To my clients:
TWO VERY IMPORTANT NOTES THIS WEEK:
1) All discretionary clients (with regular non-registered investment accounts; in other words, accounts that are not RRSPs, RRIFs, TFSAs or RESPs) will see reported capital gains of various magnitudes on their 2025 taxes. After three consecutive years of strong returns, I’m afraid this is the downside of otherwise happy developments. Further, given the strong returns, there is little opportunity to offset these gains with losses of any meaningful magnitude. The simple truth is that the significant majority of positions held are in gain positions or, in the handful of cases where a position is showing a loss, it is either an immaterial loss and/or in a position that has the potential (in my judgement) for rapid recovery within the 30-day period that the position must be exited so as not to violate the CRA’s superficial loss rule. Bottom line for discretionary clients: I will not be offsetting gains with available losses. Returning to the happy perspective, the portfolio gains achieved will be vastly more than the tax consequence and I would encourage clients to pay their resultant tax bills with capital from the relevant investment account. The portfolio generated this tax consequence, so the portfolio can pay it!
2) I will be leaving for holiday next Friday and will be out of the country until January 2nd. I’ll be connected while away but, even more than usual given the time of year, I will only be checking email and the markets on a sporadic basis. No weekly updates will be written during this period.
It was a mixed week for North American stock markets with the Canadian TSX finishing up 0.7%; the U.S. Dow Jones Index finishing up 1.1%; and the U.S. S&P 500 down 0.6%.
To my recollection, this week’s Federal Reserve rate decision was one of the strangest of the past decade. Several factors lead me to say this, including: 1) there were three dissents to the eventual decision to cut rates by 0.25% which tabulates as the most “no” votes since 2019; 2) the “no” votes themselves were split, with two governors wanting no cut while a third governor wanted a larger 0.50% cut; 3) in spite of the cut, the Fed messaging was “hawkish” and suggested that the collective Fed officials see little, if any, need for further cuts any time soon; 4) yet, in spite of this messaging, the Fed also re-initiated its bond buying program which, in previous iterations, came to be known as quantitative easing (QE)… I won’t get into all the details here, but suffice it to say that QE is an alternative method of reducing interest rates in the broader economy. The current iteration of QE is certainly smaller than previous incarnations, but it’s still odd that the FED would say that further cuts weren’t necessary while simultaneously implementing a second form of rate cut in addition to their headline 0.25% cut; and 5) there was a material 0.5% increase to 2026 GDP expectations which continues to suggest that the Fed sees a healthy overall U.S. economy. Phew! Talk about mixed messaging!
Next week brings a slew of important economic releases that were delayed as a result of the U.S. government shutdown including employment and inflation data. These will be very important to assess and I will be watching with keener than usual interest.
That’s it for this week. All the best,
Nick
Nick Scholte, CIM, FCSI
Senior Portfolio Manager
RBC Dominion Securities Inc. │ Tel: 604.257.7569
2950 Glen Drive, 7th Floor │ Coquitlam, BC │ V3B 0J1
Toll Free: 1.844.665.9900 │Email: nick.scholte@rbc.com
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