Welcome to Our Monthly Newsletter - Pharus Perspectives!

Happy New Year to all our readers. As markets push back toward all‑time highs, 2026 is already shaping up to be a year defined by opportunity—and uncertainty. Geopolitical tensions are resurfacing, inflation concerns are re‑emerging, and investors everywhere are asking the same question: What comes next?

This month’s Pharus Perspectives cuts through the noise with clear, data‑driven insights designed to help you navigate volatility with confidence. Whether you’re planning your next contribution, reassessing risk, or positioning your portfolio for long‑term growth, this edition delivers the guidance you need to stay ahead.

Inside This Month’s Edition

• Market Trends: A forward‑looking Market Outlook for 2026
• Special Feature: Updated RRSP, TFSA, and FHSA contribution limits and key tax changes for 2026
• Strategy Spotlight: How to maximize growth using registered accounts
• Risk Management: Protecting unrealized gains with collar strategies

Dive in as we break down the challenges, highlight the opportunities, and chart a path toward a stronger, more resilient financial future—together.

Monthly World Markets Report

2026 Market Outlook: After a Standout 2025, What Comes Next

A Strong Finish to 2025 Sets the Stage

Equity markets entered 2025 with measured optimism after the impressive gains of 2024, and the year ultimately delivered another upside surprise. Most major sectors posted positive returns. In Canada, Materials—especially gold and silver producers—led the charge, supported by solid performances in Financials and Consumer Discretionary. South of the border, enthusiasm around generative AI continued to shape market leadership, with Communication Services and Information Technology driving the S&P 500 higher.

Volatility, Tariffs, and a Few Lessons Learned

The path through 2025 was far from smooth. Early-year optimism was tested when the release of DeepSeek R1, a new Chinese AI model, sparked a sharp market selloff. A wave of tariff announcements from multiple countries added further uncertainty, culminating in the U.S. administration’s “Liberation Day” tariff package on April 2.

These developments triggered downward revisions to U.S. earnings expectations and a broad equity pullback. However, the worst-case trade scenario was ultimately avoided as the administration softened its initial tariff stance, allowing markets to rebound strongly through the remainder of the year.

Three themes proved especially useful in navigating the turbulence:

• Big opportunities attract new competitors. The scale of the generative AI opportunity naturally invites new entrants, and 2025 was no exception.
• U.S. negotiation tactics often start from extreme positions. Initial policy announcements rarely represent the final outcome.
• Businesses adapt quickly. While some firms paused guidance after tariff changes, many recalibrated rapidly and continued executing on their strategies.

2026: A Year of Cautious Optimism- With More Upside in the Second Half

We enter 2026 with a constructive but measured outlook for North American equities. Earnings growth remains the primary engine for further gains, though a first‑half pullback would not be surprising given elevated valuations and the strength of the recent rally.

In Canada, the upcoming USMCA negotiations introduce headline risk and the potential for short‑term volatility. However, more attractive valuations, appealing dividend opportunities, and reset expectations should support a stronger second half.

In the United States, higher valuations create additional near‑term vulnerability. Even so, potential consumer‑friendly policy initiatives ahead of the midterm elections, combined with broader growth drivers—deregulation, fiscal support, and ongoing AI adoption—could provide meaningful tailwinds later in the year.

Macro backdrop: Moderate Growth, Easing Inflation, and Continued Rate Cuts

We expect moderate economic growth in 2026, supported by cooling inflation and further interest‑rate reductions from the Federal Reserve. While equities should continue to outperform bonds, the magnitude of potential gains is more limited following the strong run-up in valuations.

Several forces may help growth accelerate modestly:

• fading tariff impacts
• continued fiscal stimulus
• low oil prices
• a positive wealth effect from strong equity markets
• rising AI investment and early productivity gains

The U.S. economy is positioned to remain one of the stronger performers among developed markets.

Inflation, while still elevated, is expected to peak in spring 2026 before gradually easing. A cooling labour market, moderating shelter costs, and subdued energy prices all support this trajectory, even if inflation does not fall as quickly as consensus expects.

Currencies: Potential for Renewed U.S. Dollar Weakness

After a two‑year decline, the U.S. dollar stabilized late in 2025, buoyed by stronger‑than‑expected U.S. growth and ongoing technology investment. Despite this pause, we see room for renewed dollar weakness in 2026. Emerging‑market currencies, supported by improving fiscal positions and attractive yields, stand to benefit most.

Monetary Policy: More Easing Ahead

The monetary easing cycle is not yet complete. The Fed has room to continue cutting rates as policy shifts from restrictive toward neutral, and the end of quantitative tightening adds further support. A more dovish voting lineup in 2026 reinforces this outlook. The Bank of England also appears positioned for additional easing.

Fixed Income: Limited Upside

While short‑term rates may fall, longer‑term yields are less likely to decline meaningfully due to elevated real‑yield risk premiums and persistent concerns about fiscal deficits. As a result, government bonds are likely to deliver returns closer to coupon levels.

Corporate credit spreads remain historically tight, reflecting low default risk. Although spreads offer limited upside, the current phase of the credit cycle could persist given subdued recession fears.

Equities: High Valuations but Select Opportunities

Global equities delivered strong returns in 2025, pushing valuations higher across most regions. The S&P 500 remains the most expensive, but Canadian and Japanese markets are also trading well above fair value. Europe and emerging markets continue to offer more attractive valuation profiles.

For the S&P 500, earnings growth will be essential to sustaining further gains. Margin expansion helped drive double‑digit earnings growth in 2025, and another one‑percentage‑point margin increase could make similar growth achievable in 2026. However, with valuations stretched, the market is increasingly sensitive to any disappointment.

Key takeaways for 2026 

• Cautious optimism prevails. Earnings growth remains the primary driver of equity performance, though elevated valuations make early‑year volatility likely.
• Second‑half strength looks more promising. USMCA negotiations, U.S. policy developments, and reset expectations could support a stronger back half for both Canadian and U.S. markets.
• Economic growth should modestly accelerate. Fading tariff impacts, fiscal support, low energy prices, and rising AI‑related productivity all contribute to a firmer macro backdrop.
• Inflation is expected to peak in spring 2026. Cooling labour markets and easing shelter costs should help inflation drift lower, even if not as quickly as consensus forecasts.
• Rate cuts aren’t finished. The Federal Reserve and Bank of England appear positioned to continue easing as policy shifts toward neutral.
• Fixed‑income returns may be limited. Tight credit spreads and persistent fiscal concerns suggest government and corporate bonds will deliver coupon‑like returns.
• Valuations are stretched in many markets. While opportunities remain—especially outside U.S. megacaps—earnings growth will be essential to sustaining further equity gains.
• Potential U.S. dollar weakness could resume. Emerging‑market currencies stand to benefit most if the dollar resumes its multi‑year downtrend.

Monthly Performance Update

Source: Click Here for Monthly World Market Report.

Portfolio Strategy Update

Asset Mix Outlook – Considering Adjustments in a Shifting Market Environment

With expectations for steady economic growth and gradually easing inflation, investors may find themselves navigating a landscape where interest‑rate cuts remain possible and sovereign bonds continue to play a stabilizing role. In such an environment, high‑quality fixed income can help balance portfolios, offering cash‑like returns while providing resilience if equity markets experience renewed volatility.

Equities have delivered strong performance in recent periods, but elevated valuations in certain segments suggest that future gains may be more moderate. Some investors may therefore choose to reassess the size of their equity overweight and consider whether a modest increase in cash or other liquid reserves aligns with their risk tolerance.

Regional positioning is another area worth revisiting. Momentum in large U.S. technology‑oriented companies remains influential, yet U.S. equity valuations are comparatively high. This has led some globally diversified investors to explore a more balanced approach—maintaining exposure to U.S. markets while also recognizing the relative valuation appeal found in select international regions. For those seeking a reference point, a balanced global portfolio often gravitates toward an allocation near 60% equities, 38% bonds, and 2% cash, though individual preferences and risk profiles naturally vary.

Financial Planning Feature

Rethinking RRSPs: The Core Ideas That Matter

Many Canadians still question whether RRSPs are worth the effort. This month’s feature distills the ideas behind why RRSPs remain one of the most effective long‑term wealth‑building tools — cutting through misconceptions and focusing on the underlying financial logic.

The Core concepts

• RRSP Value Depends on Tax‑Rate Dynamics
  • RRSPs work because the tax deduction at contribution offsets the tax paid at withdrawal. When tax rates are similar at both points, the RRSP effectively delivers tax‑free growth.

• Tax Deferral Supercharges Compounding
  • By sheltering investment returns from annual taxation, RRSPs allow compounding to operate on a larger base for longer — a structural advantage non‑registered accounts can’t match.

• The Upfront Deduction Is Fundamental, Not Optional
  • The tax refund generated by an RRSP contribution isn’t a perk; it’s part of the mathematical engine that drives after‑tax growth. Ignoring this leads to flawed conclusions about RRSP performance.

• Non‑Registered Accounts Start at a Disadvantage
  • Because tax is paid upfront, non‑registered investments begin with less capital. Even with favourable capital gains treatment, they rarely outperform RRSPs when compared on an equal footing.

• Think of RRSPs as a Shared Investment
  • Viewing RRSP balances as “co‑owned” with the government — with your marginal tax rate representing their share — clarifies how after‑tax value is created and why the structure still benefits the investor.

• Estate Taxation Doesn’t Erase the Benefits
  • While large RRSP/RRIF balances may face significant tax at death, this does not negate decades of tax‑deferred compounding and higher net returns earned along the way.

• RRSPs Remain Foundational for Most Canadians
  • Except for very low‑income earners who may benefit more from TFSAs, RRSPs continue to be one of the most efficient retirement savings vehicles available.

Key Takeaways

• RRSPs are built on tax symmetry and tax‑deferred growth.
• The upfront deduction is essential to understanding their value.
• Over time, RRSPs almost always outperform non‑registered investing.
• Viewing RRSPs as a partnership clarifies their after‑tax benefits.
• For most Canadians, RRSPs remain a cornerstone of retirement planning.

Source: Click Here for Full Details

CIBC Smart Advice Feature

How to make the most of registered plans for investment growth

This month’s CIBC Smart Advice Feature focuses on how to make the most of Canada’s registered plans to maximize long‑term investment growth. With several tax‑advantaged accounts available, choosing where to contribute first can significantly influence how efficiently your savings grow. We break down a smart, strategic order for using registered plans—starting with those that offer the strongest government incentives—so you can keep more of your returns working for you.

Key points

• Prioritize plans with the highest immediate benefits, such as the RDSP (up to $90,000 in grants and bonds) and RESP (20% government match, up to $7,200 per child).
• First‑time homebuyers can take advantage of the FHSA, which offers tax‑deductible contributions and tax‑free withdrawals for a qualifying home purchase.
• Match your account choice to your goals: use TFSAs for flexible short‑ or medium‑term needs, and choose between RRSPs and TFSAs for retirement based on your current versus expected future tax bracket.
• Stay aware of annual and lifetime contribution limits to avoid penalties and maximize available room.

Takeaway

A thoughtful contribution strategy helps ensure every dollar is placed where it can deliver the greatest long‑term benefit. By prioritizing registered plans effectively, you can build a more efficient, resilient path toward your financial goals.

Here’s how much you may be able to contribute this year.

1 While there is no annual limit for RESP and RDSP contributions, grants and bonds may be limited depending on amount of contribution.

2 Plus any unused contribution room carried forward from previous years.

Source: Click Here for Full Details

Know More about Contribution Limits, Deadlines and Important Financial Planning Information for 2026

Our recent blog post outlines the latest changes to contribution limits and deadlines for registered accounts such as RRSPs, TFSAs, and RESPs for 2026. It highlights key financial planning considerations, including how the new limits may impact your saving strategies and important dates to keep in mind for maximizing contributions. For a deeper dive into these updates and practical tips, access the full blog post here.

Source: Click Here for Full Details

Financial Education 

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.

Investment Feature: Protecting Gains After a Strong Market Run

After several years of robust equity returns, many investors are asking the same question: How do I protect the gains I’ve accumulated without fully exiting the market? Selling outright may trigger taxes or disrupt long‑term plans, while staying fully exposed can feel uncomfortable in a potentially volatile environment.

One strategy that strikes a balance between risk management and continued participation is the collar strategy—a combination of owning the stock, buying a protective put, and selling a covered call. This approach can help investors define a clear range of outcomes, reduce downside risk, and maintain discipline during uncertain markets.

How a Collar Strategy Can Help Investors Stay Invested While Managing Risk

• What a Collar Is
  • A collar is created by holding a stock and simultaneously:
  • Buying a protective put (downside protection)
  • Selling a covered call (generates income to offset the cost of the put)
  • Both options are typically out of the money.

• Why Investors Use It
  • Investors typically use collars to:
  • Limit downside risk at a relatively low cost
  • Protect gains on appreciated stock
  • Maintain some upside potential
  • Stay invested when short‑term uncertainty is high but long‑term conviction remains strong

• How It Works
  • The put sets a floor: if the stock falls below the put strike, losses are limited.
  • The call sets a ceiling: if the stock rises above the call strike, gains are capped.
  • The net cost of the collar is often low because the call premium helps pay for the put.

• Maximum Profit
  • Capped at the call strike price (plus/minus net option cost). Profit is realized if the stock finishes at or above the call strike at expiration.

• Maximum Risk
  • Limited to the difference between the stock price and the put strike (adjusted for net option cost). Risk is realized if the stock finishes at or below the put strike.

• Break-even
  • Stock price + put premium – call premium.

• Market Conditions Where Collars Fit
  • Neutral to slightly bullish outlook
  • Desire to protect gains without selling
  • Concern about short‑term volatility
  • Approaching a target sale price or financial milestone

Potential Outcomes of a Collar Strategy

Why This Matters for Today's Investors

With markets at elevated levels and volatility always a possibility, investors want a way to stay invested while reducing the emotional and financial impact of a downturn. A collar provides:

• Defined risk and reward
• A disciplined framework
• Protection without fully exiting the market
• Potential tax advantages vs. selling outright (depending on circumstances)

For clients who have enjoyed strong gains but are hesitant to sell, a collar can be a compelling middle ground.

Key Takeaway

A collar strategy can potentially offer investors a structured way to protect gains after a strong market run—limiting downside risk while still allowing for some upside participation.

Note: Options involve risk and are not suitable for all investors. Investors should be aware of tax considerations, margin requirements, commissions and other transaction costs, as they may significantly affect the economic consequences of any option transaction strategy and should be reviewed carefully with your Investment Advisor and personal tax advisor before the strategy is undertaken.

New Year Investment Riddle

Riddle: I grow when fear rises, I shrink when confidence returns. I’m bought to protect, but held too long, I can burn. I’m not a stock, yet I trade every day. What am I?

Answer (for next month’s issue):

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.

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Pharus Wealth Advisory Group

The Beacon to your Financial Journey

1623 Avenue Road, Toronto ON M5M 3X8

Phone: 416 861-2460

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Website: www.pharuswealth.ca