Welcome to Our Monthly Pharus Perspectives Newsletter!

As we navigate a dynamic economic landscape shaped by market fluctuations, evolving tariffs, and the continued influence of global and domestic policies, staying informed and proactive has never been more essential. In this issue, we’re bringing you timely strategies and expert insights to help you secure and grow your financial future during these unpredictable times.

 

Here’s what you can look forward to this month:

• Potential shifts in Bank of Canada interest rates and how they could affect your financial planning

• Practical steps to optimize your finances in anticipation of rate cuts in 2025

• Understanding market volatility and its interplay with tariff changes

• Exploring permanent life insurance strategies for long-term stability

Dive into the opportunities and strategies that will help you tackle today’s challenges with confidence. Let’s shape a brighter, more resilient financial future together!

Monthly Markets Report

Trade and Tariffs: Navigating Economic Uncertainty in 2025

As the second Trump administration begins, economic uncertainty has taken center stage, fueled by significant tariffs that are reshaping global trade dynamics. President Trump’s swift actions on trade policies signal a commitment to delivering on election promises. However, these moves have left financial markets and global economies on edge, as the threat of a global trade war looms larger than ever.

The Tariff Landscape and Economic Impacts

In a surprising turn, Canada and Mexico—longstanding partners under the North American Free Trade Agreement—have been among the initial targets of U.S. tariffs. This has raised concerns about the stability of trade relationships even among allies. Beyond North America, Europe and China are bracing for potential tariffs, which could lead to retaliatory measures and disrupt global trade flows.

 

The ripple effects of tariffs are far-reaching. Retaliatory actions could drive inflation higher across countries, leading to increased consumer prices. Economists warn that the economic growth outlook has dimmed, with some predicting a potential recession. Central banks, particularly the U.S. Federal Reserve, face a challenging task as they contend with tariff-induced inflation that could undermine years of progress in stabilizing economies.

 

For the U.S., higher inflation complicates efforts to reduce interest rates. A large portion of the national debt is due for refinancing over the next 12-18 months, and elevated rates would significantly increase the cost of servicing this debt. Meanwhile, China may find opportunities amid the trade tensions, potentially strengthening its position as other nations respond to U.S. measures.

Investment Strategies During Volatile Times

Market volatility is expected to persist, leaving investors navigating an uncertain terrain. To mitigate risks, the following strategies could be considered:

1. Defensive Sectors: Historically, sectors such as utilities, consumer staples, and healthcare have demonstrated resilience during periods of economic uncertainty. These sectors provide essential services and products, making them less susceptible to market fluctuations.

2. Domestic-Focused Companies: Firms that generate the majority of their revenue within domestic markets, such as regional banks, telecommunications companies, and utilities, may be insulated from the direct impact of tariffs.

3. Strong Balance Sheets and Dividends: Companies with sound financial health and reliable dividend payouts offer a measure of stability. Dividends can help offset potential losses in equity markets.

4. Domestic Supply Chains: Businesses that source inputs locally, reducing reliance on international supply chains, may avoid disruptions caused by tariffs. Investors might also consider service-oriented sectors like software, financial institutions, and real estate investment trusts (REITs), although these could face risks if tariffs expand to include services.

5. Currency Implications: As tariffs and trade tensions escalate, currency values are likely to fluctuate. Companies with predominantly domestic revenue streams may be better positioned to weather the impact of foreign exchange volatility on corporate earnings.

Looking Ahead

The financial markets have historically rebounded after initial tariff-related setbacks, as seen during the 2018 tariff impositions. However, the current scenario presents heightened uncertainty. While equities may still finish 2025 on a positive note, the journey is likely to be marked by volatility as the stream of executive orders continues.

 

For investors, maintaining a diversified portfolio, holding cash reserves for flexibility, and focusing on long-term strategies remain prudent approaches. Navigating this environment requires adaptability and vigilance as global trade policies evolve.

 

Portfolio Strategy: Potential Optimizations to Navigate Market Volatility and Adapt to New Trade Policies

As the United States ushers in a new administration, trade policies have taken center stage, fueling heightened market volatility. The ongoing trade war, marked by the implementation of U.S. tariffs on various imports, has provoked retaliatory tariffs from trading partners across the globe. These measures have disrupted supply chains, impacted global trade flows, and added pressure to the international economic environment. Here's somethings to consider to adjusting portfolios in response to this evolving trade landscape.

• Fixed Income: To mitigate potential risks, consider increasing exposure to Fixed Income. Consider having a balance between Short-Term, Long-Term and Corporate Fixed Income. A laddering strategy could be useful.

• Canadian Equities: To mitigate risks and take profits from the good run of Canadian equities, consider cutting exposure.

• U.S. Equities: To mitigate the risk of a trade war with multiple countries and regions at the same time, consider cutting exposure to US Equities. However, it is still important to having meaningful exposure to US Equities and choosing the right sectors and equities.

• International Equities: Consider increasing International Equity allocation as Europe and Britain have some good tailwinds even with the trade uncertainties. Some far east and emerging markets allocation also looks interesting.

• Sector Positioning: Strategically target sectors likely to benefit from the Federal Reserve's interest rate cuts. This includes reducing weight in mega-cap U.S. equities.

These tactical adjustments are designed to optimize portfolio performance amidst economic uncertainty. Our focus remains on delivering stability and growth for our clients. Stay tuned for further updates as we continue to adapt our strategy to meet the challenges of the current market landscape.

Stay tuned for further updates as we continue to assess and adapt our strategy to meet evolving market conditions.

Market Performance – February 28^th, 2025

Index	1 Month	3 Months	YTD	1 year	3 Years	5 years
S&P TSX	-0.4%	-0.3%	3.1%	22.5%	9.7%	12.7%
S&P 500	-1.3%	-1.0%	1.4%	24.3%	12.6%	16.9%
NASDAQ	-4.0%	-1.9%	-2.4%	27.1%	11.1%	17.1%
MSCI EAFE	2.0%	4.9%	7.3%	9.3%	7.0%	9.2%
MSCI Emerging Markets	0.5%	2.2%	2.3%	10.6%	0.9%	4.7%
MSCI World	-0.8%	-0.1%	2.6%	14.0%	8.5%	12.2%
FTSE Canada Bond Univ.	1.1%	1.6%	2.3%	8.5%	1.37%	0.31%

 

Source: Click here to access all market returns.

Special Feature: Tariffs and Trade Policies

Bank of Canada May Cut Interest Rates Below 2% Amid Economic Uncertainty

Amid rising concerns over trade and tariffs, Benjamin Tal, deputy chief economist at CIBC World Markets, has outlined the potential economic challenges facing Canada. He suggests that the Bank of Canada may lower its benchmark interest rate to below 2% this year if trade uncertainty continues to weigh on the economy. Tal warns that the slowing economy poses risks, stating, "We are toying with a recession."

 

Looking ahead, Tal predicts that Canada could see average tariffs of 10-15% in the near future, which would significantly impact key industries such as automotive, steel, forestry, and dairy. These changes are expected to drive a transformation in how Canada conducts business on the global stage.

 

For a deeper dive into these insights, check out the full interview with Larysa Harapyn and Benjamin Tal in the Financial Post.

 

Source: Click here to read the article.

 

CIBC Smart Advice Feature

Borrowing Costs may be affecting your finances - here's what you can do!

With the Bank of Canada reducing interest rates to support spending and investment, borrowing costs are decreasing, providing some financial relief. Here’s how you can make the most of this changing environment:

1. Review Your Budget: Lower payments can free up funds. Use the savings to reduce high-interest debt or bolster financial goals.

2. Prioritize High-Interest Debt: Pay off high-interest loans like credit cards first to minimize interest expenses.

3. Monitor Borrowing Costs: Stay updated on variable-rate debts like student loans or lines of credit and adjust your budget accordingly.

4. Reassess Investments: Reduced rates may improve investment prospects. Consult an advisor to optimize your portfolio.

5. Explore Debt Consolidation: Combine loans to reduce interest costs and simplify repayment.

Seek expert advice to navigate these changes effectively and maintain financial stability. Being proactive can help you make the most of lower interest rates!

 

Source: Click here to read the article

Financial Solution Feature

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

 

This edition marks the continuation of our multi-part series on life insurance strategies. In times of market volatility, permanent life insurance emerges as a reliable solution, offering stability in an unpredictable financial landscape. It serves as a versatile tool to reduce taxable income, build a lasting legacy, and deliver guaranteed returns.

 

In this feature, we explore a key and a very commonly used strategy: the Immediate Financing Arrangement. This strategy highlights the power of life insurance to provide financial certainty and long-term value.

Exploring the Immediate Finance Arrangement (IFA)

The Immediate Finance Arrangement (IFA) is an innovative financial planning strategy tailored for individuals seeking both permanent life insurance protection and access to funds for investments or business purposes. Here's why it’s worth considering and how it works:

Why Choose the IFA?

• Immediate liquidity: Gain access to the cash value of your life insurance policy for investment or business ventures.

• Flexible financing: Secure a demand loan of up to 100% of the policy's cash surrender value.

• Estate planning support: Benefit from excess insurance proceeds to address estate needs.

Who Is It For?

The IFA is designed for:

• Individuals in good health requiring permanent life insurance.

• Affluent clients with steady cash flow and an interest in leveraging assets.

• Those open to long-term financial planning and investment strategies.

• Clients comfortable with debt and possessing additional cash assets to secure loans if needed.

How It Works

1. Policy acquisition: The client purchases an exempt life insurance policy and builds cash value by depositing amounts beyond the required policy charges.

2. Loan facilitation: CIBC Private Banking offers a non-revolving demand loan, using the policy as collateral. Additional collateral may be necessary if borrowing exceeds the policy’s cash surrender value.

3. Investment opportunities: Borrowed funds are used to invest in businesses, properties, or income-generating ventures.

Below is an illustration:

 

 

 

 

 

 

Key Considerations

Professional financial advice is essential to ensure the IFA aligns with your objectives and risk tolerance. This strategy offers a unique blend of insurance and investment potential for clients with the right profile. Application of the strategy in an appropriate way would help in securing financial future while ensuring peace of mind.

Ideas for Home Renovations

To help Canadians manage rising expenses, the Ontario and Federal government have introduced new energy efficiency programs. These include rebates for home renovations such as installing energy-efficient windows, doors, insulation, smart thermostats, heat pumps, and rooftop solar panels. These measures aim to reduce energy bills while promoting sustainability. They have also increased the benefits of the Rental Dwelling loans to increase housing availability and rental income for Canadians.

The Ontario government has introduced a comprehensive energy efficiency initiative to help Canadians manage rising costs and promote sustainability. Here's a summary of the Home Renovation Savings Program and additional support for rental dwellings:

Home Renovation Savings Program

• Rebates Available:

  • Up to $8,900 for insulation.

  • Up to $7,500 for a cold climate air source heat pump.

  • Up to $12,000 for a ground source heat pump.

  • Up to $5,000 for rooftop solar panels and battery storage systems.

  • $600 for a home energy assessment.

  • $100 per new window or door.

  • $75 for a smart thermostat.

  • $500 for a heat pump water heater.

• Eligibility: Homeowners can apply for rebates covering up to 30% of eligible upgrade costs. The program is open to those using various heating systems, including propane and oil.

• Application Process: Rebates are processed within 30 to 60 days of an approved application.

$80,000 Low-Interest Loan for Rental Dwellings

The federal government has expanded the Secondary Suite Loan Program to support the creation of rental units in homes. Key details include:

• Loan Amount: Up to $80,000, doubled from the previous $40,000 limit.

• Interest Rate: 2% over a 15-year term.

• Purpose: To finance secondary suites, such as basement apartments or laneway homes, addressing Canada's rental housing shortage.

• Additional Support: Homeowners can refinance up to 90% of their home's post-renovation value (up to $2 million) with a 30-year amortization period, starting January 15, 2025.

These programs aim to reduce energy costs, increase housing availability, and promote sustainability. If you'd like more details, let me know!

To read more about the program, please feel free to read the below article:

 

Source: Click here to read the article.

 

To stay up to date on market events, news and reports, follow Pharus Wealth Advisory Group on our Social Media Pages. For Financial Literacy and Planning, visit Pharus Resources, where we upload timely articles on Financial Planning and Financial Literacy Resources.

 

Click here to visit Pharus Resources.

 

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