To my clients:
It was an up week for North American stock markets with the Canadian TSX finishing up 0.8%; the U.S. Dow Jones Index up 1.4%; and the U.S. S&P 500 up 1.1%.
Quick update this week noting that a new US position in Thermo Fisher Scientific (TMO) was added to discretionary client portfolios on Monday. TMO is a life sciences company that provides analytical instruments and equipment to the medical industry. The addition of TMO ostensibly re-establishes for clients the healthcare allocation that existed prior to United Healthcare being sold 3 weeks ago. TMO was added at ~ $514 for clients, and our analyst maintains a target approximately 40% higher at $718 per share. The stock closed today at $529.63.
And, as most will have learned, President elect Trump indicated that on Day 1 of his presidency, he would impose 25% tariffs on all Canadian and Mexican goods going into the U.S., and a further 10% on all Chinese goods. The trade-offs of imposing tariffs are long and complicated, with the “Coles Notes” version being that consumers ultimately bear most of the costs of tariffs through increased prices. However, the lessons from President Trump’s first term – when similar threats resulted in negotiated compromises – suggest this development may be part of an early negotiation strategy. Notably, President Trump proposed the pending tariffs with the explicit aim of pressuring Canada and Mexico to enhance their border security (Canada this past Wednesday has already pledged to boost border security). In 2019, Trump threatened to escalate tariffs on Mexican imports unless the country took measures to curb illegal immigration. Mexico responded by deploying additional border troops, thereby avoiding the tariffs. A similar scenario may be in store this time too.
This is not to entirely dismiss the idea that tariffs will be forthcoming – I believe they are. But I suspect (and hope I’m correct) that the actual amounts will be less than the current 25% proposed. In line with this view, markets have largely shrugged off the tariff threats. The Canadian stock market has marched higher, while the Canadian dollar has pared back some of its losses following the announcement. Still, the Loonie remains near multi-year lows, reflecting stronger U.S. economic growth and expectations that U.S. interest rates will eventually settle at higher levels than in Canada.
I continue to watch with interest and still anticipate reductions in equity (i.e. stock) exposure sometime in 2025. As I have previously communicated, the degree of such reduction depends upon the evolution of events in the coming months.
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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