To my clients:
It was an up week for North American stock markets with the Canadian TSX finishing up 1.2%; the U.S. Dow Jones index up 3.7%; and the U.S. S&P 500 up 2.9%.
Fueling this week’s attractive returns were a pair of inflation readings mid-week. Specifically, the “core” variants (i.e. excluding food and energy prices) of both the Producer Price Index and the Consumer Price Index came in below expectations. Many months ago, I said I had hoped to place less emphasis on inflation readings in these weekly updates as the economy normalized from the after-shocks of the covid pandemic. However, economic “normalization” has, in fact, proven to be overt economic strength – strength beyond what most economists and, more importantly, the U.S. Federal Reserve envisioned as plausible. This economic strength, while inflation remains above the Fed’s 2.0% target, has led many pundits (including many voting Fed members) to lower expectations for further Fed cuts in 2025. In fact, there were even whispers of rate hikes being possible. Thankfully, the lower inflation readings this week pushed back on these concerns. Hopefully this trend will continue in February.
Next Monday will mark the start of President Trump’s second term in office. Regardless of one’s political or personal views, one thing is certain – the next four years will be eventful. I’ve written more about my thoughts in my quarterly client letter for discretionary clients (hopefully to be sent later this afternoon), but Trump’s presidency will be U.S. centric, nominally pro-U.S. growth (i.e. before inflation), and unorthodox. Volatility is sure to be heightened during his time in office. But, at least initially, I’d suspect the pro-growth U.S. agenda to fuel so-called “animal spirits” in the markets and for the trend to remain up. I’ll continually evaluate and re-evaluate this perspective with my bias being to modestly reduce client equity exposure in the back half of 2025. This bias is subject to change.
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
Toll Free: 1.844.665.9900 │Email: nick.scholte@rbc.com
Visit Our Website: www.nickscholte.ca
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