Welcome to Our Holiday and Year-End Edition of the Monthly Pharus Perspectives Newsletter!

As the year comes to a close, Pharus Wealth extends heartfelt thanks to our clients and newsletter subscribers for their support over the past months. We look forward to a rewarding and prosperous New Year and wish everyone health and happiness in 2025.

In this edition of Pharus Perspectives, we cover:

• Tax Planning for 2025: Expert advice to get ahead.
• Portfolio Updates: Our strategy for client portfolios going into 2025.
• Market Impact Analysis: How the new presidency might influence the economy.

Happy reading!

Monthly Markets Report

Key Insights

New President, Same Problem

With the U.S. presidential election concluded, investors are focused on the potential extension of Trump-era tax cuts, set to expire in 2026. Extending these cuts could reduce U.S. government revenue by approximately $3.4 trillion over 10 years. Additional proposed tax measures, including lowering the corporate tax rate and exempting certain incomes from taxation, could further reduce revenue by $4.3 trillion. To offset this, the administration plans tariffs on imports and repealing green-energy tax credits, potentially boosting revenue by $4.7 trillion, resulting in a net reduction of $3 trillion.

Fiscal Picture

The U.S. government's fiscal situation is worsening, with a federal deficit of $1.833 trillion in 2024, up 8% from 2023. Interest on the national debt has surged, comprising 23.7% of government revenue in 2024. Despite strong equity markets, rising interest costs may force the government to slash spending or raise taxes, impacting corporate earnings and equity markets.

Implications for Investors

In August 2023, credit ratings agency Fitch Ratings downgraded the U.S. government's credit rating from AAA (its highest rating) to AA+. Fitch Ratings downgraded the U.S. government's credit rating due to fiscal deterioration and political standoffs. With the debt ceiling suspension expiring in January 2025, attention will focus on the nation's finances. Canadian investors might consider favoring Canadian government bonds over U.S. bonds due to Canada's relatively better fiscal condition. Holding U.S. corporate bonds may also be prudent. Stay informed and consider these factors when planning your investments.

Portfolio Strategy: Potential Optimizations

As we head into the new year with a new US President, record-breaking markets, and potential trade wars, there are some room for some potential optimizations for Investment Portfolios:

• International Equities: To mitigate potential risks arising from trade negotiations and geopolitical issues.
• Canadian Equity Allocation: Reduce exposure to Canadian Equity allocation but focus on value sectors and sectors.
• 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.

Source: Click here to access all market returns.

CIBC Smart Advice Feature

Expert Access: What a Trump presidency means for the Canadian economy.

This month’s Smart Advice Feature, CIBC Chief Economist Avery Shenfeld provides expert analysis on the outcome of the U.S. election and its potential effects on markets.

Key Points:

• Market Reactions: U.S. equities rallied due to expectations of lighter regulations and potential corporate tax cuts. However, bond yields rose due to concerns about higher future budget deficits.
• Global Impact: Mixed reactions globally, with some equity markets negatively impacted by fears of trade barriers.
• Economic Growth: Forecasts for economic growth in the U.S. and Canada remain largely unchanged. Central banks are expected to cut interest rates to boost economic growth and achieve full employment.
• Trade Barriers: Potential trade barriers could stall Canadian economic growth, necessitating more interest rate relief in Canada.
• U.S. Economy: Expected to slow slightly due to efforts to control inflation and reduced immigration, which lowers the growth potential.
• Canadian Equities: Mixed outlook, with some sectors potentially benefiting from U.S. policy changes, while others may face challenges from higher tariffs.
• Interest Rates: Long-term interest rates in the U.S. could decrease if Congress enforces spending restraint. In Canada, short-term interest rates are expected to drop as the Bank of Canada provides economic relief.
• Investment Strategy: Given the uncertainties in U.S. economic policy, a diversified portfolio is recommended for Canadian investors.

Source: Click here to watch the video.

Protect yourself from holiday purchase scams!

With increased holiday spending, scammers target online shoppers to steal money, spread malware, or obtain personal/financial details. Be wary of unsolicited emails, fake shipping notices, and offers that seem too good to be true. Ensure website security and verify charity credentials to stay safe.

Read the below article to learn more about how to protect yourself from theft throughout the holidays.

Stay alert and protect yourself from holiday scams!

Source: Click here to read the full article.

Top expert advice takeaways from 2024

Uncover lessons learned from the past year and take forward the wisdom to navigate changes ahead with confidence.

• Diversification: Emphasized as crucial during political and policy shifts to maintain a stable investment strategy.
• Market Volatility: Recognized as a natural part of long-term investing, with downturns often preceding significant growth periods.
• Strong Fundamentals: Highlighted the importance of investing in sectors with strong supply-demand fundamentals, like energy.
• Proactive Planning: Advised early mortgage renewal planning to secure better rates and reduce stress.

Source: Click here to read the full article.

Financial Planning Feature

New 2025 Tax Numbers by CRA

The article by Jamie Golombek discusses the new 2025 tax numbers released by the Canada Revenue Agency (CRA). Key updates include:

• Inflation Adjustment: Tax brackets and various amounts will be indexed to an inflation rate of 2.7%.
• Federal Tax Brackets: New brackets range from 15% for income up to $55,375 to 33% for income above $253,414.
• Basic Personal Amount (BPA): Increased to $16,129, allowing individuals to earn this amount without paying federal tax.
• Canada Pension Plan (CPP) Contributions: Rates remain at 5.95%, with the maximum pensionable earnings increasing to $71,300.

These changes will take effect on January 1, 2025, with some benefit amounts adjusting on July 1, 2025.

Source: Click here to read the full article.

Season’s Greetings

As we wrap up a wonderful year, we want to extend our heartfelt thanks for your continued support and partnership. Your trust and loyalty have been vital to our success, and we are deeply grateful for the opportunity to work with you.

May this holiday season bring you and your loved ones joy, peace, and prosperity. We look forward to continuing our journey together in the coming year, filled with new opportunities and shared successes.

Warmest wishes for a happy holiday season and a prosperous New Year!

Pharus Wealth Advisory Group

The Beacon to your Financial Journey

1623 Avenue Road, Toronto ON M5M 3X8

Phone: 416 861-2460

Email: mailbox.pharuswealth@cibc.com

Website: www.pharuswealth.ca

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