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The month of September witnessed heightened volatility early in the first week after lower-than-expected prints of economic data fueled the narrative that the economy might be running out of steam faster than previously expected and the US Federal Reserve is behind the curve. The expectations for non-farm payrolls data for August (reported in September) were at an addition of ~162.83k jobs; instead, the reported number was weaker at ~142k jobs. The Institute of Supply Management’s (ISM) Manufacturing Purchasing Manager’s Index (PMI), a gauge of manufacturing activity, was also lower-than-expected at +47.2 (expected +47.6). However, ISM Services PMI was marginally higher at +51.5 (expected +51.3). Weaker economic data on top of a revised labor market report from Bureau of Labor Statistics (BLS) in late August that showed that economy had added much lower jobs than previously reported between April 2023 to March 2024, exacerbated concerns around the increased likelihood of a potential recession. Consequently, the fixed-income investors baked in expectations of a 50 basis-points cut from the United States Federal Reserve for the Federal Open Market Committee (FOMC) meeting on 18th September. The United States Federal Reserve Chair, Jerome Powell, had been emphasizing for some time that the health of labor market health now weighs more over the inflation in the committee’s decision as inflation has become less of a concern in the previous few months. Keeping true to the Fed chair’s message of “we do not seek or welcome further cooling of labor market conditions” during a speech in the late August, the United States Federal Reserve did not disappoint the investors and delivered a 50 basis-points rate cut to start the policy rate cut cycle on 18th September. However, the committee appeared divided on the remaining number of cuts needed (two or three) through the end of year 2024 (See Figure 1). Each dot shows the expectation of a Fed policy maker for the rates at the end of respective year. Supportive comments and action from the central bank authorities; benign inflation data; better-than expected retail sales put together with no further alarms from the interim jobs data reported through the month (jobless claims); helped the North American markets more than recover from the initial setback and both the equity and fixed income asset classes ended the month on a positive note. Figure 1: Federal Open Market Committee Dots Plot 18th September 2024 Source: Bloomberg The balance of reported economic data has continued to be positive in the early October so far; but stronger-than-expected labor market data has forced the investors to dial back expectations of rate cuts in the United States. The change in non-farm payrolls for September (reported in October) was at +254k, much higher than expected +145.5k. As of this writing, the fixed income investors have reduced expectations to two policy rate cuts from the US Federal Reserve through the year-end 2024 from three rate cuts around the meeting date in September 2024 (See figure 2). While the bond yields in Canada have moved in sympathy with the yields in the United states; in contrast, the chatter amongst the industry participants of a jumbo rate cut (50 basis points) has increased as Canada’s headline inflation is down to +2.0% in August (reported in September) from +2.5% in July (reported in August) and unemployment rate has ticked up to +6.6% in August (reported in September) from +6.4% in July (reported in August). The Bank of Canada meets on 23rd October to decide on the next policy move. Figure 2: Estimated Number of Moves Priced in for the US - Futures Model December 2024 meeting   Source: Bloomberg Looking ahead, we note that geopolitical tensions have increased and election uncertainty in the United States could be a source of short-term volatility in the markets. In addition, the ebb and flow of economic data could also continue to shift investors positioning between expectations of two or three cuts through the year-end and bring some near-term volatility. However, the balance of economic data and supportive stance from the central banks continues to favor an overall constructive outlook on the markets, in our view.

North American equity markets whipsawed during the month of August. The initial leg down was driven by an interest rate increase in Japan which led to an unwind of ‘Yen Carry Trade’ , together with increasing fears of a potential recession around the corner fueled by a few weak economic data prints early in the month. ISM Manufacturing PMI (Purchasing Manager’s Index) at +46.8 for July (reported in August) was weaker than +48.5 in June (reported in July) and the expected +48.8. Non-Farm Payrolls were also lower than expected (later revised further downwards). However, equity markets were quick to recover during the second half of the month on the back of benign inflation readings in the United States, still supportive economic data, and dovish messages from the US Federal Reserve Chair, Jerome Powell, at the annual Jackson Hole event. On the other hand, the fixed income markets benefited as the expectations of policy rate cuts continued to build. Investors also speculated if a 50 basis points cut is more appropriate during the September FOMC (Federal Open Market Committee) instead of a 25 basis points as labor market data continues to deteriorate. Historically, August and September have had the reputation of being the seasonally weaker months for the North American equity market returns. Despite the recent market tremors, some investors have been questioning if it could be different this time as interest rate cuts in the United States are about to start. Afterall, markets have been fixated on the policy rates trajectory for long and the US Federal Reserve has very well telegraphed that it would be prudent to start the policy rate cut cycle from the FOMC meeting on 18 September. The Federal Reserve Chair has made it clear that the Central Banks’ focus has shifted to the health of labor market. This, along with the softening jobs data in the recent past has led the markets to bake in a full percentage policy rate cut by the end of this year, including a 25 basis-points cut in September, a 50 basis-points cut in November; and again a 25 basis-points cut in December. In the absence of a significant weakening in the economic data, we think the Federal Reserve will refrain from delivering more than a single cut (25 basis-points) in any meeting given its potential to send a wrong message (economy is weak or expected to be weak) to the markets. Short-term volatility aside, we think another larger question on market participants’ minds is if it could be different this time and North America avoids a recession as the yield curve dis-inverts and the Central Banks embark on the rate cut cycle? Yield curve inversion has been regarded as an indicator of potential recession in the future and historically a recession has started shortly after yield curve has dis-inverted after inversion (see Figure 1). The US 2-year to 10-year segment of the yield curve dis-inverted on September 6th. Given that this occurrence also typically coincides with the weakness in the labor markets and the start of policy rate cuts by central banks shortly before a recession; the recent jitters witnessed in markets are not without a merit, in our view. Figure 1: US 10-year yield over 2-year yield October 1978- September 2024 Source: Bloomberg   That said, we note that the labour market is weakening from a very high level. The ratio of total job openings to unemployed looking for jobs has declined to 1.3x from its highs. Though the trajectory is worrisome, it is still at a level where it can be classified as becoming more normal after the distortion due to the pandemic (see figure 2). Corporations reported healthy revenue and earnings growth during the second calendar quarter earnings season and the outlook for twelve-month forward earnings has continued to improve. Above all, the Central banks now are in a relatively comfortable position to support the economy by reducing interest rates should a faster than expected deterioration in economic data come to fruition, in our opinion. As markets navigate through these questions, we think volatility is likely to continue with the ebb and flow of the economic data. Nevertheless, the balance of data keeps us constructive on the outlook through the end of this year for now. Figure 2: Ratio of US total Job openings to unemployed looking for full time work October 2014 to July 2024 Source: Bloomberg

In September, we celebrate Life Insurance Awareness Month. Advisors work together to educate our clients about the importance of Life Insurance and the part it plays in protecting families and their financial stability. While we know that Life Insurance may not always be a top-of-mind priority for many Canadians, its importance is vast and should be recognized as a valuable and versatile tool in protecting our loved ones and our assets.   Many find it uncomfortable to talk about, as the conversation does revolve around what could happen when we pass away. Taking steps to put adequate Life Insurance in place, review our Life Insurance needs, and update our coverages accordingly, can help all of us feel more confident and rest easier, knowing our loved ones and finances will be well taken care of.   In essence, Life Insurance is an agreement between yourself and the Life Insurance company where, when you pass away, they will pay a death benefit. The death benefit is a lump sum of money, received tax free, by a beneficiary, or beneficiaries, of your choosing. There are many options available, and you can decide what cost and type of Life Insurance fits best within your budget. During the worldwide pandemic, we all learned that life is very fragile, not one of us is invincible, which makes a campaign like Life Insurance Awareness Month that much more important.   Like many things in life, some level of maintenance is recommended for your Life Insurance. As we go through life, many things change about our overall financial outlook. That mortgage that has been around for years might one day be gone, children will one day be all grown up and able support themselves financially, and other debts may be paid off and no longer need to be insured. Here at O’Farrell Wealth & Estate Planning we recommend:   Reviewing your Life Insurance and Financial Plan with your Advisor on an annual basis. Completing an insurance needs assessment periodically in order to determine if your overall insurance coverages are on track. You may be under insured, over insured, your coverage needs may not have changed significantly, or you may need to make an adjustment. Your Advisor will help review your situation and make recommendations. Review your Beneficiaries and Contingent Beneficiaries annually to make sure your policies are up to date. Discussing Whole Life Insurance as an investment with your Advisor. Whole Life Insurance provides consistent returns in a tax efficient manner and is a powerful addition to your Financial Plan. Life Insurance Awareness Month is a great time to reflect on our overall Life Insurance needs. Take some time to review your coverages and if you have any questions or concerns, contact your Advisor.   Andrew Goetz 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 particular circumstances prior to acting on the information above. Assante Capital Management Ltd. is a member of the Canadian Investor Protection Fund and the Canadian Investment Regulatory Organization. Insurance products and services are provided through Assante Estate and Insurance Services Inc .

The month of July was mixed for the North American markets as the rotation out of the heavyweights in favor for small-and-medium capitalization companies continued for the most part. The technology sector heavy NASDAQ index ended up in red at ~-0.73%, S&P 500 Index at ~+1.2%, while S&P TSX Index played catch up and was up by ~+5.9%. However, the market tremors at the beginning of the month of August revealed that there is more to the recent market moves than the rotation trade. The Bank of Japan raised the policy rates to +0.25% on July 31st, in alignment with market expectations that were building up over the month. The increase in policy rates by the Bank of Japan was at a time when the rest of the world is on the other end of the cycle, i.e. close to embark on a cycle of cutting policy rates, which led the Japanese YEN to appreciate more than +10% against the USD during the month. This made the ‘carry trade’, a practice of borrowing from lower yielding economies and investing in high yielding economies, unattractive to a lot of investors. As they were forced to unwind their positions, the NASDAQ nosedived almost in unison with the USDJPY currency pair (See figure 1).   Figure 1: NASDAQ vs. USDJPY, year-to-date Base: 2 January 2024 = 100 Source: Bloomberg Given the ultra-low interest rates in Japan for a very long time, the country has been a source of capital for the rest of the world’s financial markets. Should this dynamic change in a quick and disorderly fashion, it has the potential to bring more wild swings in the financial markets, in our view. The recent comments from the deputy governor of Japan that the ‘Bank of Japan will not hike interest rates while the financial and capital markets are unstable’ restored some calmness back into the markets.    Apart from the shockwaves from the east, the recent economic data releases also added to investor anxiety. The unemployment rate in the US increased from +4.1% in June (reported in July) to +4.3% in July (reported in August), triggering the Sahm rule indicator, which indicates the start of recession if the three-month average unemployment rate is +0.50% above its low in the previous 12 months. The unemployment rate in Canada also increased from +6.2% in June (reported in July) to +6.4% in July (reported in August); higher-than-expectations of +6.3%. The Bank of Canada reduced policy rates by 25 basis points to +4.50%, and while the US Federal Reserve held policy rates during the July meeting, it hinted at a possible rate cut in September. The emphasis during the press conference was that the job market seems to be better balanced, but the Federal Open Markets Committee (FOMC) will be more attentive to any sign of deterioration. The Central Bank’s indication of becoming more sensitive to the labor market followed by weaker job data did not help ongoing investor concerns. The worries of a potential recession given the cooling of economic data could persist for some time, keeping a lid on further market gains in the short-term, in our view. That said, we note that factors such as Hurricane Beryl might be behind the surge in unemployment numbers and thus prove temporary. The Institute of Supply Management’s (ISM) Manufacturing Purchasing Managers’ Index (PMI) dropped to +46.8 for July (reported in August) from +48.5 in June (reported in July) indicating contraction in manufacturing activity. However, the ISM Services PMI Index jumped to +51.4 in July (reported in August) from +48.8 in June (reported in July) indicating expansion in the services activity. As per world bank data, services sector constituted about +76.7% of United States GDP in 2021. Overall, we think the balance of economic data does not lend much credence to the concerns of a significant slowdown at present, in our opinion.

Life insurance is a financial tool designed to provide a safety net for loved ones in the event of the policyholder's death. While life insurance is commonly associated with adults, there is a growing recognition of the benefits of securing life insurance for children. Despite the discomfort that may come with contemplating such scenarios, there are compelling reasons why individuals should consider investing in life insurance for their children.   Firstly, life insurance for children offers financial protection in the face of unexpected tragedies. No parent wants to imagine the unthinkable, but the reality is that accidents and illnesses can strike at any time. In the event of a child's passing, a life insurance policy can help cover funeral expenses, medical bills, and other associated costs. This financial cushion can provide much-needed support during an already emotionally challenging time, allowing families to focus on healing rather than worrying about financial burdens.   Furthermore, purchasing life insurance for children at a young age can lock in their insurability for the future. As children grow older, they may develop health conditions or engage in risky behaviors that could make it difficult or expensive to obtain life insurance later in life. By securing a policy early, parents ensure that their children have guaranteed coverage regardless of any future health issues. This proactive approach to securing financial protection offers peace of mind for both parents and children alike.   In addition to providing financial security, life insurance for children also offers the potential for cash value accumulation. Many life insurance policies include a savings component that accumulates cash value over time. This cash value can be accessed later in life and used for various purposes, such as funding education, purchasing a home, or supplementing retirement savings. By starting early, parents give their children a head start on building financial assets for the future, providing them with greater financial flexibility and security as they navigate life's milestones.   Lastly, life insurance premiums for children are often more affordable compared to policies for adults. Since premiums are typically based on factors such as age, health, and coverage amount, children's policies tend to be more cost-effective due to their youth and generally good health. This affordability makes it easier for parents to provide financial protection for their children without breaking the bank, ensuring that their loved ones are safeguarded against life's uncertainties.   In conclusion, while the idea of purchasing life insurance for children may seem daunting, it offers numerous benefits that can positively impact their future. From providing financial security and locking in insurability to accumulating cash value and teaching financial responsibility, child life insurance serves as a valuable asset in securing a child's future. By taking proactive steps to protect their children's financial well-being, parents can ensure that their loved ones are supported no matter what the future may hold.   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 particular circumstances prior to acting on the information above. Assante Capital Management Ltd. is a member of the Canadian Investor Protection Fund and the Canadian Investment Regulatory Organization. Insurance products and services are provided through Assante Estate and Insurance Services Inc.

The month of June witnessed price action that looked like last year when a small number of stocks drove most of the market returns for the most part of the year. The difference between large capitalization companies and small-to-mid capitalization companies has become even larger (See Figure 1), forcing investors to think if this will reverse and when. Halfway through the year 2024, we note several headlines highlighting market concentration and the ‘Magnificent 7’ stocks still cornering much of the market action, year-to-date. Recall that in 2023, the broader S&P 500 Index except for the magnificent 7 (Apple, Alphabet, Amazon, Meta, Microsoft, Nvidia and Tesla) was in red until the end of October 2023. After the hints of a shift in interest rate policy stance towards a pause in late October 2023, broader market also took off (See Figure 2). Figure 1: Large Cap vs. Mid Cap vs. Small Cap, (Jan 2023 to present) Base: Jan 2023 = 100   Source: Bloomberg Figure 2: S&P 500 Index vs. S&P 500 Index (ex – Magnificent 7), (Jan 2023 to Dec 2023) Base: Jan 2023 = 100   Source: Bloomberg Our analysis suggests that year-to-date, except for NVIDIA, the remaining 6 companies within the ‘Magnificent 7’ umbrella have traded in line with the broader S&P 500 Index (See Figure 3). This suggests that the participation of stocks in the market rally so far this year has been relatively broad, in our opinion. This does not mean that the market concentration problem has reduced, it only means that it has not become any more dire than it was last year. This concentration poses risks that if there is a change in the factors that provided wind in the sails of a select few, the markets might struggle. Figure 3: S&P 500 Index vs Magnificent 7 vs. Magnificent 7 (ex-NVIDIA), (Jan 2024 to present) Base: Jan 2023 = 100   Source: Bloomberg A high interest rate regime helped the cash rich companies (typically larger cap) as they have been able to earn more on their cash hoards, while small-and-mid companies with larger debt loads in general, have struggled. In addition, layering on the rush for artificial intelligence, the difference between ‘the haves and have nots’ has become even starker. The companies that are beneficiaries of this theme and have been sitting on higher cash balances have witnessed turbocharged performance, while others lagged. As the central banks start cutting interest rates in the coming months, it raises the question of whether the current dynamic will change. We think the answer is in how the fundamental outlook of the economy evolves. A softer economy or a recession will hurt the small-to-mid cap companies more than the larger and cash rich companies with stronger balance sheets, negating much of the benefit of lower interest rates. In this scenario, the market concentration might continue to get worse or stay the same. If the economy stays on firm footing as central banks cut interest rates, the small-to-mid cap companies should start to play catch-up, in our view.

Life is rolling along. You have a loving partner and two adorable children. You and your partner have good jobs, and the kids are in school. You save for annual trips, retirement, and your kids’ education. What happens if something throws your plans awry? Unfortunately, the risk of a serious life-altering illness is quite high. Take for example, the imaginary couple Jane (age 40) and John (age 41) Smith from above. According to Canada Life’s “Know Your Risk Calculator” this couple has a 22% chance that one of them will become critically ill before age 65. Furthermore, as medical research advances, they are more likely to survive a serious cancer, heart attack or other disease. What would happen if Jane suffered a heart attack and ended up in the hospital for several weeks? How would this impact their day-to-day life? The answer would be different for every family, but you might expect John to take time off work and need to rely on family or babysitters to care for the two kids. There would be travel costs to the hospital – gas, parking, and meals. Specialized care may require travel, hotel bills and rental car expenses. On the health side there will be new medication costs and rehabilitation costs as Jane begins to recover. How might they cover these costs? John and Jane dip into their emergency fund, and as that runs out where do they turn? A line of credit or credit cards would be a short-term solution, and then they may need to start redeeming funds from their retirement funds (RRSP or TFSA). Above and beyond the emergency fund, none of these options are great. They all begin to impact the trips, education funds and retirement goals that the family had planned. What if Jane had a critical illness policy? What if 30 days after having her heart attack she received a lump sum payment from the insurance company that she could use at her full discretion? Ask one of our Financial Advisors how critical illness can enhance your financial plan by acting as a safety net for your family. https://planningtools.ca/know-your-risk/risk-calculator.php The case study mentioned in this presentation is provided for illustrative purposes only and does not represent an actual client or an actual client’s experience, but rather is meant to provide an example of our process and methodology. The results portrayed is not representative of all of our clients’ experiences. Sarah Chisholm 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 613.774.2456 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 Canadian Investment Regulatory Organization.

Scams are on the rise. You hear horror stories often that life savings have been lost because scammers convince individuals that their family is in trouble and needs help. Another scam out there states that you are registered in a criminal case because you are evading your tax bill & are fraudulent. Scams are everywhere and becoming harder to detect. They can be devastating to your financial situation and your emotional wellbeing. Cybercriminals are becoming more sophisticated and always thinking of new ways to defraud people. It is so important to recognize the signs and know how to protect you and your family from becoming a victim of scams. Consider the following to protect yourself: Do not trust anything! Be wary if you receive an email, call, or text message that you are not expecting, or from someone you do not know. You can always ask someone you trust to take a look if you are unsure. Be cautious of email attachments and links. Often times, cybercriminals use email attachments and links that can lead to harmful websites and that cause you to download malicious software to gain access to your files and personal information. List a trusted contact person (TCP) on your financial accounts. This has become standard across the financial services industry. Naming a trusted contact person can be extremely valuable as an added layer of protection for you. This is someone your Advisor can reach out to for numerous reasons (e.g., if they feel you are unfit to act for yourself, cannot get in touch with you, and if they feel you may be the victim of a scam). It is important to note that your TCP cannot act as your power of attorney and does not have the same rights (i.e., cannot gain information or act on your accounts). Remember, take extra care to make sure that you and your loved ones are protected from fraudsters. Allison Martin 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 613.774.2456 or visit ofarrellwealth.com to discuss your particular circumstances prior to acting on the information above. Assante Capital Management Ltd. is a member of the Canadian Investor Protection Fund and the Canadian Investment Regulatory Organization.

Perhaps the most important development of the past few days has been major central banks finally embarking on the rate cuts cycle after starting to increase them about two years ago. Bank of Canada delivered its first cut on 5th June 2024 by reducing the policy rate to +4.75% from +5.00% and European Central Bank followed the next day on 6th June 2024 with reduction in its deposit policy rate to +3.75% from +4.00%. Swiss National Bank and Riksbank (Central Bank of Sweden) had already delivered first policy rate cuts in March 2024. After a long wait of more than two years, when Bank of Canada started increasing interest rates in the March of 2022, investors can finally look forward to policy easing and thus potentially lesser headwinds for capital markets. Canadian economy is relatively more leveraged and hence more sensitive to the interest rates as compared to the United States. The expectations of the rate cut in the June meeting had built up further after the first quarter GDP growth was registered at +1.7%, much below the forecast of +2.8%. The unemployment in Canada has been inching up and has reached +6.2% for May (reported in June) (See figure 1). The governor of Bank of Canada, Tiff Macklem, stated that it is reasonable to expect further cuts to policy rates provided inflation continues to ease and the confidence that inflation is headed sustainably to the target 2% continues to increase. However, he also cautioned that pace is likely to be slower. Figure 1: Canada Unemployment rate, % Source: Statistics Canada, Bloomberg The message from the authorities of the United States Federal reserve remains unchanged so far where they seek more evidence that inflation is headed towards the goal of 2%. Mixed economic data with somewhat higher-than-expected headline inflation prints during the past few months has forced the Fed to adopt a relatively hawkish tone as compared to other central banks, in our opinion. Divergent policies will have implications on the currency markets and thus we believe either the Federal Reserve will follow the lead of other central banks soon or the other central banks will have to delay the next rate cut, should the data in the United States forces the Federal Reserve’s hand to wait for longer. We note that the ISM (Institute of Supply Management) Manufacturing PMI (Purchasing Managers Index) has been indicating contraction in the activity in the US and the ISM Services PMI has been indicating an expansion (See figure 2). An index level above 50 indicates expansion and below 50 indicates contraction. Given that services sector constitutes majority (~78%) of the United States GDP, it is fair to say that on a balance the US economy has been strong. The unemployment rate in the United States too has been below 4% though job openings have been on a decline and initial jobless claims increasing, indicating some deterioration. Figure 2: ISM Manufacturing and Services PMIs Source: Bloomberg Overall, we think that the advent of policy rate cuts by global central banks is a positive development for the markets, however, the mixed economic data in the United States still raises a question mark on the timing of first rate cut by the US Federal Reserve. Year-to-date, the fixed income markets have wavered as expectations of the first rate cut from the Federal Reserve fluctuated from as early as the June meeting to as late as December meeting. Looking ahead, incremental policy clarity from the world’s central banks could set the stage for reduced volatility in the bond markets, in our view.

Every Federal Budget announcement tends to focus on one central tax consideration that draws the attention of Canadians.  On April 16th, 2024, the Government of Canada released its 2024 Budget and interest surrounding the capital gains inclusion rate garnered significant attention because of noteworthy changes and potential planning opportunities. Under current tax rules, when an individual disposes of a capital property (excluding your principal residence) for a profit, only half (50%) of the capital gain is included in your taxable income. Effective June 25th, 2024, the capital gain inclusion rate will increase to 2/3 (66.7%) of capital gains realized on any amount above $250,000. This means that capital gains realized under $250,000 as of June 25th, 2024, will remain at the 50% inclusion rate. Corporations and trusts have no tax threshold and all capital gains earned as of June 25th, 2024, will be subject to the 2/3 (66.7%) inclusion of income. The delay in implementing the increase in the capital gains inclusion rate to June 25, 2024, allows individuals, corporations and trusts the opportunity to capture their capital gains at the 50% inclusion rate. Triggering these gains prior to the June 25, 2024, deadline may save a significant amount of tax but there are other factors to consider as it pertains to an individual’s financial plan. The 2024 Federal Budget announcement to increase the capital gains inclusion rate has generated a lot of attention and questions surrounding the financial plans of many Canadians. In continuing to proactively plan, it is important that you discuss your unique financial situation with your financial advisors so that they may provide a recommendation of the potential tax impact of the 2024 Federal Budget.

“I used to think that if there was reincarnation, I wanted to come back as the president or the pope or as a .400 baseball hitter. But now I would like to come back as the bond market. You can intimidate everybody.” – James Carville, Political Strategist Global bond markets are larger in size than the global equity markets and since the representation of institutional investors is greater in the global bond markets as compared to the equity markets, bond markets price action is considered more calculative and unemotional. Market pundits therefore often look at the bond markets for cues to gauge what might transpire in the equity markets. Equity markets tend to be more volatile and usually move very fast along with the developing narratives. However, equity markets typically do not stay in disagreement with bond markets for too long. For the first quarter of the year, equity markets marched ahead in anticipation of the nearing policy pivot and support from better-than-expected earnings growth reported by corporates. Bond markets, however, continued to reel under the pressure of rising yields as expectations of policy rate cuts continued to recede on the back of higher-than-expected inflation readings and better-than-expected economic data. As the inflation data persisted, equity markets finally took notice in the month of April and the S&P 500 Index corrected by -5.5% and the S&P TSX Index corrected by about -3.2%. Better-than-expected earnings, however, from the index heavyweights put together with reporting of more benign economic data during the second half of the month brought the equity investors back to the markets. In the United States, April was the third consecutive month where the reported headline inflation came in higher-than-expected. At +3.5% for March (reported in April), the headline inflation was ahead of the expected +3.4% and rose from +3.2% for February (reported in March). For Canada, the number was less concerning as though the headline inflation advanced to +2.9% in March (reported in April) from +2.8% in February (reported in March); it was in line with the expectations and had been falling for the previous two months. The bond markets bore the brunt of disappointing data on inflation as bond yields jumped on both sides of the border. Year-to-date, the yield curves have continued to shift upwards in the United States and Canada (See Figure 1 and 2), disappointing the investors that had bought aggressively into the “bonds are back” narrative of late 2023. Figure 1: United States – Yield Curve (1st Jan 2024 to 8th May 2024) Source: Bloomberg Figure 2: Canada – Yield Curve (1st Jan 2024 to 8th May 2024) Source: Bloomberg The heightened bond volatility and its increased correlation with equity markets during the times of market stress has further raised questions whether Mr. Bond’s usefulness in multi asset portfolios is on a decline?  A sustainable decline in bond yields is a precondition for the asset class to reassert its importance in the portfolios which we think will be met if: a) inflation resumes is downward trajectory without signs of incremental stress on the economic growth; and/or b) economic growth decelerates, unemployment rises, and therefore the probability of policy rate cuts increases again. In the absence of these signs, the bond yields are likely to stay choppy with the ebb and flow of economic data and Central Banks’ guidance, in our view. In the latest Federal Open Market Committee (FOMC) meeting, the committee decided to hold the interest rates at +5.50%. Bank of Canada too held the policy rate at +5.0%. The United States Federal Reserve chair, Jerome Powell, noticed that the recent data suggests the progress on inflation has stalled, however, cited several reasons why he remains optimistic that inflation will be back under control. Labor market is coming back to a better balance and expectations that the contribution of shelter inflation component of inflation calculations will eventually decline as current rents paid begin to reflect in the CPI calculations are the reasons to stay optimistic that “sticky inflation” narrative might not stick for long. The FOMC committee also decided to taper off the quantitative tightening by deciding to reduce the runoff to $25 billion in Treasury bonds each month from the current $60 billion per month from 1 June 2024. This did provide support to the bond markets during early May so far, however, in the current environment, we think continued progress on inflation and/or deterioration in the economic growth and hence a shift in policy rates are the conditions where the narrative of “bonds are back” can hold sustainably.

We often receive questions surrounding the savings aspect of a RESP. There are also many considerations when it comes to withdrawing those funds and budgeting for your child to attend school.  Over the past 24 years, tuition at Ontario Universities has risen over 150% or 6.5% annually, far surpassing the Canadian inflation rate during that same period.  This does not include the cost of housing for students which, depending on the city, can be twice as much as tuition. First, you need to manage expectations.  Sit down with your child and go over the plan, the costs, and the funds available for their education.  Discuss with them what they will be contributing and what you will be contributing.  It is important to remember that school, especially in the first year, is a full-time job. Some kids may not be able to commit to working very much during the school year and may not be able to earn any extra income until the summer months. Plan out a budget.  Withdrawn funds from the RESP (Grant and Growth) are taxable to the child while the original contributions in the RESP are non-taxable.  Plan to take the funds out of the RESP over the planned years of education so that taxation is not onerous and to ensure you are not leaving any money left in the RESP at the end of the education period (unless it is a family plan and there are more children who will be attending school). Work with your child to create a suitable need and wants budget.  They should be able to enjoy these years, but they should also have some skin in the game if they want to do a lot of the extras.  Make sure to include items like travel, groceries, cell phone, entertainment, rent, utilities, tuition, laundry, and insurance. If your child has earned any scholarships and is attending school full time, those scholarships will not be taxable. If they are attending school part time or don’t complete their semester/year, those scholarships will be taxable. Be a voice of reason.  Newfound freedom brings adventures and activities to take part in.  As parents, we want our kids to be responsible and have autonomy, but we also need to ensure they are safe and don’t get caught up in something that could deplete their education funds.  Be aware, communicate, and educate them about scams and fraud.  Work together to make sure their bank accounts are monitored. If you have questions about RESPs or budgeting, you can reach out to your Financial Advisor.