To my clients:
It was a down week for North American stock markets with the Canadian TSX finishing up 0.5%; the U.S. Dow Jones Index down 1.2%; and the U.S. S&P 500 down 2.1%.
Pressed for time this week, so point form:
- As Trump began announcing some of his cabinet appointees (several of which are highly controversial), volatility and sober second thoughts began to enter the market equation this week with roughly half of last week’s strong gains erased. Not unexpected. But what I also expect is markets to still generally climb through inauguration and through roughly mid-year 2025. Thereafter, the longer, possibly deleterious effects of Trump’s policies may come into greater focus and will certainly lead me to consider what the appropriate level of equity exposure for clients will then be.
- This week, U.S. Federal Reserve Chairman Jerome Powell said in an interview (which I watched and found very interesting) “the economy is not sending any signals that we need to be in a hurry to lower rates.” As a consequence of this statement, markets odds for another 0.25% rate cut in December are now roughly 50/50. Expectations for rate cuts in 2025 also diminished. In other words, somewhat higher rates are now expected in the U.S.
- The better growth outlook in the U.S. vis-a-vis Canada as well as higher policy rates south of the border sent the U.S. dollar to a multi-year high vs the Canadian dollar this week. Better growth prospects and better U.S. exchange rates have both been key pillars in my decision early this year to overweight client U.S. equity portfolios in relation to Canada.
- To the “economy” cited by Chairman Powell two bullet points above, recall that ISM Services printed at an exceptionally strong near 60 reading last week; retail sales came out this morning showing a U.S. consumer that just won’t quit spending; and weekly U.S. jobless claims came in “below expectations” (since we are referencing “jobless” here, coming in below expectations is a good thing) and have re-established a downward trend.
- Proceeds from last week’s United Healthcare sale have been redeployed to the small/mid cap allocation in client portfolios. This weighting has now been brought up to just above 10% of equity. Trump’s policies are likely to favour outperformance of small and mid-cap securities which have underperformed large caps (as represented by the S&P 500) for several years.
That’s it for this week. All the best,
Nick
Nick Scholte, CIM, FCSI
Senior Portfolio Manager
Scholte Wealth Management
RBC Dominion Securities Inc. │ Tel: 604.257.7569 │ Fax: 604.235.9950
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