February 2025 - Monthly Update
Kaitlyn Richardson - Feb 01, 2025
Hope this note finds you and your family well as the daylight hours grow longer and we move closer to spring with each passing day.
Your portfolio posted steady gains in January. It remains with positive performance over the last twelve months.
Over the past month, there are several trends that have become more likely to endure despite all the near-term uncertainty surrounding tariffs, trade negotiations, and the new political regime in the United States (U.S.).
In January, the Bank of Canada delivered another 0.25% interest rate cut to overnight rates, widening the U.S. rate differential to over 1.25%. This difference will continue to grow over the next 12 months. Moreover, it is becoming more and more likely that when the Bank of Canada does stop cutting interest rates, the overnight rate will be below 2%. While longer term rates are unlikely to decline at the equivalent pace, they will trend in the same direction (i.e. lower). By the second half of this year, we’ll be talking about mortgages in Canada that start with the number three (as a percentage) as opposed to the number four. It is now more likely that we will see a pickup in real-estate transactions as soon as the spring. For the first time in three years, the real-estate sector will contribute to economic growth for the domestic Canadian economy.
The same is true for foreign exchange rate trends between Canada and the U.S.. It is now more likely for the Canadian dollar to stay relatively weak versus the U.S. dollar over the next 12 months. To put it in another way, it is much less likely for the Canadian dollar to return to eighty cents U.S. anytime soon. The takeaway for us as investors is that the bulk of the weakness (or depreciation in percentage term) in the Canadian dollar has already occurred with the move from ninety cents down to below seventy cents U.S..
There’s no change to our expectation that over the second half of this decade, North America will become a materially larger economic unit than it is today. The Canadian, U.S. and Mexican economies will be more integrated than ever before. In the short term, the catalyst will be the recalibration of some of the rules around trade within the continent as well as a renewed push within Canada to eliminate the interprovincial trade barriers which our country has outgrown.
Our investment positioning remains steady and consistent as in the past number of years. We continue to own category leaders deriving growth from their U.S. operations and complemented by Canadian bonds and bond like stocks representing compelling value given the interest rate environment of the future.
You and your wealth are in a strong position.
The view from Brian Belski, BMO's Chief Investment Strategist:
“Following a … decline in December, the S&P 500 posted a gain … during January with the index closing the month only 1.3% from a record level. However, the path proved to be a bumpy one. December’s weakness spilled over during the early part of the month as it seemed like the “good news is bad news” narrative had taken over again given that a series of stronger-than-expected economic data points had put a damper on aggressive market expectations for multiple Fed rate cuts this year which resulted in a sharp increase in bond yields. The S&P 500 managed to shake off its early January malaise during the second half of the month as a cooler-than-expected CPI report and strong bank earnings tempered the anxiety but the tech stock rout towards the end of the month was a reminder that there remains a decent amount of headline risk, especially considering that the expectation bar is much higher this year compared to the previous two years (and specifically for AI-driven investment themes)… The S&P/TSX gained … on a price return basis in January, outperforming the S&P 500 which was up … in local currency and was roughly flat to the S&P/TSX in CAD. Sector performance was a little more mixed with Technology and Materials driving the bulk of the outperformance this month. While the more defensive Consumer Staple and Utilities posted negative returns. Overall, despite some volatility at the end of the month, Canadian stocks have been handling the trade noise relatively well. As we have said many times, investors need to remain non-reactive, disciplined and focused on fundamentals, which from our perspective have not changed. Canada remains a relative value play with a rebounding growth profile. Although TSX revision momentum appears to have stalled in the last few months as analysts digest trade negotiations, from our perspective this suggests a more powerful positive revision cycle in the second half of the year.”
Stocks in your portfolio that made a new 52 week high this past month: MasterCard*, S&P 500 Index, (Brookfield Corp*,Enbridge*, Waste Connections*)
Stocks in your portfolio that made a new 52 week low this past month: CN Rail*, Kraft Heinz, Johnson & Johnson, (BCE, CPKC), United Parcel Services*
The Loonie declined by half a cent versus the U.S. dollar to $0.69
Thank you,
Ian, Gab, Kaitlyn and Nataliia