Spring 2025

We hope that you've had a great start to 2025!

As summer approaches, it’s a perfect time to pause and reflect on your financial journey. The season invites us to think about progress, goals, and new opportunities ahead. Whether you're saving for a major life event, maximizing retirement contributions, or revisiting your financial priorities, it's crucial to ensure that your financial path aligns with your evolving ambitions.

Financial planning is about more than just numbers—it’s about the life you envision and the steps needed to get there. As we move forward into the summer months, it’s an ideal time to revisit your goals and make any necessary adjustments.

With the changing season also comes a changing economic landscape. One significant development to note is the impact of the Trump tariffs, which have raised new considerations for market performance. Let’s explore what this could mean for your investments and strategies moving forward.

Market Update: Navigating Volatility with Confidence

As market volatility continues to influence investor sentiment, we want to provide you with helpful insights to better understand the current environment and stay focused on long-term strategies. Here’s a recap of the most recent developments:

Introduction of Reciprocal Tariffs

In a significant move last week, the White House announced aggressive reciprocal tariffs during “Liberation Day.” A baseline 10% tariff on all countries took effect on April 5, with additional hikes tied to bilateral trade deficits scheduled for April 9. The increases are calculated based on a country’s trade deficit with the U.S., which is measured as the deficit divided by imports, divided by two. This policy shift is expected to have wide-reaching effects on global trade, especially among major trading partners.

Impact on Global Supply Chains

The announced tariff increases are set to impact several key countries in the global supply chain, with Vietnam facing a 46% increase, China 34%, Korea 25%, India 26%, Japan 24%, and the EU 20%. These hikes are projected to push U.S. tariffs beyond 20%, surpassing the peaks seen under the Smoot-Hawley Tariff Act of the 1930s, adding to the already heightened uncertainty in global markets.

Exemptions for Canada and Mexico

Canada and Mexico have been spared from the new reciprocal tariffs, though previous tariff measures remain in place. Canada still faces 25% tariffs on non-USMCA-compliant goods and autos, and 10% tariffs on energy and critical minerals. The shift in U.S. trade policy seems to focus more on Asia and Europe at this time.

Global Responses and Retaliatory Measures

As expected, the new tariffs have sparked global responses. China has imposed a matching 34% levy on all U.S. imports starting April 10 and has announced export restrictions on rare earth metals. The EU is preparing targeted countermeasures, with a formal announcement expected soon. Although President Trump has signaled a willingness to escalate tariffs further in response to retaliatory actions, including his threat to double tariffs on U.S. steel to 50%, there are signs of potential de-escalation. Over 50 countries have already approached the White House to seek exemptions or negotiations, and Vietnam has reportedly offered to reduce tariffs to zero in order to avoid further increases.

Economic Implications: Inflation, Stagflation, and Investment Paralysis

Our portfolio managers at Mackenzie believe these tariffs will not significantly revive U.S. manufacturing but are more likely to:

· Raise Costs for Consumers: Consumers across North America will likely face higher prices due to these tariffs.

· Inject Inflationary Pressures: Already fragile disinflationary trends may be disrupted, leading to inflationary pressures.

· Slow Global Growth: Disrupting supply chains and undermining investment confidence could lead to slower global growth.

· Increase Retaliatory Measures: The heightened risk of a broader trade war could escalate as nations retaliate against the new tariffs.

The Good News? Diversified Portfolios Are Doing Very Well Amid all this volatility, the positive takeaway is that diversified portfolios are performing better than expected.

· Diversified Portfolios vs. S&P 500: Diversified portfolios have held up significantly better than the S&P 500, which has seen more than a 10% drop.

· Bonds as a Safe Haven: Bonds have proven to be a solid diversifier and a safe haven during this time of volatility, providing stability for many portfolios.

· International Stocks: International stocks, especially in regions like China and Europe, have performed better than anticipated. China is focusing on stimulus, while Europe is mobilizing its economy, increasingly preparing for a world where the U.S. cannot always be relied on as a staunch ally.

For equity investors who have questioned the need for diversification in recent years, asking, “Why bother owning anything but the Nasdaq and big growth stocks?”—the current situation is providing a clear answer. Diversification has proven its value in this volatile market environment.

What This Means for Investors

Amid the ongoing uncertainties surrounding trade policy, it’s essential to remain focused on long-term goals. While we may experience continued market volatility, it’s important to recognize that these periods are part of the normal market cycle. Historically, equity markets spend nearly 40% of their time in a drawdown of at least 10%, and corrections of over 15% occur roughly every three years—aligning with what we are seeing now. While these times may feel uncertain, remember that markets generally trend upward over the long term, and volatility is often temporary.

While the headlines have been dominated by the dramatic decline in the U.S. equity indices, remember that your portfolio is actively managed and well diversified globally. Your portfolio managers are constantly adjusting to ensure you are protected on the downside and can succeed once volatility subsides.

Stay calm, stay informed, and continue to focus on the bigger picture as we navigate these dynamic times together.

As always, feel free to reach out to myself, or Geoff, if you have any questions about your portfolio.

Sources:

Market Implications of New U.S. Tariffs - Mackenzie Investments U.S. Tariffs and Trade Disruption – Mackenzie Bluewater Q1 2025 Insights2025 FIDELITY INVESTMENTS CANADA ULC – Weekly Market Pulse and PM Content to Manage Volatility***Disclaimer - Past performance is not indicative of future results. All opinions and views expressed are as of the date of this communication and are subject to change without notice.

We at Carleton Financial Services Inc. and Dempster Financial Group Ltd. are here to support you in navigating the complexities of your financial journey. Together, we’ll continue working towards a secure and fulfilling future.

Wishing you a wonderful start to the season, and I look forward to connecting soon.

Best Regards,
Rob

Helping our clients make wise choices about their financial affairs.

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Winter 2024

We hope that the 2024 year has been a great one!

The beginning of a new year is the perfect time to reflect on the successes of you, your family, your business, and to plan for the year ahead. Meeting regularly to update your financial plan will help ensure that we are partnering to achieve your goals and objectives.

We strongly encourage scheduling a meeting with us throughout the 2025 year to:
- Get up to date on your story and any significant changes
- Review, discuss and set goals for any business succession/transition plans and how this would affect your overall financial plan
- Review your investment plan and/or insurance strategies to ensure they are line with your risk tolerance goals and financial security objectives
- Discuss your retirement goals and life transition plan to ensure they are on track
- Help you to uncover any gaps in your current tax, estate and financial plan or create one, including wills, insurance needs, education savings, debt management, spending strategies, etc.
- Address financial planning questions you may have, including the tough ones such as debt levels, estate planning, etc.
- Address any income requirements from investments
- Address any deadlines for RRSP top-ups (deadline March 3, 2025) and changes to monthly contributions (18% of income to a maximum of $31,560, plus carry-forward room, tax-free growth, tax deductible, taxable withdrawal)
- Address any deadlines for TFSA top-ups (deadline December 31, 2025) and changes to monthly contributions (annual room is $7000, plus carry-forward room, tax-free growth, tax-free withdrawal)
- Address any deadlines for FHSA (First Home Savings Account) top-ups (deadline December 31, 2025) and changes to monthly contributions ($8000/year, for 5 years for a total of $40K, tax deductible, tax-free growth and withdrawal)

Market Update:

Post U.S. Election Results

After a dramatic campaign, US voters elected Donald Trump on November 5th with a GOP majority in Congress. Investors signaled their enthusiasm for the results with inflows of $141 billion into US equities during November, the highest four-week total on record. Major North American stock indices surged ahead to close November at new highs, with the S&P/TSX Composite Index up 6.37%, the S&P 500 Index up 5.83% and the Nasdaq Index up 6.29%. Globally, the MSCI World Index rose 4.88% and the MSCI EAFE Index rose 0.58%.  The FTSE Canada Universe Bond Index rose 1.68% for the month.

Monthly Market Developments

• October and Q3 data released during November gave mixed signals about the Canadian economy. Job growth slowed to 14,500, down from 47,000 in September, but the unemployment rate held at 6.5%, after declining in September for the first time since January.

• Q3 GDP growth remained soft at 1% on a quarter over quarter basis, annualized, but consumer spending climbed 3.5%, likely aided by interest rates that have been falling since June. The Q3 GDP reading was well down from 2.1% in Q2 and on a per-capita basis GDP fell for the sixth consecutive quarter as population growth outpaced economic expansion.

• Inflation rose to 2% in October, according to Statistics Canada, up from a surprisingly low 1.6% in September that was driven by a sharp drop in gas prices. The October number is still within the Bank of Canada’s (BoC) target range.

• Stimulus measures announced by the federal government in November, including a temporary GST holiday on certain items, and an anticipated BoC rate cut of at least a quarter point in December could be further tailwinds for consumer activity.

• Trump’s unexpected November 25th announcement on social media of potential tariffs of 25% on Canadian and Mexican imports next year could be a significant economic headwind in 2025. The actual timing, targets and scale of any tariffs will likely remain unknown until Trump takes office, at the earliest. Canadian markets took the news in stride, suggesting a view that Trump’s position is negotiable and that his focus on illegal immigration and drugs applies more to Mexico than Canada.

• US inflation data remained relatively benign but suggested some underlying upward pressures. The October reading came in at 2.6%, year-over-year, annualized, up from 2.4% in September. The Fed’s preferred inflation gauge, the core PCE price index (excluding food and energy), was 3.3%, annualized, the same as in September.

• The all-important US consumer stepped up in October as retail and food-service sales rose again, up 0.4% in October from September, according to the US Department of Commerce. The resilience of the American consumer was underlined by a sharp upward revision of September sales data for a gain of 0.8% from August, twice the initial estimate of 0.4%.

• The “second estimate” of US Q3 GDP released by the U.S. Bureau of Economic Analysis at the end of November confirmed the previously announced growth rate of 2.8%, a slight dip from 3% in Q2. The Atlanta Fed's Q4 GDP estimate at month end was upgraded and stands at +2.7%.

• The US employment picture improved marginally (+12,000) in October and the unemployment rate held at 4.1%, according to the U.S. Bureau of Labor Statistics. Jobs continued to trend up in health care and government while temporary help declined. Strikes during October pushed manufacturing employment data down.

• While president-elect Trump has generated debate with some of his cabinet nominations equity markets rose on news that he had picked financier Scott Bessant for the key role of Secretary of the Treasury.
• As expected but overshadowed by the sweeping election results two days prior, the Fed cut the federal funds rate by a quarter point to 4.5-4.75% on November 7th.

• The Bank of England also trimmed interest rates by a quarter point to 4.75% in November and indicated a close focus on inflationary pressures will guide further rate decisions going forward. Q3 GDP growth in the UK was flat on weak exports and October inflation data recorded a 3.3% increase, year over year, higher than expected. After falling in October UK equities rose in November.

• Eurozone inflation rose to 2.3%, annualized, in November, above the European Central Bank’s (ECB) target of 2% and up from 2% recorded in October. The rise is not expected to derail an anticipated ECB rate cut of a quarter point in December. However, business activity dropped off sharply in the eurozone in November, leading to some speculation of a half-point interest rate cut. Germany, the bloc’s largest economy, continues to struggle as exports fell and revised Q3 data indicated essentially no GDP growth in the period.

• Japanese inflation rose in November to 2.6%, on an annualized basis, pressured by higher energy and wage costs. Q3 GDP growth of 0.9%, quarter over quarter, was better than anticipated and supported by firm consumer spending. The Nikkei 250 equity index closed the month slightly down but remains ahead YTD.

• Economic data for China released in November indicated some signs of positive momentum, particularly in consumer behavior, possibly aided by the series of major economic stimulus announcements during October and November. A further challenge for a slower Chinese economy going forward could be Donald Trump’s post-election assertions that he will apply new tariffs on Chinese imports.

How does this affect my investments?

The US election results could influence markets well into 2025. Donald Trump’s policy agenda is widely seen as strongly pro-business and pro-growth, and one that could directly benefit corporate profits and market returns. However, aspects of it could also be potentially inflationary, which may complicate the Fed’s longer-term path towards lower interest rates. One possible source of inflation – and economic disruption – could be US trade tariffs targeting Canada, Mexico, China and the European Union. If applied, some measures may ultimately raise prices for American consumers, a development that might then hamper US economic growth. But for the moment markets are expressing continued optimism and as we enter December investors are poised to finish 2024 with significant gains.
Regardless of where we are in the market cycle, it’s important to take a disciplined approach to investing and stay focused on your long-term goals. Ongoing monitoring and reviewing of your portfolio also ensure it remains on track. Diversifying investments reduces risk as well.

The information in this letter is derived from various sources, including Statistics Canada, Bureau of Economic Analysis, U.S. Bureau of Labor Statistics, Wall Street Journal, Financial Times, New York Times, CBC News, and BNNBloomberg as at various dates. This material is provided for general information and is subject to change without notice. Every effort has been made to compile this material from reliable sources and reasonable steps have been taken to ensure their accuracy. Market conditions may change which may impact the information contained in this document. Before acting on any of the above, please contact me for individual financial advice based on your personal circumstances. Certain statements contained in this communication are based in whole or in part on information provided by third parties and CI Global Asset Management has taken reasonable steps to ensure their accuracy. Market conditions may change which may impact the information contained in this document.