To my clients:
It was a mixed week for North American stock markets with the Canadian TSX finishing up 1.0%; the U.S. Dow Jones index up 1.0%; and the U.S. S&P 500 down 1.0%.
Brief comment on geopolitics: Ukrainian President Volodymyr Zelenskyy met with President Trump this morning ostensibly to further peace talks with Russia and formalize a mineral rights access deal for the U.S. To say the meeting did not go well would be an understatement. In full view of television cameras and reporters, Trump and Zelenskyy became combative. If they haven’t already, I’m sure all clients will see the video in due course, but sedate, for-the-cameras diplomatic relations this wasn’t. Markets which had been up on the day, turned lower in the immediate aftermath, before turning positive once again later in the morning and finishing at the highs for the day. I reiterate what I’ve said many times: with a perceived mandate to pursue his agenda, Trump’s approach to governing in his second term is unorthodox and aggressive – even in comparison to his own first term. Volatility is sure to continue over the duration of his 4-years in office.
That said, I continue to believe Trump’s agenda to be collectively pro-U.S. growth. Correspondingly, to the extent tariffs are imposed, as threatened, next Tuesday, Canada is likely not to fare as well economically in comparison to its southern neighbor. As such, as previously indicated, yesterday I executed a further portfolio shift in favor of U.S. equities (i.e. stocks) and correspondingly decreasing the Canadian allocation. The relative ratio of U.S. to Canadian equity now stands at 65/35 (there are a small handful of more aggressively positioned clients who have a 75/25 ratio).
As part of the noted adjustment, I took the opportunity to add a new name to the U.S. portfolio – Eaton Corporation. Eaton Corp (Symbol ETN - $100 billion+ global entity) is an electrical focused entity which is well positioned to capitalize on the global transition from fossil fuel-based energy to renewables across several industries (i.e. data centers, EV chargers, industrial equipment etc.) and geographies. Our analyst maintains a $405/share target which is a 40% premium to current share price. A 1.3% dividend is paid.
On the economic front, the U.S. reported a huge spike in its trade deficit as, I’d surmise, U.S. importers look to front-run the imposition of tariffs. Relatedly, the Fed’s preferred measure of inflation, the PCE Index, showed a month-over-month increase of 0.3%. Both of these are worrisome readings and bear continued monitoring. Other economic indicators are cooling. For the time being I’d consider the trade deficit report to be “noise” as businesses recalibrate to a new equilibrium depending upon how tariff policy plays out, and the other cooling economic indicators are not in any way egregious. But certainly, data needs to be monitored for any sign of developing negative trends. I will do so.
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
3200-1055 West Georgia │ Vancouver, BC │ V6E 3P3
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