To my clients,
It was a mixed week for North American stock markets with the Canadian TSX fishing up 0.3%; the U.S. Dow Jones Index up 0.3%; and the U.S. S&P 500 down 1.0%.
Annual reviews continue, so another point form update this week:
- The U.S. Federal Reserve, surprising no one, held states steady after three consecutive cuts lowering U.S. rate by 1.0% from their peak. The U.S. Fed Fund Rate now stands at 4.25 to 4.50%.
- On the other hand, the Bank of Canada cut rates for a sixth consecutive meeting bringing the overnight rate down to 3.0% from it 5.0% peak. Given the relative weakness of the Canadian economy in comparison to its U.S. counterpart, Canada’s overnight funding rate is already more the 1.25% lower than the U.S., and RBC expects another 1.0% in cuts by mid-year bringing the terminal level to 2.0%.
- The U.S. confirmed this morning that 25% tariffs on Canadian and Mexican goods, and an additional 10% on Chinese goods will go into effect tomorrow. While RBC believes it is unlikely tariffs will be sustained at 25% on Canadian goods for the long-term, Trump looks set to make good on his campaign threat and will likely use the imposition of tariffs to continue extracting other concessions from Canada and other trading partners. The imposition of tariffs seems certain to fuel further divergence in rate policy between Canada and the United States. In turn, this will probably result in further Canadian dollar weakness. One caveat: announcing tariffs does not necessarily mean “implementation” – implementation may still take an additional month.
- In light of the preceding, I’m contemplating a further modest increase to U.S. positioning (and corresponding reduction in Canadian positioning) in discretionary client portfolios in the coming days.
- With the proceeds from last week’s sale in Visa, I have added a position in Palo Alto Networks to discretionary client portfolios. Palo Alto is a cyber security firm and, given the world we live in, it should be no surprise to anyone that the cyber security sector has been enjoying a period of secular expansion for many years. This secular expansion is likely to continue.
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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