Wealthwise Wisdom: Glen's 7 Strategic Insights

Given the announcement Saturday of 25% tariffs for Canadian Goods and Services here is Glen’s 7 strategic insights….

 

 

1. Tariffs May Be Temporary, But Risks Remain – Newly imposed U.S. tariffs on Canadian goods are expected to be short-lived, potentially lasting one quarter. However, there is a downside risk that they may persist longer.
2. Potential Economic Impact on Canada – Prolonged tariffs could shrink Canada’s GDP by 2-3% and weaken the Canadian dollar against the U.S. dollar, affecting investment returns.
3. U.S. Economy Also Faces Consequences – Since U.S. and Canadian supply chains are deeply integrated, extended tariffs could hurt American industries, including auto manufacturers, and impact upcoming political elections.
4. Diversification is Key – Investors should maintain a well-balanced portfolio across different asset classes and global markets to navigate economic uncertainty effectively.
5. Expect Market Volatility – The Canadian dollar may depreciate further, and financial markets could experience short-term instability due to ongoing trade tensions.
6. Central Banks May Step In – The Bank of Canada is expected to cut interest rates to cushion the economy, which could impact borrowing costs and investment strategies.
7. Stick to Long-Term Goals – Market timing is risky. A disciplined investment approach with diversification and strategic asset allocation remains the best way to manage risks during uncertain times.

 

 

Source: CIBC Asset Management, Bloomberg, Glen Daniel

 

Glen has been fielding calls regarding DeepSeek and its potential impact on semiconductors companies and AI policies moving forward. Here are Glen’s 7 insights……

 

 

1. DeepSeek's Impact on Markets and Policy

The emergence of DeepSeek has shaken financial markets and raised concerns in Washington, prompting the Trump Administration to reassess AI policies.

2. Trump’s AI Strategy Shift

President Trump quickly revoked Biden’s AI executive order, arguing that it placed too many restrictions on American innovation. A new 180-day review aims to strengthen the U.S.'s global AI leadership.

3. Tariffs on Key Sectors

Trump plans to impose tariffs on semiconductors, pharmaceuticals, and steel to encourage domestic production and reduce reliance on foreign supply chains.

4. Debate on Semiconductor Export Controls

Some experts believe U.S. restrictions on chip exports have backfired by boosting China’s tech advancements, while others argue they should be expanded to include more advanced chips.

5. Concerns Over AI and Data Security

The administration is considering ways to restrict China’s access to AI models and data, possibly limiting AI investments in China and tightening rules on Chinese nationals studying AI in the U.S.

6. Potential DeepSeek Ban

National security concerns could lead Trump to attempt banning DeepSeek, similar to TikTok, but its open-source nature makes it harder to regulate. A broader framework for Chinese tech in the U.S. may be needed.

7. Future AI Policies

The Trump Administration aims to reduce regulatory barriers for AI companies, lower energy costs, and promote military AI applications while balancing concerns about AI safety at both federal and state levels.

 

Source Bloomberg, ISS Evercore, Glen Daniel

 

Glen wanted to give his initial insights into “ Day One Executive Orders“ from the Trump Administration

 

 

 

1. Tariff Strategy Remains Ambiguous: Despite early expectations, the Trump administration refrained from announcing detailed tariff measures on Day One, opting instead for a general executive order to review trade practices and deficits. However, statements later in the day suggest impending moves targeting China, the EU, and Mexico/Canada. Investors should anticipate sector-specific tariffs, particularly in strategic industries, and position portfolios to mitigate exposure to heightened trade tensions.
2. Universal Tariff Uncertainty: The administration remains divided on the implementation of a universal tariff, with advisors debating whether to fulfill campaign commitments or adopt a more nuanced approach. A scaled-back version targeting large-surplus trading partners or critical sectors appears more probable. Investors should monitor these developments closely, as they may create ripple effects across global supply chains and key trading relationships.
3. Immigration Policy and Labor Market Implications: Policies aimed at reducing net immigration, such as reinstating the “Remain in Mexico” program and heightened deportation efforts, could tighten labor availability in industries reliant on immigrant workers, such as agriculture, construction, and service sectors. This contraction may increase wage pressures and operational costs, particularly for labor-intensive businesses.
4. Energy Sector Realignment: The administration’s emphasis on deregulation, expanded domestic production, and the potential for streamlined permitting processes creates significant opportunities for traditional energy players, including oil, gas, and LNG exporters. Conversely, the pausing of offshore wind development may slow momentum in the renewable energy sector, presenting a reallocation opportunity for energy-focused investors.
5. Big Tech and Regulatory Risks: While Big Tech leaders attended the inauguration in a show of cooperative intent, incoming regulators at the FCC and DOJ, along with Vice President Vance, have expressed skepticism toward the industry’s market power. Antitrust actions, digital taxation disputes, and regulatory headwinds could impact valuation trajectories, warranting a closer examination of Big Tech holdings.
6. Geopolitical Developments Around Panama: Trump’s unexpected focus on the Panama Canal as a strategic asset introduces a potential flashpoint in global trade dynamics. Any moves to assert control over the canal would likely provoke geopolitical tensions and disrupt shipping routes. Investors with exposure to logistics, global supply chains, or transportation infrastructure should assess potential risks.
7. Fiscal and Innovation Policy Signals: While spending cuts from the Department of Government Efficiency (DOGE) appear unlikely to meet initial targets, the administration’s commitment to space exploration and large-scale infrastructure projects signals potential growth opportunities in aerospace, defense, and construction sectors. Investors should track budget appropriations for strategic priorities like the Strategic Petroleum Reserve and space programs for insights into government-backed growth initiatives.

 

 

Source: Bloomberg, Glen Daniel

 

With Prime Minister Trudeau resigning and proroguing Government for 67days, I thought I would send you my thoughts on prorogation this week…..

 

 

 

1. What is Prorogation?

Prorogation is the suspension of Parliament by the prime minister, effectively pausing all legislative and parliamentary activities while the government remains in power. This includes halting bills, committee work, and parliamentary investigations.

2. Historical Context of Prorogation in Canada

Prorogation has been used in Canada during politically sensitive periods. Notable examples include Stephen Harper avoiding a confidence vote in 2008 and halting a committee inquiry in 2010, and Justin Trudeau proroguing Parliament in 2020 during the WE Charity controversy.

3. Impact on Governance During Prorogation

While the government retains executive power, prorogation halts legislative progress, potentially abandoning key legislation like tax reforms or new acts like the capital gains inclusion legislation. This pause can create uncertainty for policies directly affecting sectors like taxation and technology.

4. Investor Consideration: Legislative Uncertainty

Legislative delays, such as potential changes to the capital gains tax, may impact investment strategies. Investors should monitor how prorogation might affect fiscal and regulatory policies relevant to their portfolios.

5. Prorogation and Political Stability

Political instability, such as leadership changes or lack of confidence in the government, can lead to market volatility. For instance, Trudeau’s resignation and upcoming leadership race could shape future policies impacting various industries such as energy.

6. Opposition Revival of Legislation

Opposition parties can motion to revive previously paused legislative activities. However, investors should remain cautious, as there’s no guarantee of continuity, which might disrupt anticipated market outcomes.

7. Investor Takeaway: Watch Political Developments Closely

For investors, understanding the political landscape is crucial. Prorogation signals potential delays or shifts in policy direction, necessitating a flexible and diversified investment approach to mitigate risks associated with legislative uncertainty.

 

 

 

Source: Bloomberg/ Glen Daniel

 

Happy New Year Everyone. I have been receiving inquiries regarding a 2025 Outlook on Trump 2.0 Policy Agenda and the stock Market and with inauguration less than 3 weeks away here are my 7 strategic insights…

 

 

1. Market Volatility is Likely to Persist Due to Mixed Policies

The Trump 2.0 agenda combines pro-market actions like deregulation and tax cuts with bearish policies on immigration, tariffs, and fiscal deficits. This blend increases the likelihood of market fluctuations, particularly during the policy implementation phase.

2. Deregulation as a Bullish Catalyst

Aggressive rollbacks of regulations, particularly in sectors like energy, financials, AI, and crypto, are expected to unleash market optimism. However, this effect may be tempered by Trump’s populist stance in areas like healthcare and big tech.

3. Immigration Policies May Dampen Economic Growth

Stricter immigration measures will likely reduce labor availability, affecting high-growth sectors such as agriculture and construction. This could slow overall economic expansion, even as the administration prioritizes these policies for political reasons.

4. Tariffs Will Be a Negotiation Tool and Economic Risk

Tariffs remain central to Trump’s strategy, potentially targeting China, the EU, and other nations with trade imbalances. While these tariffs could provide negotiating leverage, they also risk straining global trade relations and supply chains, impacting market stability.

5. Fiscal Deficit Challenges and Bond Market Reactions

Persistent fiscal deficits, driven by tax cuts and limited spending reductions, will test bond markets’ patience. Rising interest rates and concerns over fiscal sustainability could exert downward pressure on fixed-income securities and broader economic sentiment.

6. Geopolitical Tensions Add Uncertainty

Efforts to resolve conflicts, such as in Ukraine, the Middle East, and with China, are fraught with complexities. Prolonged geopolitical instability could deter investor confidence, particularly if tensions escalate or remain unresolved.

7. Investor Takeaway: Expect the Unexpected

Trump's unpredictable communication style and potential policy shifts will likely amplify market volatility.

 

Source: Bloomberg, Glen Daniel

Glen wanted to share his 7 Strategic Insights on the recent rise in the 10-year Treasury yield given we see the Fed moving towards an easing cycle in the overnight rate and it seems that the 10 year Treasury is doing the exact opposite.

 

 

 

1. Rising Yields: Since mid-September, the 10-year Treasury yield has climbed from around 3.60% to 4.20%, reflecting significant market movement. This could impact borrowing costs and investment returns.
2. Market Sentiment Shift: Bond investors were previously positioned for lower rates, but the sharp reversal indicates changing expectations about the economy and interest rates.
3. High Treasury Supply and Weak Demand: Treasury auctions are near record highs, but demand is weaker as investors seek better returns in equities. This pushes Treasury yields higher.
4. Inflation and Deficit Concerns: Increasing odds of a Trump election win and union settlements pushing wages higher may lead to larger deficits and higher inflation, which could further boost yields.
5. Commodity Price Rise: Rising commodity prices, like oil, can lead to inflation, which typically drives up bond yields as investors demand higher returns to offset inflation risks.
6. Fair Value of Yields: The current 10-year yield is slightly below its estimated "fair value" of 4.38%. However, the market often overshoots, and yields could climb as high as 4.65% or even 5.0%.
7. Diminished Recession Fears: The likelihood of a near-term recession has significantly dropped, reducing demand for the safety of Treasury bonds, contributing to higher yields.

 

Source: Glen Daniel

 

Now that the election is over Glen wanted to share his 7 Strategic Insights for 2025

 

 

1. Positive Market Outlook for 2025

Analysts are optimistic about the market’s potential, forecasting the S&P 500 could reach 6,600 by mid-2025. This projected growth is driven by policy shifts and improved business sentiment, making it an exciting time for investors to consider market exposure.

2. Deregulation Drives the Bull Market

The expectation of deregulation in Washington is set to stimulate economic growth. This type of policy could benefit businesses, creating opportunities in sectors ranging from financials to industrials, where companies might see increased profitability and expansion.

3. Focus on High Free Cash Flow and Strong Earnings

Companies with high free cash flow and strong earnings tend to be better positioned during market uncertainty. Stocks in tech, healthcare, and financials are notable for this, as they often lead market rallies during periods of growth driven by favorable policies.

4. Potential Rate Cuts by the Fed

Analysts expect the Fed to continue cutting rates, with additional cuts anticipated in 2025. Rate cuts typically make borrowing less expensive and can stimulate economic activity, potentially supporting higher stock valuations and encouraging investments in growth sectors.

5. Invest in Key Growth Sectors

Technology, communication services, and small-cap stocks are seen as likely beneficiaries in this environment, especially given historical patterns from previous rate-cut cycles. For balanced growth, investors may also consider defensive sectors, like consumer staples and healthcare, which often perform well during economic shifts.

6. Mind the Market “Wall of Worry”

Rising interest rates can create challenges, especially as yields on government bonds remain high. This “wall of worry” can impact stock prices if yields continue to rise. Staying diversified and keeping an eye on credit market conditions can help manage risk in a changing interest rate environment.

7. Be Prepared for Market Exuberance

As the market gains momentum, periods of “exuberance”—when valuations are high and sentiment is overly optimistic—could appear. This phase is not unusual in bull markets, but it’s essential to remain grounded and focused on long-term goals, avoiding excessive risk-taking during these peaks.

 

Source: Bloomberg, Glen Daniel

 

This week Glen highlights how political events and election outcomes can affect different sectors. Here are his 7 strategic insights for investors to consider when analyzing market movements.

 

 

1. Market Volatility Linked to Election Events: The article analyzes market reactions to key election events, showing how specific stocks and sectors respond to political developments involving Trump and Harris. These events can drive significant price movements based on perceived policy impacts.
2. Sector-Specific Reactions: Pro-Trump events have generally benefited financial stocks, especially small-cap banks, due to expected deregulation. In contrast, pro-Harris developments favor clean energy stocks and healthcare companies linked to the Affordable Care Act (ACA) and Medicaid.
3. Differing Impacts Within Clean Energy: While clean energy stocks react positively to Harris, the degree of policy risk varies across segments. Electric vehicle (EV) manufacturers face greater regulatory uncertainty under a Trump administration compared to solar energy companies, which have stronger legislative backing.
4. Pharma, Semiconductors, and Tech Less Impacted: Sectors like pharmaceuticals, semiconductors, and big tech have shown little election-related volatility because both candidates have similar stances in key policy areas. For example, both Trump and Harris are likely to continue supporting semiconductor manufacturing (CHIPS Act) and regulating prescription drug prices.
5. Impending Tax Policy Debates: Investors in real estate investment trusts (REITs) should be aware of tax policy changes in 2025, particularly the expiration of a 20% deduction for pass-through income. This tax issue could affect REITs regardless of the election outcome.
6. Trump 2.0 Trade War Risks: The potential for a renewed and more aggressive trade war under Trump could impact stocks with exposure to international trade, particularly those linked to Mexico and China. This could trigger higher tariffs and disrupt supply chains, especially in the auto industry.
7. VIX and Market Sentiment: The volatility index (VIX) has shown signs of increasing in anticipation of election-related market swings. This reflects investor uncertainty and the potential for more pronounced market movements as Election Day approaches.

 

Source Bloomberg, Glen Daniel

Given the election is less than one week away, here is Glen’s 7 Strategic Insights……

 

 

1. Slight Edge for Trump, But Race Remains Tight: Trump holds a slight advantage due to his strong polling performance and multiple electoral paths, but high female voter turnout or successful voter mobilization for Harris could still sway the results.
2. Early Indicators from Swing States: Georgia and North Carolina are expected to provide the first substantive election results, which could hint at the likely outcome by midnight if the margins are clear. If results aren’t decisive, expect a longer wait for a final call.
3. Focus on Key Counties: Certain “bellwether” counties that switched from Trump to Biden in 2020 will be closely monitored. Tracking these counties can provide early clues about voter sentiment in crucial demographics like suburban, urban, and rural populations.
4. Senate Likely to Flip Republican: Republicans are predicted to regain control of the Senate, with decisive flips expected in West Virginia and Montana, but it may take more time to know the exact margin.
5. Close House Races: The House races remain tight, and with a narrow margin predicted, control of the House may not be clear for several days due to potential recounts in highly competitive districts.
6. Possible “Red” or “Blue Mirage” in Early Counts: States’ differing policies on vote counting could create misleading trends early in the night (i.e., a “red mirage” or “blue mirage”) before the final tally. Stay cautious in interpreting initial results until more data is available.
7. Potential for Post-Election Disputes: Given Trump’s past actions and recent political tensions, there could be attempts to contest the results if they are close. However, improved legal safeguards since 2020, like the Electoral Count Reform Act, may help protect the process.

 

 

Source: Bloomberg, Glen Daniel

When putting together an estate plan here are 7 insights to consider…

 

 

1. Importance of Key Documents: A comprehensive estate plan should include essential documents like a will and powers of attorney. These documents ensure that your financial and health wishes are respected if you become incapacitated or pass away.
2. Choosing an Estate Representative: Designate a trustworthy executor or estate representative in your will who can manage your estate. It’s vital to discuss this role with them beforehand to confirm their willingness and capability.
3. Beneficiary Designations: Make beneficiary designations for your RRSPs, RRIFs, TFSAs, and life insurance policies. This ensures that these assets pass directly to your beneficiaries, avoiding probate delays and taxes.
4. Tax Considerations: Consider strategies to minimize taxes on your estate, such as transferring certain assets to a spouse or partner on a tax-deferred basis or donating appreciated securities to charities to avoid capital gains tax.
5. Staggering Asset Distribution: Decide how and when beneficiaries will receive their inheritances. You can choose to distribute assets outright or create trusts for minors, allowing for staged distributions over time.
6. Guardianship for Minor Children: Clearly outline your wishes regarding guardianship for your children in your will. This choice is crucial, as courts typically honor your selection if the appointed guardian is willing.
7. Regular Updates: Your estate plan is not a one-time effort. Regularly review and update your will and other estate planning documents—at least every five years or after significant life changes—to reflect your current situation and intentions.

 

 

Source: Glen Daniel

Glen received a note on next week’s Bank of Canada decision for interest rates from CIBC Economics on Friday and this is Glen’s 7 strategic insights….

 

1. Expectations of Rate Cuts: Markets are anticipating that the Bank of Canada will cut interest rates by 50 basis points (0.50%) next week. Some economists suggest it could even go up to 75 basis points, but that is less likely.
2. Historical Context: While 25 basis point changes are common in small rate cycles, larger rate adjustments (like 50 or 75 basis points) have historically been made when more significant economic shifts are required.
3. Reasoning for Larger Cuts: With inflation below the 2% target and economic growth subdued, a larger, front-loaded rate cut (like 75 basis points) could be beneficial, as it would allow the effects of the cut to kick in sooner.
4. Shadow Central Bank Views: Economists from the CD Howe Institute's shadow central bank committee recommend an easing of 75 basis points by December. The Bank of Canada may share similar views, considering the current economic conditions.
5. Impact of US Economy: US economic data, such as strong employment and inflation figures, may influence the Bank of Canada's decision. The US Federal Reserve is expected to cut rates more slowly, which could pressure the Canadian dollar (loonie) if Canada moves faster.
6. Exchange Rate Risks: A large rate cut (75 basis points) could weaken the loonie more than expected, creating volatility in currency markets. While a weaker currency can boost exports, too much volatility makes it harder for the Bank to manage monetary policy.
7. Likely Outcome: The most probable scenario is a 50 basis point cut, with the possibility of another 50 in December. This more measured approach would help avoid unnecessary currency fluctuations and economic uncertainty.

 

Source: Bank of Canada, CIBC Economics

Glen’s thoughts on the Fed raising rates this Fall.

 

1. No Rate Hikes or Immediate Cuts: The Fed is expected to signal that current policy is restrictive and well-positioned, indicating no immediate need to raise or cut rates due to solid economic activity and strong employment.

2. Conditional Rate Cuts Starting September: A narrow baseline of two rate cuts is anticipated this year, starting in September, conditional on a sustained decrease in inflation and improved balance in the real economy.

3. Persistent Inflation Concerns: If inflation remains persistent, the Fed will likely maintain current elevated rates for an extended period rather than implementing cuts.

4. Flexibility to Cut if Labor Market Weakens: The Fed is prepared to cut rates quickly if there is a significant weakening in the labor market.

5. Minimal Changes to Policy Statement: Modest changes to the FOMC statement are expected, reflecting slight progress in inflation control but not enough to warrant immediate rate cuts.

6. Economic Projections and Inflation Targets: The Summary of Economic Projections (SEP) will likely show a thin median projection of two cuts this year and three next, with core inflation projected at 2.8% for 2024 and 2.3% for 2025.

7. Focus on Inflation Data: The upcoming CPI data will be crucial in determining the Fed's next steps, with Powell expected to emphasize that any decision to cut rates will be based on clear and sustained progress in reducing inflation.