Welcome to Our Monthly Pharus Perspectives Newsletter for November!

 

The past few weeks have been quite eventful! With the U.S. gearing up for another four years under President Trump, market sentiments have shifted, reflecting the anticipated impact of his policies. In this edition, we bring you:

• Year-End Tax Planning Tips for 2024: Get ahead with our expert advice.
• Portfolio Updates: How we're positioning client portfolios in light of the recent election.
• Market Impact Analysis: Insights on how the new presidency might influence the economy.
• Fun Events: Don't miss out on the Winter Village at the Distillery District – a must-visit this month!

Dive in and enjoy the read!

 

Monthly Markets Report

 

Key Insights

 

U.S. Election Impact on Markets and Industries

 

The recent U.S. election has significantly impacted various sectors, with a surprising positive response to Donald Trump's victory. Here's a breakdown of the key areas affected:

 

Energy and Deregulation: A Trump administration is favorable for conventional energy producers due to fossil fuel-friendly policies and reduced subsidies for electric vehicles and renewable energy. Deregulation is expected to benefit industries like banking.

Fiscal Policy: Both parties did not prioritize balancing the budget, focusing instead on measures that increase the deficit. This ongoing fiscal deficit could eventually trigger a market reaction, potentially driving long-term yields higher.

International Trade: The U.S. is likely to maintain a firm stance against China, continuing restrictive trade policies and tariffs. Trump’s hawkish views on China and support for increased tariffs aim to protect American businesses.

 

Click here for more details on the election and its market impact, click here to read our article with insights and analysis.

 

Let’s dive into more details:

 

Dealing with Market Uncertainty

 

As 2024 draws to a close, equity markets have shown strong performance, with investors enjoying significant gains. Despite some volatility, particularly in late summer, markets have rebounded quickly. The sentiment is "cautiously optimistic," driven by central bank monetary easing and resilient U.S. economic growth.

 

However, uncertainties loom. The recent U.S. election, labor strikes, and severe weather events have raised concerns about potential supply chain disruptions and inflation pressures returning. Elevated market valuations, with the S&P 500's forward P/E ratio at approximately 22x, add to fears that an unexpected shock could disrupt the current positive trend.

 

The rise in gold prices, typically seen as a safe haven, reflects this dichotomy. Investors face unavoidable uncertainties and must take calculated risks, including investing in equities, to achieve long-term goals. Staying invested and avoiding emotional decisions during short-term volatility remain crucial strategies.

 

The Economy and Interest Rates

 

Economic growth and the labor market have remained resilient, particularly in the U.S., but the effects of prior rate hikes are still unfolding. The Canadian economy, more sensitive to interest rates, has underperformed, leading the Bank of Canada to cut rates in June due to weaker consumer demand and a deteriorating labor market.

 

In contrast, the U.S. Federal Reserve (Fed) delayed action due to persistent inflation but eventually cut rates by 50 basis points in September. This prolonged period of higher rates has been challenging for borrowers, especially homeowners facing higher mortgage payments. Consumer spending is under pressure, with many prioritizing essential purchases.

 

The future pace and magnitude of rate cuts remain uncertain, contributing to market volatility. While easing financial conditions provide some relief, the potential for economic contraction due to sustained high rates is a concern. Markets will continue to react to job and inflation data as experts speculate on the next moves by the Fed and the BoC.

 

China's Economic Outlook and Market Impacts

 

China faces economic headwinds from increased trade barriers and a natural slowdown in growth, targeting a 5% GDP increase—down from previous double digits but still significant. The Chinese government is addressing challenges like the ongoing real estate downturn, triggered by a crackdown on high debt levels in 2021, which led to unfinished housing projects and dampened buyer confidence.

 

Recent policy measures aim to stabilize the real estate market, address local government debt, and support employment, leading to a sharp rally in Chinese stocks. However, the government seeks to avoid debt bubbles and reckless spending, focusing on targeted stimulus to boost growth and meet the GDP target.

 

Investors are closely monitoring these developments, especially given China's major role in global commodities and the impact on markets like Canada's S&P/TSX Composite Index.

Geopolitics and Market Implications

In 2024, rising discontent and ongoing regional conflicts, especially in the Middle East, pose significant risks. The lack of a sustainable ceasefire and potential war escalation exacerbate human suffering and economic disruptions. Increased immigration necessitates short-term adjustments, while attacks on energy infrastructure and shipping lanes disrupt global energy flows and supply chains. This uncertainty contributes to inflation concerns and heightened market volatility.

The Bottom Line

Investors face numerous uncertainties, from the U.S. election's impact to the trajectory of the Chinese economy and geopolitical conflicts. Despite these challenges, sticking to a financial plan and staying invested remains crucial. The benefits of compounding and broad trends like easing financial conditions, cooling inflation, and resilient economic growth set a positive outlook for 2025.

Portfolio Strategy: Potential Tactical Optimizations

As mentioned in our previous Perspectives, we favored a higher allocation to Canadian Equities and Value sector equities. This has served well as over the past few months, TSX has outperformed S&P 500. With the US election results, Value equity sectors like the Financials and Manufacturing got a further boost.

Following the recent election of President Trump and the anticipated impacts of his policies, investment portfolios should look at the following:

• International Equities: To mitigate potential risks arising from trade negotiations and geopolitical issues.
• Canadian Equity Allocation: Maintain and monitor Canadian Equity allocation with focus on value sectors and sectors that would benefit from Trump’s policies.
• US Equity Allocation: Boosting US Equity exposure could be beneficial with careful choices of sectors to benefit from expected market trends.
• Value Sector Positioning: Continue focus on sectors likely to outperform post interest rate cuts.
• Duration and Interest Sensitivity to Fixed Income: Carefully monitor and position fixed income duration as yields are being volatile since some Trump policies have the potential to increase inflationary pressures.

For our clients, we continue to monitor market and economic trends and adjust and optimize their portfolios on an ongoing basis in an effort to provide superior investment returns.

 

Market Performance – Oct. 31st, 2024
Index	1 Month	3 Months	YTD	1 year	3 Years	5 years
S&P TSX	0.9%	5.3%	18.2%	32.1%	8.0%	11.3%
S&P 500	-0.9%	3.7%	21.0%	38.0%	9.1%	15.3%
NASDAQ	-.5%	2.8%	20.5%	40.8%	5.3%	16.9%
MSCI EAFE	-5.4%	-1.4%	7.3%	23.6%	3.2%	6.8%
MSCI Emerg. Mkts	-4.3%	3.8%	12.2%	25.9%	-1.0%	4.3%
MSCI World	-2.0%	2.1%	15.1%	31.7%	4.7%	10.3%
FTSE Canada Bond Univ.	-1.0%	1.2%	3.2%	11.3%	-0.30%	0.30%

 

Source: Click here to access all market returns.

 

Investment Feature

 

In this section, we educate the reader on different investments. We discuss and elaborate each idea over a couple monthly editions. This section is not to be taken as specific investment advice.

 

Extendible Notes: An Alternative to GICs!

Why Choose Extendible Notes?

Fixed Income Structured Notes are debt instruments tied to benchmark interest rates. They offer enhanced yields and 100% principal protection at maturity, making them a smart choice for diverse financial goals.

Key Benefits:

• Enhanced Returns: Designed to generate guaranteed returns, whether you seek income or long-term growth.
• Capital Preservation: Your principal is fully protected at maturity.
• Customization: Tailored to specific terms, benchmarks, or yield curve shapes.
• Liquidity: Can be liquidated in a daily secondary market.
• Stability: Backed by CIBC or other Canadian Banks
• Diversification: Linked to various interest rates to complement your portfolio.

Ideal For Investors Who:

• Want higher returns compared to traditional fixed income products.
• Seek interest payments linked to benchmark interest rates.
• Value principal protection at maturity.
• May need regular cash flow from their investments.

For those expecting interest rates to decrease, Step-Down Extendible Notes offer a guaranteed fixed coupon that decreases annually, providing the potential for better returns than traditional bonds.

 

Features:

• Guaranteed annually decreasing coupon, if extended by the issuer.
• Initial maturity can be extended annually up to a final date.
• Offers a yield advantage over similar-term bonds.
• 100% principal protection at maturity.
• Liquidation possible through a daily secondary market.

Key Takeaway

Step-Down Extendible Notes offer a strategic way to capitalize on falling interest rates while ensuring 100% principal protection at maturity. They provide a guaranteed annual coupon that decreases over time, offering potential for enhanced returns compared to traditional bonds. These notes are ideal for investors seeking higher yields, stable income, and flexible investment terms, all backed by the reliability of a large financial institution.

 

CIBC Smart Advice Feature

 

Canada Pension Plan’s (CPP) winning formula!

 

This month’s Smart Advice Feature, we discuss how the Canadian Pension Plan has transformed itself by changing how it invests.

 

The Canada Pension Plan (CPP) has undergone a remarkable transformation. Once a modest fund invested solely in government bonds, it has now diversified into a variety of assets, including private equities and credit, amassing over $632 billion in assets with a 9.2% annual return. This evolution underscores the power of a well-diversified investment strategy.

 

Key Takeaways for Individual Investors:

 

• Diversification: Incorporating a mix of asset classes not only lower volatility but also enhance growth.
• Long-Term Perspective: Prioritize sustained growth over short-term gains.
• Regular Rebalancing: Continuously adjust your portfolio to align with your investment goals.
• Professional Guidance: Seek advice from financial experts who have access to different types of investments and asset classes to navigate the complex investment landscapes.

 

Source: Click here to read the article.

 

Financial Planning Feature

 

Year-End Tax Planning – All Your Need to Know!

 

This month’s Smart Advice Feature, we discuss Expert Tax Planning Strategies for Year-End 2024. Our partner, Jamie Golombek, Managing Director, Tax and Estate Planning at CIBC Private Wealth, shares valuable tax planning tips to help you minimize your tax burden and maximize your savings.

Year-Round Tax Planning

Most people focus on tax planning during tax return season in March or April, but by then it's often too late to make significant changes. Effective tax planning should be a year-round activity to ensure you're consistently paying the least amount of tax.

Tip #1: Turning Losses into Gains

Tax-Loss Selling: If you have investments that have lost value, consider selling them to offset any capital gains you've realized this year or in the previous three years.

Capital Gains Realization: With the increase in the capital gains inclusion rate for 2024, it might be beneficial to realize gains now. The first $250,000 of capital gains are taxed at a 50% inclusion rate, while gains above that are taxed at two-thirds.

Tip #2: Maximize Your Registered Plans

Registered Education Savings Plan (RESP): Ensure you've topped up contributions to benefit from government grants for 2024.

Registered Disability Savings Plan (RDSP): If you have a family member with a disability, contribute to their RDSP to receive grants and bonds.

Registered Retirement Savings Plan (RRSP): Remember, for those turning 71, the final RRSP contribution must be made by December 31, and you need to convert it to a RRIF. Your 2024 RRSP deduction is limited to 18% of income earned in 2023, to a maximum of $31,560, less any pension adjustment plus any previous unused RRSP contribution room and any pension adjustment reversal.

First Home Savings Account (FHSA): First-time home buyers can contribute up to $8,000 for 2024. Contributions are tax-deductible, and the balance can be withdrawn tax-free if used to purchase a home within 15 years.

Tax Free Savings Account (TFSA): The TFSA dollar limit for 2024 is $7,000 but there is no deadline for making a TFSA contribution. If you have been at least 18 years old and resident in Canada since 2009, you can contribute up to $95,000 in 2024 if you haven’t previously contributed to a TFSA.

Tip #3: Charitable Giving

Charitable Contributions: To claim a donation tax credit for 2024, ensure your charitable donations are made by December 31.

These strategies can significantly reduce your tax liability and help you keep more of your hard-earned money. Plan ahead of time and consult with a tax advisor to make the most of these opportunities.

 

Source: Click here to watch a simplified video on year-end tax planning.

Source: Click here to read a detailed report on year-end tax planning.

 

Fun Feature

Distillery District Winter Market: A Festive Wonderland in Toronto

The Distillery District Winter Market is back and ready to transform Toronto into a magical winter wonderland! From November 13, 2024, to January 5, 2025, this enchanting market will offer a delightful mix of holiday cheer, festive shopping, and delicious treats1.

What to Expect

• Festive Atmosphere: The market will be adorned with twinkling lights, festive decorations, and a majestic Christmas tree.
• Unique Shopping: Explore cozy vendor cabins filled with handcrafted gifts, seasonal items, and one-of-a-kind treasures from local artisans.
• Delicious Food: Savor a variety of festive treats, hot beverages, and gourmet delights from the market's food vendors.
• Entertainment: Enjoy live music, carolers, and other festive performances to set the holiday mood.
• Family Fun: Capture special moments with Santa Claus, take photos with roaming elves, and enjoy family-friendly activities.

The Distillery District Winter Market is the perfect destination to embrace the holiday spirit, find unique gifts, and create unforgettable memories with family and friends. Don't miss out on this festive extravaganza in the heart of Toronto!

 

Source: Click here for more information about the winter market.

 

Pharus Corner

 

Pharus Wealth Advisory Group’s Commitment to the North York Food Bank: Hosting a Holiday Food Drive.

 

As part of our ongoing commitment to supporting our community, Pharus Wealth Advisory Group is excited to announce that we will be hosting a food drive for the North York Food Bank from December 2nd to December 16th. This initiative is a testament to our dedication to giving back and ensuring that everyone in our community has access to essential resources, especially during the holiday season.

 

Our team has always believed in the power of community and the importance of supporting those in need. The North York Food Bank plays a crucial role in providing food and resources to individuals and families facing food insecurity. By partnering with them, we aim to make a meaningful impact and help alleviate hunger in our local area.

 

Details of the Food Drive

• Dates: December 2nd to December 16th
• Location: 1623 Avenue Rd at the CIBC Private Wealth Office
• Drop box located in the front lobby.
• Items Needed: Non-perishable food items such as canned goods, pasta, rice, and baby formula.

 

Everyone is welcome to participate and contribute whatever they can. Together, we can make a difference and ensure that everyone in our community has a joyful and nourishing holiday season.

 

For more information, please our office. 

 

Thank you for your continued support and generosity.