Kingsmill's Investment Miscellanea - Friday January 10th, 2025

January 10, 2025 | Joshua Kingsmill


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Happy New Year everyone! It seems like a lot has occurred in the last few weeks, between Trudeau's resignation, the “51st state”, US rate cuts, etc.

 

We will be reaching out to each of our clients in the coming weeks to confirm RIF payments, other monthly withdrawals or remittances, TFSA, RESP and RRSP contributions. So, lots on the plate as we start the year.

 

Everyone knows that we don’t have a crystal ball for investing, or what is going to happen in the future. One observation, however, that I’ve heard from many is that “we’ve had two good years, it has to be over”.

 

This graph is a useful visual tool. We don’t know what the future holds, but past performance doesn’t automatically mean that the next year is going to be good or bad. Our job is to make sure your assets are allocated properly, so that we can benefit from the historically high performances, and withstand the inevitable down-turns, whenever those may occur. In the last 40 years, there have been 8-9 years in a row of strong equity markets:

 

Last week, Canadian Prime Minister Justin Trudeau announced his resignation. This was somewhat expected following months of poor polling, recent exits of key officials within the Cabinet, and mounting calls for his departure. Nevertheless, his exit introduces significant political uncertainty at a time when the country is dealing with the threat of tariffs from the incoming U.S. administration. Trudeau will remain in office until his successor is selected in early March, with Parliament suspended until late March. This uncertainty continues to weigh on the Canadian dollar.

 

Recent developments in Canada may not inspire a lot of confidence in investors, but that is part of our job to keep you informed, and not make rash investment choices based on headline news. It is worth noting that the Canadian equity market may not depend as much on political or economic developments at home as it once did. Canadian equities were up nearly 20% last year despite the fractures that already existed domestically. Instead, other factors, such as falling interest rates and declining inflation, have arguably been more important.

 

Overall, RBC expects some continued pessimism about Canada and its near-term economic prospects. But interest rates should continue to move lower, which may drive some anticipation of better economic and earnings growth later this year. Meanwhile, sentiment is nearly the opposite when it comes to the U.S. The consensus view is for continued economic expansion, the emergence of regulatory and tax tailwinds, and for limited additional rate cuts. Investors should remain mindful that these expectations – positive for the U.S. and less so for Canada – are already reflected in current market valuations. It’s the potential for a change in the outlook, for better or worse, that will likely drive market movements. That is what we will be watching for in the months to come. And always remember that “in the absence of a recession, one ought to give equities the benefit of the doubt.”

Of course, every year at this time many of us do “New Year’s Resolutions”. Research shows that 95% of New Year's Resolutions are fitness related, but after just 3 months, only 10% of people maintain them. I too have a New Year's resolution: to run the Chicago Marathon. That’s one resolution I predict will be achieved! Good luck everyone to maintain their resolutions, we are all in the 10% club, right!