3 Things We’re Watching - Week of December 1

1. Lights, camera … rising stock markets?

The winter Hollywood blockbuster season is here, offering everything from musicals and rom-coms to action flicks. Here’s something to ponder as you head to the theatre this holiday season: the excitement of a new movie release might be doing more than spreading cheer – it could be boosting your stocks, too. A recent study¹ found a significant positive correlation between the release of blockbuster movies and U.S. stock market returns. They found that a big release boosts the U.S. market by roughly 0.5% in performance the following week. The pattern held up through various tests and across international markets. The theory is that blockbuster movie releases contribute to public happiness and investor optimism, which results in less risk aversion and a greater willingness to buy.

What we’re watching: The holiday season has long been an important time for Hollywood. Last year, Christmas blockbusters generated US $280 million in revenue, just short of a pre-COVID high of US $292.4 million.² With a surge of big-budget films hitting the silver screen this season, the timing could prove valuable to Canadian investors. The S&P/TSX Composite is up approximately 22 per cent year-to-date.³ Another study has shown that films with A-list stars and bigger budgets tend to make the biggest impact on the market.⁴ While it’s important to remember that past performance doesn’t guarantee future results, the so-called “blockbuster effect” is a good reminder that markets don’t just move on earnings reports and economic data – sometimes our weekend plans matter too.

2. Consumers are cautious, but still shopping

Black Friday and Cyber Monday are American imports, but try telling that to the millions of Canadians who embrace them as essential shopping dates. This year, Canadians are expected to drop $9.3 billion⁵ over the two-day buying blitz (which this year falls on November 29 and December 1, coinciding with the American Thanksgiving weekend). That’s nearly $1.7 billion more than in 2024. This year’s anticipated spend per shopper: $319 on Black Friday and $242 on Cyber Monday ($60 and $40 higher than last year, respectively). But does that mean Canadians are spending more across the board? Not necessarily. Overall holiday spending is expected to rise by three per cent this year.⁶ But with inflation and a higher cost of living putting the squeeze on household budgets,⁷ shoppers are being more strategic. Impulse buys are expected to fall as, determined to make every dollar count, people hunt for the best deals on everything from clothing to tech and toys.⁸

What we’re watching: Holiday spending is one of the most reliable indicators of economic health. After all, consumer spending accounts for close to 60 per cent of Canada’s GDP.⁹ So when Canadians are willing to buy, the effects can have a broad impact: more jobs, more innovation and more wealth generation. But consumers are clearly wary this season. Nearly half of Canadians still worry the economy is going to worsen over the coming year.¹⁰ It bodes well that people are still spending – a sign that consumers are adapting rather than retreating. The question is whether this cautious confidence will hold.

3. Nvidia thrives. Canada waits.

Nvidia’s blockbuster earnings last month were supposed to settle the AI bubble debate. The chip giant posted USD$57 billion in Q3 revenue and a strong Q4 forecast,¹¹ while its quarterly profit hit USD$31.9 billion. Only Alphabet earned more among tech giants in the same period.¹² Nvidia CEO Jensen Huang reported $500 billion in chip orders through next year,¹³ suggesting the AI boom has room to run. Yet investor unease persists.¹⁴ Is this the dotcom bubble all over again? Many analysts argue it’s not. Today’s AI leaders are indisputably profitable, with Nvidia ranking as the world’s most profitable company, and Google, Microsoft, Apple and Amazon valued in the trillions.¹⁵ But, for many, the debate between boom or bubble remains. For one, energy constraints threaten to limit how quickly AI can scale,¹⁶ and questions linger around overvaluation¹⁷ and circular deals, such as Nvidia investing $100 billion in OpenAI, which then spends that money buying Nvidia chips¹⁸ (Goldman Sachs estimates these arrangements will account for 15 per cent of the company’s sales next year).¹⁹

What we’re watching: In Canada, the bigger question may be whether companies buying AI tools can generate the promised returns in productivity and efficiency. A KPMG survey found that just two per cent of Canadian firms are getting returns from their AI spending, even though adoption has jumped to 93 per cent.²⁰ Canada is already facing a productivity crisis, with labour productivity growth remaining weak even as AI technology has advanced.²¹ The commitment is there; Canadian CEOs plan to dedicate 10 to 20 per cent of their budgets to AI,²² and the federal government is pouring hundreds of millions more into supercomputing infrastructure and strategy.²³ But will the gains arrive before the money runs out? If businesses can’t turn AI into productivity soon, Canada could risk falling behind just when the economy needs momentum the most.