As we approach the end of February, we find ourselves in a period of heightened uncertainty—both in the global economy and right here at home. Specifically, the potential threat of U.S. tariffs and the impact on the Canadian dollar have been front of mind for many of you.
With this in mind, we wanted to update you on the current economic landscape and share the steps we are taking to navigate these challenges and protect your investments.
U.S. Tariffs and Their Potential Impact on Canada
While U.S. tariffs remain largely a “threat” at this point, the possibility of their implementation continues to stir concern. The U.S. is expected to revisit its plans for Mexico and Canada in early March, including plans for tariffs on all steel and aluminum imports, and it seems tempted to bring Europe into its crosshairs in the not-too-distant future. The broader implications of these tariffs are complex, especially when considering the impact of retaliatory measures affected countries may take.
As the situation develops, we expect continued market volatility. The uncertainty surrounding these tariffs is likely to affect business sentiment and investor confidence, which may lead to fluctuating market conditions. It is important to note that this volatility will persist until more clarity emerges on whether these tariffs will be enacted—and if so, to what extent.
The Pressure on the Canadian Dollar
Another issue currently impacting the Canadian economy is the downward pressure on the Canadian dollar. Recent economic data suggests that the Bank of Canada will likely continue to lower interest rates in 2025, however the U.S. economy has shown some resilience, with a higher-than-expected inflation reading for January, leading markets to believe there may not be any rate cuts in the U.S. this year. This divergence will likely lead to further strain on the Canadian dollar relative to the U.S. dollar.
Our Plan of Action: Safety and Income Generation
Given the heightened uncertainty in the market, our focus remains on safety and stability for your portfolio. We are taking a cautious approach by overweighting fixed-income investments and reducing our exposure to U.S. equities. We are prioritizing investments in government bonds and Guaranteed Investment Certificates (GICs) that offer security while generating stable returns. To that end, we recently sold out of two U.S. equity positions (United Health and Disney) in favour of a Canadian government bond denominated in USD.
Our aim is to maximize the income your portfolio generates, by holding sustainable, high-yielding securities, which will help smooth out market volatility and provide more consistent returns, even in these uncertain times.
It’s important to note that every investment in your portfolio is carefully selected to play a role in your overall financial strategy. By diversifying across sectors and asset classes, we ensure that no single investment can dramatically impact the overall portfolio’s performance. This approach helps mitigate risk and reduce the potential for significant losses during periods of volatility.
Rest assured that we are closely monitoring both the U.S. tariff situation and the broader economic landscape, and we remain committed to managing your portfolio with care and discipline. While uncertainty may persist, our focus on safety and income generation will help smooth out short-term volatility and position your portfolio for long-term success.
Thank you for your continued trust. We look forward to keeping you informed with regular updates and ensuring your investments are well-positioned for the challenges and opportunities ahead.
Sincerely,
Livingston Wealth Management Group