that this year’s $78 billion deficit will weigh in at 2.5% of GDP, up from 1.2% in the prior fiscal year. Combined with an expected like-sized deterioration at the provincial level (from 0.2% of GDP last year to 1.5% this year), that is a total widening of 2½% of GDP in a single year. That heavy-duty fiscal support is a key reason that the Canadian economy has managed to keep its head just above the waterline this year even amid the deep uncertainty in trade and drop in exports.

Policy Contributing Writer Douglas Porter is Chief Economist for BMO.