March Market Update

Money is just a tool. It's something that supports your life!

Trump Tariffs: Control What You Can Control!

Our investment strategy team recently wrote: "U.S. tariffs have been implemented on Canada and Mexico and have increased another 10% on China. Canada is seeing 25% and 10% tariffs on all non-energy and energy imports, respectively. Tariffs imposed against Mexico were 25% across the board. This is clearly negative for the entire North American economy as it increases inflation and lowers economic growth.

The silver lining is that the Canadian economy has show surprising strength of late, meaning that a recession in 2025 is not a foregone conclusion. It is also possible tariffs will be reversed. Regardless, a more defensive investment stance is fully warranted, in our view."

 

With that in mind, here is their current recommended asset allocation for three Investor Types:

All of you should be aware that we have already taken a defensive stance with account holding anywhere from 18% to 21% cash.

Fundamentally, the full impact of policies is not yet known as it is difficult to assess the extent by which the additional cost will be transferred to customers and the impact on demand. While the flight for safety may continue, investors, like the Fed, may need further data confirmation before it can support further gains. At the same time, we cannot ignore the fact that inflation remains stickier, and while the tariff could more or less translate into a one-time impact to CPI, it will nonetheless slow down the return to target, which in turn, could delay the Fed from moving aggressively to reduce policy rates. The key to the Fed becoming more dovish and cutting policy rate will lie in our opinion with the health of the labor market. This could potentially signal the next leg down for rate markets.

Our Chief Investment Strategist Brian Belski recently said :

Last time we checked, the month of March technically signals the end of Winter, while ushering in the beginning of Spring in the northern hemisphere. In other words, a much anticipated "thaw." Unfortunately, winter is not only coming, it is still here and appears to be omnipresent for Canadian equities thanks to a full-blown blizzard of uncertainty with respect to tariffs and domestic politics. For our part, we have traditionally treated and discerned "uncertainty" within our investment strategy process as exactly what it is - namely, ambiguous, vague and insecure. As such, we are confounded (once again) with the plethora of macro forecasts that have been released the past several days that contain vigorous and decisive directness within what we believe is a blizzard of ambiguity and opacity. Furthermore, we believe conclusions cannot and should not be made before the final variables are known. To use another analogy, you need to run the race before you know your final time. Uncertainty scares investors and reactionary analysis only magnifies the noise in our view. To be clear, tariff actualities and political consternation is all about duration risk. Fear of the unknown causes strife and Canada is chalk full of strife right now, unfortunately. NO ONE KNOWS. Humility is the better tactic, from our lens. So let's deal with what we know. We see NO material change in forward fundamentals in terms our Canadian models. As such we are not changing our 2025 $1600 EPS target for the TSX. YES, we continue to believe Canadian equities will hit new all-time highs by year end and are maintaining our 28,500 year-end price target. However, we are NOT being flippant. Fear is a powerful emotion and uncertainty is the ice that is freezing Canadian investors. However, there are always opportunities, after all Canada has some of the best companies with the best products and services in the world. As such, we believe investors should be looking for opportunities over the next several months for companies that are being unfairly punished.

 

We cannot control what Trump, or the Canadian Government will do regarding the tariffs or the direction that the market takes but you can control what you focus on and how you react. As Canadians, we are inundated with American based news 24/7 and we can choose to use our valuable time focusing on that or things that are much more important like our physical and mental health and time with family and friends. The medias job is to get you to watch them, so they create an environment of fear and greed. As I had mentioned in the last newsletter, volatility has always been part of the markets with the average drop through any year of 14%.

Our job is to manage your portfolio for you. As the investment axiom says: “When they are yelling you should be selling and when they are crying you should be buying”. Right now, they are starting to cry:

The reason most people fail in investing is that they let their emotions take over. If you are a long-term investor and have cash on hand (like we do) you should welcome drawdowns as they create opportunities to buy great companies at great prices.

 

Clients often think that their investment strategy needs to drastically shift as they reach retirement but most of the time very little has to change. The average life expectancy for a male is 80 and for a female is 84 in Canada. If you retire at 65, on average you have a 15+ years of investment time left which is not a short-term time horizon. Even in your 70’s most people have many years to invest. Yes, you will be withdrawing part of your income or capital to fund your retirement income needs but most clients are not taking out large sums of money. Having a financial plan in place can help you focus on what you need for an income level and what return is needed. For many clients, a pull back in the markets will not derail their retirement but selling everything when the market drops and trying to get in later will. Having cash on hand, helps to minimize the impact of draw downs. If you do not have any short-term needs for the money, why would you convert your investments to cash? What does work is taking off risk when the markets are overvalued or look risky and allocating those funds back into the market when thing are less risky. Less risky mean at lower levels and when the consensus thinks things are getting much worse. When they are crying you should be buying! That is what we have done and will always do.

 

We have been talking for months about how the markets most likely would be in a trading range and to expect volatility.

So, what do YOU do with all this noise about politics and the economy?

1. Have a comprehensive wealth plan in place which will helps build your assets and protect your assets and leave a legacy.

2. Make sure your investment time horizon matches your asset mix.

3. Focus on thing that you can control and enjoy.

4. Leave the investment management to us. Remember were 20% in cash BEFORE the tariffs and we are looking for an opportunity to buy great assets from those who panic out!

Our Portfolio Management Approach

We are fundamental investors that use technical analysis to manage short-term market risks. We believe that risk management is not a choice, but a necessity. While we cannot control how much downside the market provides during a correction, we can control how much of the downside your account receives. We aim to avoid 60% or more of the decline in any significant downturn. Without our process, there is a good chance you will experience 100% of the downside from the market. We will help you navigate the risks and rewards of the market so that you can stop worrying about your money and start living your life.

Portfolio Management Comments

There’s a ton of noise in the markets with tariffs and politics but the most important thing is the underlying core of the market is healthy, because growth is good and the Fed is still cutting rates. But the market is very stretched on valuation and these tariff headlines are going to cause volatility, so while the outlook is still positive, we need to be ready for short, sharp bursts of volatility which could present some interesting opportunities to put our cash to work.

We have around 20% cash and if we get a decent pull back, we will add to the market. Remember the market on average correct 14% from its highs every single year. Right now, we are very comfortable with the cash we are holding.

Transactions

Feb was a very quiet month in the accounts.

Many of our companies announced great earnings this month.

Finning, TMX Group, WSP Global, Tourmaline, just to mention a few.

 

We have still had around 20% of the account in cash and are looking to add on any pullbacks.

Returns on our 60/40, 70/30 & 80/20 portfolios, before fees:

Interesting Charts

But please, Mr. Trump, keep telling people how you don't even need Canada's imports...

 

Technical Comments

https://www.brookstradingcourse.com/price-action-trading-blog/

• The market has formed a monthly Emini trading range in the last 5 months. The bulls want a breakout into new all-time highs followed by a measured move based on the height of the 5-month trading range. The bears must create credible selling pressure (strong bear bars with follow-through selling) to show they are back in control.
• The February Monthly candlestick was a bear doji closing below the middle of its range with long tails above and below.
• Last month we said that traders would see if the bulls could create a breakout above the trading range and close February as a strong bull bar, or if the market would continue to trade sideways within the trading range and breakout below instead.
• So far, the market has continued to trade sideways, forming a 5-month trading range.
• The bulls want the market to continue in a broad bull channel for months.
• They want any pullback to be sideways and shallow (filled with weak bear bars, bull bars, doji(s) and overlapping candlesticks). They want the pullback to have poor follow-through selling. So far, it appears to be the case.
• They hope that the sideways trading range is enough to alleviate the prior overbought condition.
• They want a breakout into new all-time highs followed by a measured move based on the height of the 5-month trading range.
• If the market trades lower, they want the bull trend line or the 20-month EMA to act as support.
• The bears want a reversal from a wedge pattern (Mar 21, Jul 16 and Dec 6). They see a double top (Dec 6 and Feb 19) and 3 push up (Dec 6, Jan 24, and Feb 19 – a triple top).
• They want a breakout below the 5-month trading range followed by a measured move based on the height of the trading range.
• They must create credible selling pressure (strong bear bars with follow-through selling) to show they are back in control. Until they can do that, traders will not be willing to sell aggressively.
• If the market trades higher, they hope the 5-month trading range will be the final flag of the rally.
• So far, the market has traded sideways for the last 5 months.
• February closed as a doji bar near the middle of the trading range which is an area of balance and a magnet.
• The small trading range also indicates the market is in a breakout mode.
• Traders will wait for a strong breakout from either direction and trade in the direction of the breakout for a measured move (based on the height of the trading range).
• The move up since October 2023 has lasted a long time and is slightly climactic.
• However, the bears need to do more by creating credible selling pressure (bear bars with follow-through selling) to show they are back in control.
• For now, traders will wait for a strong breakout from either direction of the 5-month trading range.
• Until there is a breakout, there is no breakout.

Planning Tip

Peeling Back the Probate Process

If there’s one misunderstood part of the estate planning process, it’s probate – a term most people have likely heard but don’t know much about. And for good reason: Not every Will goes through the probate process; the legal steps by which provincial courts validate a deceased person’s Will, though many do.

You can read the following article by Sue Noorloo, Director of Estate Planning with BMO. She offers a helpful insight into things you may not have thought about when it comes to probate.

Click here to read

 

Millennial Minute

When you work hard to budget your money, when you curb your spending and focus on the bigger picture items like saving for retirement or paying down large debts, you tend to have some money left over at the end of the month. This can pose an important question: Should you put your money into savings and investments? Or do you put your extra funds towards your debt load. 

The answer isn't simple, and everyone's situation is different. You can check out this month's article that explores this very topic!

Click here to read 

** This month's article has information taken from CIRO. You can read their full article here: Navigating Finances | Canadian Investment Regulatory Organization

 

We are so much more than just investing

 

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