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By Cyndy Batchelor, Financial Advisor O’Farrell Wealth & Estate Planning | Assante Capital Management Ltd. I tend to receive numerous queries for advice and tips from people who need help with budgeting, help to understand certain products, or from people who are looking for general best practices when considering their financial day to day activities. I enjoy sharing knowledge that helps individuals and families feel more confident regarding their day-to-day finances. An integral part of my job as a Financial Advisor is the preparing of wealth plans. A Wealth Plan integrates all aspects of a client’s life and accounts for their dreams and goals. A Wealth Plan is when I take all your information, which includes your assets (house, investments & savings, pensions, etc.), liabilities (mortgage, loans, credit cards), income, and expenses, then project them out to the future. This allows you to see where you stand financially today and foresee where you will be at any point in time in future years. It is impossible to predict today that you will still be in the same job until you retire, what extra expenses you might have had along the way if you get sick and cannot work, or if you will win the lottery or get an inheritance. As life is continually changing, we will update your plan frequently to ensure it is as accurate as possible. As a Financial Advisor, I use reasonable expectations and returns and factor in risks. We prepare recommendations to mitigate risks and help protect your assets. We use Disability and Critical Illness insurance to mitigate against illness and injury if you do not have a Short-Term or Long-Term Disability plan through your employer. We use Life Insurance to protect against an early death, cover any debt you may have, and to create an estate for your loved ones. We use savings vehicles to plan for large purchases like cars, home renovations, and to set up an emergency fund. RRSPs and TFSAs are used for retirement and can help you save for a home purchase. If you are already retired, you may have a RRIF – which you are using to fund your retirement. A comprehensive Wealth Plan can forecast your financial future. The first quarter of 2022 has been a tumultuous one for investors. Our in-house Wealth Team provides a monthly market commentary. We invite you to contact us to sign up for this newsletter. After working for over twenty-five years in this business, the best advice I will give about investments is that it is not about timing the market, it is time in the market. Stay invested and stay safe. Cyndy Batchelor is a Financial Advisor with Assante Capital Management Ltd. The opinions expressed are those of the author and not necessarily those of Assante Capital Management Ltd. Please contact her at 613.258.1997 or visit ofarrellwealth.com to discuss your circumstances prior to acting on the information above. Assante Capital Management Ltd. is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. Insurance products and services are provided through Assante Estate and Insurance Services Inc.

By Cole Seabrook, Financial Advisor O’Farrell Wealth & Estate Planning | Assante Capital Management Ltd. Everyone should have a Wealth plan. Unfortunately, many individuals do not understand the importance of planning or what a comprehensive wealth plan can look like. Anyone who has watched the news lately knows that the markets are volatile, interest rates and inflation are on the rise, and other economical and social uncertainties are prevalent. Many individuals are uncertain as to how these factors will impact their overall costs and standard of living. To start, let’s look at a few key areas that Financial Advisors commonly look at when building a wealth plan for their client. Your Advisor will help you determine the state of your current financial situation and discuss the goals and plans you have for the future. This could be anything from buying your first house to preparing for retirement. Some key points to know when looking at your current financial situation are: · Your annual income · Your savings or investments · Your current fixed expenses or debt liabilities Budgeting over the course of time can help an individual have a better understanding of what their monthly cashflow looks like. After having an accurate idea of an individual’s current situation, it is time to start the planning process. Some of the key areas are: · Financial Management · Emergency Funding · Investment Planning · Insurance and Risk Management · Tax Planning · Retirement and Estate Planning After the creation of the wealth plan, it is important to remember it is not a one-time event. A wealth plan should be reviewed on an annual basis and when significant life events happen either expected or unexpected. Some examples are a change in marital status, the birth of a child, a change of employment, etc. When your Financial Advisor builds a wealth plan, it helps you to stay on track of your goals from a financial perspective. A sound plan will also give you peace of mind that when there is financial pressure, the strategies that were put in place will help you get past the challenging times. If you are uncertain of where you are positioned to achieve your goals, it may be time to speak with your Financial Advisor. We are always open to questions and giving people a second opinion when it comes to their Wealth plan. Feel free to get in touch with us at any time. Cole Seabrook is a Financial Advisor with Assante Capital Management Ltd. The opinions expressed are those of the author and not necessarily those of Assante Capital Management Ltd. Please contact him at 613.258.1997 or visit ofarrellwealth.com to discuss your circumstances prior to acting on the information above. Assante Capital Management Ltd. is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. Insurance products and services are provided through Assante Estate and Insurance Services Inc.

In June 2022, inflation, the most closely watched, and potentially the most important economic datapoint(s) from an investors’ standpoint, disappointed. Reports for the twelve months ending in May 2022 showed that inflation increased to +8.6% in the US and to +7.7% in Canada. As both readings were above initial projections, market participants realized that the expectations of having reached peak inflation were premature, which brought in a turbulent market over the month of June. The US Federal Reserve followed up with a +75 basis points hike in policy rates, against the previously indicated +50 basis points hike. The Bank of Canada increased policy rates by +50 basis points at the start of the month. However, due to the higher-than-expected inflation numbers, the market expectations of a jumbo-sized hike (i.e., +75 basis points) during the mid-July policy meeting- have increased. The North American markets reacted to the above developments, with the S&P 500 Index and the S&P TSX Index declining by ~-9.0% and ~-8.4% for the month, respectively. Fixed income markets showed strain against the faster-than-expected pace of policy rate hikes. Bond yields increased by +43 and +39 basis points on 2-year term, and ~33 and ~16 basis points on 10-year term for Canada and US, respectively. We note that the industrials, metals, agricultural commodities, and crude oil prices have come off their recent highs (See chart 1) and US total manufacturing and trade inventories have been increasing (See chart 2). Does that mean the inflation numbers could veer to the downside in the next month’s report? We think it is possible, but even if it does, it will only support markets for a short-term as they are unlikely to react convincingly unless the data shows continuous improvement for a few consecutive months. Chart 1: Commodities have come off their recent highs Daily prices indexed to 100, June 29 2021 to June 28 2022 Chart 2: US Manufacturing & Trade Inventories, year/year %age change (MTIBYOY Index) vs. US Manufacturing & Trade Inventories, US$ billions (MTIB Index) Jan 2000 to April 2022 We believe a decline in inflation, along with some moderation in economic growth, are the necessary pre-conditions for the markets to react constructively. This would indicate that the Central Banks’ actions are yielding results, and that things are finally heading in the right direction. The messaging from the Central Bank authorities indicates that they believe such an outcome is possible, though the path to achieve this outcome is becoming increasingly more challenging. If Central banks achieve the above conditions, this will normally justify a slowed pace or pausing of rate hikes. We now think the odds have shifted in favour of them not taking their foot completely off the brakes due to a lingering risk of inflation beginning to rise again. The data on the underlying components of the latest inflation report indicated that inflation is becoming broad-based, thereby increasing the likelihood of becoming sticky. Since inflation expectations will be more difficult to contain the second time around, we think the probability of central banks erring on the side of caution is now elevated. The only exception to this would be if something breaks due to high interest rates, or the risk of something breaking in the economy becomes too great. Given the above backdrop, we continue to advocate for a defensive stance in portfolios by overweighting companies that are generating high cash flows, paying dividends, have defensive business models, and have low debt burden. Furthermore, adding alternative strategies with low correlation to traditional strategies and building some optionality to pick assets at bargain prices as the challenging macroeconomic environment plays out in the coming months should place investors in a better position as they come out on the other side of the cycle.

Daren Givoque, CDFA, Financial Advisor O’Farrell Wealth & Estate Planning | Assante Capital Management Ltd. Buying a house is an important milestone but one that is becoming increasingly difficult in today’s market. Here are 5 things you should be aware of before you take the leap into home ownership. 1. Understand GDS and TDS Your Gross Debt Service (GDS) ratio and your Total Debt Service (TDS) ratio are the two numbers that lenders will use to qualify you for a mortgage. Your GDS ratio is the percentage of your income needed to pay all your monthly housing costs, including principal, interest, taxes and heat. Fifty per cent of condo fees are also included if applicable. Typically, your GDS ratio needs to be bellow 39 per cent in order to secure a mortgage for a new home. You TDS ratio is the percentage of your income needed to cover all your debts. This includes car payments, credit cards, loans and alimony. Most lenders will consider you for a mortgage if your TDS ratio is 44 per cent or lower. Because GDS and TDS are so important for being able to secure a mortgage having a good idea of your financial situation before you go to a bank or private lender is ideal says Tina Murray (Mortgage Broker from Dominion Lending). Pay down debts and make sure your credit is in good shape to improve your chances of qualifying for the mortgage you need. 2. Don’t be afraid to use mortgage loan insurance The down payment needed to buy a house in Ontario is 20 per cent. This means that if you are trying to buy a house that is $400,000 then you would need to save $80,000 for the down payment. A challenge for even the most fiscally responsible. If this is not feasible you have the option of putting down as little as 5 per cent of the cost of the house IF you insure the other 15 per cent. The Canada Mortgage Housing Corporation (CMHC) and Sagen are two organizations who sell insurance products that will allow you to insure the portion of the down payment that you don’t have ready to go. Generally, the premium will be around 3.5 per cent. Some people say it is better to wait until you can afford the entire down payment before you buy to eliminate the premium and interest payments that can add up over the years. That being said, if you wait to buy a house it is likely that you will be paying more in the long run anyway as housing prices tend to go up. As a generally rule it is better to become a homeowner sooner to help grow your net worth and improve your financial security into the future. 3. Have a budget The last thing you want is to be house poor. This happens to people who buy a house that they can afford on paper but haven’t taken into consideration extra costs like property taxes, legal fees, moving costs and house insurance. Therefore, it is extremely important to have a budget that takes into account all the costs associated with buying and maintaining the home. It is also important to include other living expenses that don’t factor in to your GDS or TDS in your budget like food and entertainment. The more accurate you can be with projecting your expenses in your new home the better. It is a good idea to have $5,000 to $10,000 set aside for extras so you don’t end up with unforeseen costs that you can’t pay. 4. Accept help Housing costs in Ontario are at an all time high with the average home costing around $600,000. Veteran real estate agent Geraldine Taylor says the issue is that housing costs have skyrocketed while the average income has increased at a much slower rate. This makes it particularly hard for young people to break into the housing market and many are turning to their parents to help. Taylor says that 80 per cent young homebuyers are depending on their parents to help them make their first purchase. Buying a house is an investment in your future so don’t shy away from help if it is available to you. 5. Buy as much house as you can afford It is important to plan for the future when purchasing your first home. As mentioned, you don’t want to become house poor but ensuring that the house you buy will continue to fit your needs down the road will ensure that you don’t have to go through the homebuying process again in just a few years. It’s expensive to buy a or sell a house with paying a real estate agent, legal fees and other moving costs. It makes a lot more sense to buy a home that you can grow into rather than one that you will need to turn on a dime and sell. Buying a house is a great investment and one that will contribute to your financial security as you age. It has been shown that people that get into the housing market early typically retire more comfortably than those who wait until later in life. Make sure you surround yourself with the proper experts (real estate agent, financial advisor mortgage broker etc.) to make sure you are well equipped to journey into the world of home ownership. Feel free to contact us if you have questions.

What has happened? The Global markets have processed a lot over these first two months of 2022. The establishment of high inflation and an anticipated interest rake hike have kept investors on their toes. The risk of the Russia/Ukraine conflict turning into a full-fledged war has become reality. The prospect of war had seemed low as the Russian President, Vladimir Putin, had repeatedly stated that Russia had no intention to invade Ukraine. He wanted security guarantees from the West, and he does not want Ukraine to become part of the NATO (North Atlantic Treaty Organization) Alliance. Although it seemed that diplomacy would avail, on the 24th of February 2022, Russia recognized the two separatists backed regimes in Eastern Ukraine as independent entities and immediately advanced its military forces on Ukraine. Putin pushed out the narrative that Russia is carrying out a “special military operation” to ‘demilitarize’ Ukraine, blaming the current government for planning a “genocide” in eastern Ukraine. What is happening? The World saw through the false narrative and understood that Putin’s ultimate plan behind the invasion of Ukraine was to dismantle the current democratic government and install a “puppet government.” His play is to keep the “puppet government” from becoming a part of NATO which would thus keep the “threat” from Western Countries at bay while creating a buffer zone between Russia and the NATO countries. Having previously experienced the retaliation of the Western World on its misadventures in the neighbouring regions; Russia had expected a blunt round of sanctions and had prepared in advance by building up its foreign exchange and gold reserves to ~$630 billion and dramatically reducing its holdings of US treasuries in 2018 (see chart). Russia also strategically reduced its gas exports to Europe to a minimum in Q42021 which depleted gas inventories and exacerbated the energy crisis in Europe. Europe depends on Russia for about half of its natural gas imports. Putin believed this would serve as a deterrent to imposing effective sanctions against Russia. Source: Bloomberg, as of March 2, 2022 In our view, Russia seemed to be planning this operation well in advance and had expected to quickly take Ukraine and succeed in its power move. As the World watches, the advance appears to have not gone according to Russia’s plan. The Ukrainians have shown remarkable grit to defend their homeland and are putting up stiff resistance to Russian advances. The stories emerging from Ukraine have made the Democratic World realize that this is a war for democratic values which brought the Western governments to enact effective sanctions on Russia. Sanctions include: banning Russian banks access to SWIFT (Society for Worldwide Interbank Financial Telecommunication) banning transactions with the Russian Central Bank Switzerland broke from the tradition of remaining neutral and decided to implement all sanctions imposed by EU Several companies are halting operations and severing ties with Russia. These measures have inflicted heavy economic pain on the Russian economy. Russians are lining up at ATMs to withdraw cash, the Russian currency has lost about 30% of its value against the USD, the Russian Central Bank was forced to increase interest rates to 20% from 9.5% and an estimated $400 billion of the $630 billion in foreign exchange reserves have been frozen. What is likely to happen? We think it is unlikely that Russia will back down from its aggression any time soon as such a move will mean losing face to its domestic audience and portraying weakness to the Western World. The fact that only the deputy ministerial level delegation from the Russian side was present during the negotiations with Ukraine implies that the probability of a resolution is minimal. It is likely that the war is going to continue longer than expected as Ukrainian soldiers fight side by side with civilians who have picked up arms to help defend their country. Even if Russia dismantles the military infrastructure and installs a “puppet government” in Ukraine, it will be costly for it to maintain the status as the Ukrainian people will continue to rebel. Ukraine’s application to be a member of the European Union is currently under consideration. Ukraine had also submitted its bid to be a part of NATO in 2008 and has been on the path to meet its requirements. In our view, this provides sufficient ground to believe that the tensions between Russia and NATO in the coming years will stay elevated. The economic fallout and the implications for risk assets The Covid-19 pandemic exposed the fragility of global supply chains and highlighted the need to move towards independence from interdependence in key areas. The Ukrainian/Russian conflict has brought energy security discussion to the front as Europe is dependent on Russia for about half of its natural gas imports. As companies and countries rethink their supply chains, this will lead to increased costs and inflationary pressures. Crude oil, natural gas, aluminum, and wheat are some of the commodities that have been directly impacted by this war and have seen their prices appreciate. Russia’s already weak economy will now have to bear the fallout of severe sanctions and the cost of funding this war will further strain its economy. However, given that it constitutes only 3% of global GDP, the overall impact on global growth will be minimal. Nevertheless, upward pressures to already high inflation put together with elevated geopolitical risks and the start of an interest rate hike cycle, indicate the backdrop remains challenging for risk assets in the near-term. Historically, the impact of such regional geopolitical events on markets has been rather limited and lasted for only short-term. This should be the case this time too as we expect the conflict to remain confined in Ukraine. In our view, we believe managing high inflation and risking interest rates is relevant in our planning. We believe it is best managed by staying well diversified and overweighting areas that tend to do well during such periods. This includes a preference for ‘value style’ over ‘growth style’ investments, a preference for companies with high pricing power, and a preference for companies leveraged to higher commodity prices. We acknowledge there is a slim chance of this conflict spilling out of Ukraine, in which case the geopolitical risk will increase dramatically and would warrant an increase in allocation to cash. Your Team at O’Farrell Wealth & Estate Planning is closely monitoring the evolving situation and will advise accordingly if it becomes necessary.

William McChesney Martin Jr., the Chairman of the US Federal Reserve from 1951 to 1970 famously said, “The job of the Federal Reserve is to take away the punch bowl just as the party gets going”. In other words, start the interest rate hike cycle as soon as the economy is back on track after a recession. The economic growth on both sides of the border was quite robust during 2021 (+4.6% in Canada and +5.7% in the US) and is forecasted to stay healthy during 2022 (~+4.0%). Unemployment levels have also dropped closer to the pre pandemic levels. As a side-effect of a strong economy, inflation has risen and to levels (+4.8% in Canada and +7.0% in the US) that have made the Central Banks (Bank of Canada and the US Federal Reserve) increasingly uncomfortable and unable to continue to hold low interest rates. Higher interest rates make it costlier for consumers to borrow and consume, which reduces demand. As demand falls more in line with supply, inflation falls as well. The Central Banks’ challenge is to determine the optimal pace and magnitude of interest rates hikes. Going too slow and low would mean inflation continues to run high and if it becomes entrenched in expectations, the Fed might be forced to raise interest rates even higher and faster later. Going too fast and high has its own problems as this throttles the demand more than required and leads to an economic slowdown or even a contraction, i.e., recession. Both central banks have indicated that a rate hike cycle is imminent starting in March, however, have used language that suggests they have given themselves enough room to adjust the course of the policy depending upon the economic data. As Central Banks turned decisively hawkish in January, the stock markets have been hit with turbulence and witnessed a sharp sell-off. Given the flexible approach adopted by the central banks, we believe markets will be guessing at their next move and this will give rise to more volatility with the ebb and flow of expectations – the takeaway: diversification is key to mitigate volatility. We note the recent sell off was more pronounced in growth stocks that typically have a higher valuation multiple (see graph). A stock price can be explained as a function of a ‘valuation multiple’ and ‘earnings’. Valuation multiples tend to contract when interest rates rise and thus lead to fall in share prices. Given that the trajectory of interest rates remains upwards, we believe the macro environment remains challenging for companies with high valuations. Therefore, the burden of returns will now fall on earnings – the takeaway: skew portfolios towards names trading at a low valuation and that are generating good earnings. Source: Bloomberg Policy error remains a risk to the markets, however, given that the GDP growth and corporate profits are expected to grow at a healthy rate which makes the case for a constructive outlook on the North American equity markets remains intact. January in Review The North American stock markets started the year on a cautious note with the S&P 500 index and the Technology sector heavy and the NASDAQ entering correction territories (defined as >10% drop from peak to trough). Investor concerns were fanned by Federal Meeting minutes on the 5th January that indicated in addition to hiking interest rates, some policy makers also favor the start of a shrinking of the Federal Reserve balance sheet. After the Federal Open Market Committee (FOMC) meeting on January 26th, the Federal Reserve indicated that it would start raising interest rates soon and confirmed that it expects to start the process of shrinking its balance sheet after the liftoff has begun. Against market expectations of a rate hike, the Bank of Canada held the interest rates at current levels after its first policy meeting for the year, however, indicated interest rates will need to increase to control inflation. The Bank of Canada expects inflation to stay around +5.0% for the first half of the year and thereafter declining to ~+3.0% by year end. The headline inflation number for December came in at +7.0% for the US and +4.8% for Canada. The unemployment rate declined to 5.9% in November from 6.0% in December in Canada and declined to 3.9% in December from 4.2% in November in the US.

The S&P 500 Index and the S&P TSX index both ended the year 2021 with a robust total return of ~28.7% and ~25.1%, respectively. Underpinned by continued easy monetary policies of the central banks and tailwinds from a reopening economy, companies reported better-than-expected earnings in general which helped investor enthusiasm throughout the year. Fixed Income markets did not share this enthusiasm, however, and the Canadian bond markets declined by ~-2.53% and US bond markets declines by -1.54% over the year. Looking beneath the hood, we estimate that only about 15 of the ~500 companies in the S&P 500 Index and about 11 of the ~250 companies in the S&P TSX Index were responsible for about half the total returns for 2021. (See Charts). Similarly, within the fixed income asset class, inflation protected securities as measured by the Bloomberg US Treasury TIPS 0-5 Years Total Return Index and floating rates loans as measured by the S&P/LSTA Leveraged Loan Index CAD TR Hedged returned ~+5.34% and +5.11% for the year. A few names contributed a major chunk of the index returns in 2021 While we do not think that concentration of market performance alone is enough reason to worry given that the same measure looked even worse at the end of 2020, we do note that one of the reasons that promoted concentration of performance in few areas over the last few years, i.e., low interest rates, is on the brink of change. Several years of accommodative monetary policies and record low interest rates have supported sky-high valuations of several high growth names with promise of earnings farther into the future. Consequently, it is likely that a large chunk of the overvaluation driven by low interest rates is concentrated on the high performing names of the previous years with little to no current earnings. As the economy transitions into a rising interest rate environment, it is reasonable to expect that some of the overvaluation will get taken out in 2022. At the end of October/early November, the Bank of Canada and the US Federal Reserve signaled that interest rate hikes are coming in 2022. The following two months witnessed rotation out of high-growth and high-valuation stocks to value-oriented and high dividend paying stocks. Looking ahead, we think the price action of the last two months of 2021 is a harbinger of things to come in 2022. December in Review The S&P 500 and S&P TSX started the month on a cautious note, however, a bullish sentiment prevailed towards the end as the last trading of the weeks ensured the indices ended the month in green. The concerns on ‘Omicron’, the new variant of Covid-19 virus faded towards the end of the month on reports that the variant was not causing as many hospitalizations as expected. The headline inflation number for November came in at +6.8% for the US. After the Federal Open Market Committee (FOMC) meeting on December 15th, the US Federal Reserve Chair, Jerome Powell, announced that the Fed will double the rate of tapering of its bond buying program with a conclusion of the program coming in March 2022. The FOMC committee projections indicated the committee now expects three, 25-basis point interest rate hikes in 2022. The Canadian government renewed the Bank of Canada’s 2% inflation target, however, added language that gives it flexibility to temporarily overshoot the target to achieve employment objectives. The unemployment rate in Canada declined to 6.0% in November from 6.7% in October, indicating a healthy job market.

After two years of stellar returns, Investors have started asking how long this bull market can last. To add to their nervousness, the media continues to bombard the investment community with reasons to worry. Market jitters were evident on November 26th when the North American markets dropped -2% to -2.5% when news of the Covid-19 virus variant “Omnicron” broke. While news of the latest variant acted as the catalyst, we believe that uneasiness was already palpable in markets for some time. They have been moving sideways for most of the month as investors waited on Biden’s decision regarding the Federal Chair and as expectations increase that persistent inflation will force the Fed’s hand to increase the pace of tapering of its bond buying program. The historically high valuations, high inflation rates, announcements regarding winding down of monetary stimulus, and talks of central banks increasing interest rates in 2022 are all contributing factors to set up for a pullback. As markets do not move in a linear fashion, pullbacks can be common even during bull markets. Such pull backs are typically short-lived and are difficult to time correctly. Thus, the wisdom of “Buy and Hold” and “do not try to time the market” rings true. Often, in trying to time the markets during the short-term pullbacks, investors find themselves selling at the low or waiting too long to get back in for the upside. How does one avoid wealth destruction during prolonged periods of stress? In our view, the key is to know the stage of a business cycle and watch out for signs of the start of a bear market. A pivot to a defensive stance is prudent during bear market as risk assets typically move downwards for a longer period. Below we investigate many of the concerns playing on investors mind today and determine that it is premature to expect a bear market anytime soon. A new variant: The drawdown on November 26th on the news of a new variant “Omicron” that could potentially evade immunity form vaccines was a stark reminder that pandemic is very much ongoing. Current vaccination progress, and the knowledge gained in managing Covid-related risks indicate the economic risks from a new variant, if it spreads, could be mitigated. High inflation and interest rates: The transitory inflation narrative is increasingly being dropped as inflation numbers have consistently surprised to the upside. The current stance of Federal Reserve is that if inflation continues to be more persistent, they have the tools to contain the inflationary pressures, i.e., by increasing interest rates. While a factor, an increase of interest rates and high inflation does not in itself imply the end of a bull market. We highlight periods in history when the Feds increased interest rates, inflation was rising, and S&P 500 index continued to advance (see Chart). Source: Bloomberg Could Fed fast track the timeline to tighten monetary conditions?: As the financial wisdom goes - “Bull markets do not die of old age, they are rather killed by Federal Reserve”. The risk of bear market will arise if the Fed is forced to tighten monetary conditions too quickly, too much, or more than necessary. This in turn will choke the economic activity by making it tough to borrow or service debt and induce an economic recession. Since the US President has nominated ‘Jerome Powell’ for the second term as a chair of US Fed, we think the choice is made for stability and policy continuity. Given Mr. Powell’s track record in the position and his reputation as a dove (preference to keep monetary conditions loose), we think it is reasonable to expect that the Fed Chair is likely to err on the side of caution and will tolerate a lot of inflation before deciding to increase interest rates. That said, persistently high inflation could force the Fed’s hand and thus it is a risk worth monitoring. High Valuations: As a result of record low interest rates, money printing, and fiscal stimulus the asset values are at their historic highs. One implication of high valuation is that the expectations of future returns are low. As high growth is now priced in the valuation, another implication is that one can expect relatively higher volatility as investors’ expectations of a growth outlook can change with the ebb and flow of developments such as a new variant, inflation, or a potential increase in interest rates. Given that the GDP is forecasted to continue to grow in 2022, that unemployment is on a consistent decline, and that consumer demand is strong, we infer that the economy is in healthy spot overall. Eventually, the economy will go through its cycle of expansion and contraction and stocks markets will go through their cycle of bull and bear market; however, from where we stand today, the economic data does not indicate a contraction and/or a bear market soon. November in Review The S&P 500 and S&P TSX advanced for most of the month but gave up their gains towards the end of the month on concerns of a new variant of Covid-19 virus and policy uncertainty on commencement of interest rates hike cycle. As a part of his economic agenda, US President Joe Biden signed a US$1.2 trillion infrastructure bill into law in early November. The bill outlines ~US$550 billion of investments in infrastructure over five years. US Fed Chair, Jerome Powell was selected for a second four year-term and governor Lael Brainard was appointed as a vice chair of the US Federal Reserve The headline inflation number for October came in at 6.2% for the US. The corresponding number for Canada was 4.7% Early in the month, the US federal Reserve released its policy statement and announced commencement of its tapering of bond buying program late in November 2021 Late in the month, while speaking in front the Senate Banking Committee, Jerome Powell said that its is now time to drop the word transitory for inflation and consider accelerating the pace of tapering the Bond buying program. Canada’s GDP for the third quarter was stronger than expected at +5.4% (expectations of +3.0%) underpinned by household spending.

The North American stock markets levelled out during the month of October after a tumultuous September as investors digested several pivots over the last month. Amid persistent inflation, Central Banks across the globe have started to lean towards tightening monetary policy earlier than previously expected. This is coinciding with softer GDP growth prints after economic growth peaked during the second quarter of 2021. A slow growing GDP put together with persistent high inflation has flamed worries of ‘Stagflation’ in the minds of investors and many economists alike. Google Trends shows that interest in the word “Stagflation” spiked during the month of October. (see Chart 1). Stagflation is a period when economic growth stagnates while inflation is high. It is considered a period of unease because stagnant economic growth leads to rise in unemployment while high inflation simultaneously leads to loss of purchasing power. While it is prudent to monitor the concerns on investors minds, it is important to note that the current conditions do not meet the definition of stagflation. There is currently a labour shortage while jobs are plentiful, leaving the unemployment outlook set to continue to decline from current levels. Supply-chain bottlenecks amid robust demand explain part of the high inflation. This suggests that inflation should cool off from current levels as these bottlenecks are taken care off. Further, the weaning off the economy from the sugar high of stimulus packages isn’t equivalent of economic stagnation. Chart 1. Interest in the word “Stagflation” spiked during October 2021 Source: Google Trends Note: Numbers represent search interest relative to the highest point on the chart for the given region and time. A value of 100 is the peak popularity for the term. A value of 50 means that the term is half as popular. A score of 0 means there was not enough data for this term. October in Review The North American stock markets roared back after a tumultuous September with S&P 500 advancing by ~6.9% and S&P TSX by ~4.8% during the month. The Bank of Canada announced termination of its bond buying program and signaled a potential lift off in interest rates starting in the middle quarters of 2022. The US Federal reserve is due to release its monetary policy statement on 3rd November 2021 and is widely expected to announce commencement of tapering of its bond buying program. During the month, bond yields witnessed a sharp increase on both sides of border amid bets of tightening of monetary policy For the month of September (released in October), the inflation number was at 5.4% for the US (as per Bureau of Labor Statistics) and 4.4% for Canada (as per Statistics Canada). The Canada GDP grew at ~0.4% in August (as per as per Statistics Canada) vs. expected ~0.7% and US GDP grew at ~2.0% in the third quarter (as per Bureau of Economic Analysis) vs. expected ~2.6%. According to Bloomberg’s survey of economists, the GDP growth forecasts for 2021 for the US came down from 6.6% in June to 5.7% in October. The corresponding figures for Canada stood at 6.2% in June and 5.0% in October. As per Bloomberg data, during the third-quarter earnings season so far, about 82% of companies in S&P 500 index and ~ 60% of the companies in the S&P TSX index have reported better-than-expected earnings. How does this affect my investments? The stock markets are inherently volatile and short-term market movements are impossible to predict. Historically, market declines have been followed by recoveries and new highs. By staying invested in a diversified portfolio, your portfolio will be well positioned to benefit from a recovery while mitigating the volatility experienced during the period.

On September 28th, 2021, the US Federal Reserve Chairman, Jerome Powell, faced his most hostile hearing to date, in front of Congress, since his appointment in February 2018. The Chairman’s term expires on February 5th, 2022, and he is widely expected to be renominated for a second four-year term. However, his prospects, while still strong, seem to have diminished lately as more opposition from the Senate comes forward. (See Chart below) A democratic Senator, Elizabeth Warren, went on the record to say, “Over and over, you have acted to make our banking system less safe and that makes you a dangerous man to head up the Fed, and that’s why I will oppose your renomination”. She was referring to the fact that Powell has modified the rules that were enacted to make the Banking system more robust after the 2008 financial crisis. It is noteworthy that former congressmen Barney Frank and Chris Dodd, who drafted the Dodd-Frank act to tighten the bank rules in response to the 2008 crisis have endorsed renomination of Jerome Powell as a Fed chair for another term. Source: https://www.predictit.org/ Note: Methodology - market quote of the candidate as a % of sum of total candidate quotes. Stock markets have come to love Jerome Powell as he was the architect of a massive stimulatory response to help the economy rise out of challenges posed by the pandemic. Furthermore, markets have realised that with him at the helm as a Fed chair, they can expect pacifying messages to soothe market nerves even as the economic data begins to point to challenges ahead. While we can agree that inflation is the single most important risk facing the markets at present, given a reading consistently more than 5% since May 2021, we think wiring the policy response to inflation is even more important from a stock market perspective and Mr. Powell has learned to do this job extremely well. As a case in point, the median Fed dot plot in June 2021 indicated no interest rate hikes in 2022 and two interest rate hikes in 2023. The data during last 3 months was strong enough to sway median dot plot in September 2021 to indicate one interest rate hike in 2022 and three in 2023. The Fed also indicated it could start tapering of its bond buying program soon. While bond markets reacted to the hawkish shift by pushing the US 10yr bond yields up by ~20 bps between 22nd September and 30th September, the stock markets’ immediate reaction was positive as Powell insisted that the tapering timeline should not be seen as linked to the timeline of an increase in interest rates. Markets hate uncertainty and with any uncertainty of continuation of Jerome Powell’s as a Fed chair, the risk of policy uncertainty is increased. It was no surprise that the day he was termed “a dangerous man”, stock markets fell by ~2%. September in Review The stock markets gave back some of their year-to-date returns with S&P 500 falling by ~4.9% and S&P TSX falling by ~2.6% during the month. As per Bloomberg’s September economic survey, economists expect Canada’s GDP to grow at ~4% in 2022 and one interest rate hike by Bank of Canada in 2022. Canada concluded its snap election with the new house of commons looking pretty much same as the old. The cryptocurrency market suffered a setback as China’s central bank said that all cryptocurrency related transactions are illegal. Global stock markets witnessed sharp sell off in the middle of the month after concerns arose that Evergrande Group, a China based property developer, might default on its interest payments and lead to a contagion in global credit markets. The diplomatic crisis between US, China and Canada culminated in a sudden resolution after Meng Wanzhou, the Huawei executive, struck a deferred prosecution agreement with the US authorities paving way for her release from house arrest. Shortly after, the two Michaels also boarded plane to return to Canada Treasury Secretary Janet Yellen and Fed Chair Jerome Powell both emphasized that the consequences of not raising the debt ceiling would be catastrophic and treasury will run out of cash around 18 October. In a survey of Bloomberg Economists, the third-quarter US GDP growth was lowered to a 5.0% annualized rate, down from a previous estimate of 7.0% driven by resurgence of Covid-19. How does this affect my investments? The stock markets are inherently volatile and short-term market movements are impossible to predict. Historically, market declines have been followed by recoveries and new highs. By staying invested in a diversified portfolio, your portfolio will be well positioned to benefit from a recovery while mitigating the volatility experienced during the period.

“There are decades when nothing happens; and there are weeks when decades happen” – Vladimir Llyich Lenin. Almost a century after the above words were declared, global developments during the last few weeks suggest that they still ring true. Hopes of a truce between Ukraine and Russia seem low as the war continues. The details that have emerged from the negotiations suggest that no real progress has been made. Nevertheless, the short-term impact of war on the North American and European equity markets has been completely reversed. As of April 1st, 2022, the S&P 500 Index is up by ~+7.7%, the S&P TSX Index is up by ~+6.2%, and the STOXX Europe 600 index is up by ~+1.6% since the start of the Russian invasion of Ukraine in February. The story is different for the first quarter of 2022 where except for the Canadian Index (S&P TSX), which was up by ~+3.8%, the US and European indices (S&P 500 Index and STOXX Europe 600 Index) are down by -5.9% and -4.60%, respectively. The price action indicates the narratives of inflation and the start of an interest rate hike cycle by the central banks that have been more relevant to the financial markets. The short-term impact of war might be limited, however, the trends that have been set in motion are sure to dictate the trajectory of financial markets in the years to come. For instance – it is certain that Europe will have to invest substantially to reduce/eliminate its dependency on Russian energy imports. While Europe is likely to embrace sustainable forms of energy, fossil fuels will also play an important role as Europe will need readily available sources to achieve their energy needs. This implies an increase in capital expenditures and a higher inflation rate related to higher energy costs. The Western countries will also need to increase their capital expenditure on military equipment and preparedness. Ukraine and Russia together account for ~25% of the world’s wheat production. Wheat prices have risen since the start of the war as supplies have been disrupted. Russia is a large exporter of fertilizers. If the World decides to force sanctions or seek to sever ties with Russia, this could mean more food inflation. Since all this is coming to pass at a time when inflation is already running hot and supply chains are still fractured by the pandemic, Central Banks looking to tighten monetary policies to tame inflation have a challenging task ahead. In March, the Bank of Canada and the US Federal reserve started the interest rate hike cycle by increasing the policy rates by 25 basis points. With inflation in Canada at 5.7% and in the US at 7.9%, market participants are now expecting the Central Banks to accelerate the pace of rate hikes with another 6 to 8 increases of 25 basis points each over the remainder of the year. The challenge for Central Banks is to determine the neutral policy rate, i.e., the rate at which interest rates are not too low to further add inflationary pressures and not too high to curb economic growth. The price action in bond markets suggests bond markets are expecting a policy error that could lead to an economic recession. As of April 1st, the most-watched section of the US yield curve (2-year-10-year) has inverted, i.e., the yield on a 2-year treasury is higher than the yield on a 10-year treasury. While the usefulness of an inverted yield curve in predicting a recession is often debated due to potential false positives, historically, an inversion of a yield curve has often preceded an economic recession by ~18-24 months (see chart). Chart 1. US Yield Curve 2Y-10Y spread and US Recession Source: Bloomberg On the other hand, despite some jitters, equity markets have remained overall relatively resilient. Given that equity markets typically peak 3 to 6 months before the actual recession hits, and corporate earnings expectations have yet to show any sign of weakness, we think it is too early to look negatively at equities. Nevertheless, as a hedge against the rising interest rate environment and the increasing uncertainty, we think it is prudent to increase allocation to the low assets in a portfolio. The fixed income asset class could stage a rally in the near term after producing a year-to-date decline of approximately 6% to 7%, however, high inflation and rising interest rates indicate that the outlook remains challenging. Looking ahead, we think that increasing exposure to select pockets of markets with a skew towards high quality, low valuation, and low duration assets is the best way forward.