Additional Commentary

I’m often asked why the markets continue to hit new highs, especially considering the ongoing turmoil in the Middle East. It’s a fair question, and the answer lies in how markets digest information. At their core, markets are data-driven; when data outperforms expectations, stocks tend to rally, and when data falls short, markets usually react negatively.

I hope this message finds you well. As events continue to unfold, it’s becoming increasingly apparent that the conflict with Iran is likely to persist longer than both President Trump’s initial indications and what the markets have currently priced in. This has sweeping implications across various sectors, particularly for oil prices, inflation, bond yields, and global economic growth.

I hope you all had a nice Thanksgiving weekend. I recognize that we have our share of problems here in Canada but when we look around the world, I'm certainly thankful that my parents made the courageous decision to move here from Malawi 50 years ago this month. I'm sure I'm not alone in giving thanks this weekend for being Canadian.

Over the past couple months, we've been hearing from more and more of our clients that their tax bill was higher due to an unexpected 'alternative minimum tax' ("AMT"). Although the AMT has been around since 1986, there were significant changes that came into effect for the 2024 tax year.

I hope you all had a nice Father's Day weekend. I've tried to write this note a few times hoping to discuss the impact of the US trade policy decisions. However, before I have a chance to finish the article, the policies change and my article is no longer pertinent. Instead, I will discuss the broader implication of the US losing exceptionalism status, pending US tax changes, and how I'm thinking about allocating portfolios in this environment.

It didn't take long for us to realize that President Trump and his advisors were serious about change. The level of tariffs announced this week surprised even the most pessimistic. We have been speaking with many clients over the past week and the common thread has been disbelief. Although we haven’t lived through this situation before, in my career there have been a number of instances where we have had to navigate things that we never have had to before – 9/11, the 2008 Financial Crisis, and COVID. 

When I was growing up, when someone said something upsetting, my Mom would encourage me to count to ten before I reacted. I mention this because when President Trump announced the 25% tariffs on Canadian and Mexican goods on the weekend, I opted to wait 48 hours before I dove into the implications of his edict and sent off an email to clients. 

Given we are only 8 days away from the US presidential election, I thought I would highlight some key points and then discuss the potential impact on the bond and stock markets.

With such fabulous weather, I hope you had a great long weekend. Unfortunately, news on the stock market front isn’t as steady as the weather we just experienced. Both bond and stock markets experienced a lot of volatility this past week with interest rates going down (and bond prices up) and equity markets experiencing the most difficult week in almost two years.

Inflation has fallen from over 9% last year to just over 3% today. Some are calling it the immaculate disinflation and giving credit to the central banks for masterfully reducing inflation by raising interest rates from close to zero to more than 5%. I'm not so generous with my compliments to the central banks. Let me explain.

The third quarter came to a close last week as economic tailwinds from the first half of the year seemed to shift into headwinds. Although economic growth has been better than expected coming into the year, the recent rise in rates, consumer pressures (via higher energy prices and student loan repayments), and union strikes have weighed in on consumer sentiment during the third quarter.

The markets started off with benign gains in April and May as investors pondered the structural integrity of banks and politicians’ ability to work together on a debt-ceiling resolution. As those issues were resolved, investors turned their focus to supporting big-cap tech names in June, driving the market to its highest monthly return for the year.

The first quarter of 2023 saw both equity and bond markets rebound from the abysmal performance in 2022. On the surface, some might feel that this bounce back is more than just a rebound off the low levels last year. However, if you look at both the stock and bond markets, they are telling a different story of the economic climate.