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November was nothing short of Christmas for investors who have been waiting for constructive price action. North American equity and fixed income markets both gained after the ‘Higher for Longer’ narrative in the markets was lessened by expectations of the Central banks policy rate hikes being done for this cycle, reversing the draw down of the past three months. Market participants brought forward the expectations of the first rate cut by the US Federal Reserve from June 2024 to March 2024 (See Figure 1). Incoming economic data pointing towards a softening economy put together with a benign inflation picture ignited market enthusiasm. This is even though the US Federal Reserve chairman, Jerome Powell, said that he is not confident if the policy rates are restrictive enough to bring inflation rate back to 2%. Figure 1: Earlier Policy rate cut expectations have increased. Source: Bloomberg Statistics Canada reported that headline inflation in Canada dropped to +3.1% (expected +3.14%) in October (reported in November) from +3.8% during the previous month. As per the Bureau of Labor Statistics, headline inflation in the United States fell to +3.2% (expected +3.31%) during October (reported in November) from +3.7% in the previous month. Tight labor markets, which have been a cause for concern for the Central Banks due to their capacity to fuel inflation for longer, have also showed signs of relaxing on both sides of the border. The unemployment rate in Canada advanced to +5.7% (expected +5.61%) in October (reported in November) from +5.5% in the previous month. More recent reports suggest unemployment further increased to +5.80% in Canada. The unemployment rate in the United States advanced to +3.9% (expected +3.79%) in October from +3.8% in the previous month. The constant flow of supportive economic data intensified the expectations of a rate cut sooner than expected and led to a swift decline in bond yields across the yield curve (see Figure 2 and 3). Figure 2: US Yield Curve – 31 October 2023 to 30 November 2023 Source: Bloomberg Figure 3: Canada Yield Curve – 31 October 2023 to 30 November 2023 Source: Bloomberg We like to highlight that price action in the fixed-income markets once again seems to be at odds with the message from the United States Federal Reserve Chairman, who has maintained that more evidence is required before concluding that inflation is on a trajectory to be back to their target of +2.0%. Given this backdrop, we think the current set-up is ripe for more volatility as markets once again seem to be defying the message from the Central Banks. As the adage goes – “Never Fight the Fed”. That said, we think the overall outlook for risk assets remains favourable despite the expected volatility. Our optimism stems from inflation continuing to go in the right direction and our expectations of more favourable readings in the coming months as the ‘Shelter’ component of inflation calculations continues to roll over. The labour market has begun to soften and in absence of any major uptick in unemployment, the expectations of a ‘soft landing’ could continue to outweigh the conversation on ‘hard landing’. Lastly, valuation of most companies has continued to reflect caution for the most part of the year, suggesting a large part of the markets might not be trading ahead of fundamental realities. We wish our readers a Merry Christmas and a very Happy Holiday Season.

By Sarah Chisholm, Financial Advisor of Assante Capital Management Ltd. 2023 has been a challenging year for many households. Budgets are being squeezed with high interest rates and the rising cost of living. As Christmas approaches, consider an alternative approach to gift giving. Use 2023 as an opportunity to prioritize meaning over monetary value. Do your parents really care how much you spend on them, or are they more focused on the quality of time that you spend together over the holidays? Do your friends really want gift cards, or would they prefer something unique? Here are three alternative low-cost gift giving options to consider. 1. Books 2. Photos 3. Dates Books offer an escape on long dark winter days. In Iceland there is a tradition of gifting books at Christmas time, so much so that the publishing community calls it Jolabokaflod, or the "Christmas Book Flood.” Gift a book that you have recently read and truly enjoy. Explain to the recipient what you enjoyed about the book, or why it might be of interest to them. For kids give gifts that you read as a child or books have been developed into film that you could watch together later. Books do not need to be expensive. Buy gently used books throughout the year or gift from your personal collection. Focus on the meaning and not the cover price. Photo prints are truly meaningful in this age of digital media. It is so easy to post photographs to social media, but how often do you get a physical print? Take the time to print photographs as gifts. Photos of grandchildren for grandparents and group photos for friends. Put a personal note on the back of the photograph, or have your child decorate a simple frame. Pictures hung on the wall or stuck to the fridge with a simple magnet will bring ongoing joy to the receiver. A small token to smile at and a cute grandchild to brag about to guests. Don’t bother with a card, write your greetings on the photo. Spend time together. For friends and family, call them early and explain you would like to spend time with them instead of giving a physical gift. Depending on your budget consider taking them out for lunch or a coffee date. For a more budget friendly option, have them over to your place for lunch or coffee, go for a walk together, or spend time volunteering for a cause of their choice. For loved ones far away, skip the mailed gifts and instead pick up the phone. Spending time together is priceless. For Christmas 2023, step away from the expensive gift cards and the stress of buying “things”. Pick meaningful options that don’t require a set dollar value. Give friends and family advance notice about your plan, they may also choose the same path. Imagine the relief a friend might have knowing that they don’t need to buy you a $25 gift card – that instead you would be excited for a coffee date or a suggestion for a new book to read. 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 613.258.1997 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.

Where can you find an asset that provides both protection and diversification for your retirement plan? Something that will provide a lifetime of protection? Consider Whole Life Insurance. Normally, we think of life insurance for our short- and medium-term needs. We use personal life insurance to cover our liabilities and provide income replacement for our family if we pass away unexpectedly. In business, we use key person coverage to protect our revenue generators and share buyout coverage for our business partners. To provide even stronger foundations, we pair life insurance with living benefits such as Disability Insurance and Critical Illness Insurance to protect ourselves in case of serious injury or disease that has major impact on our lives or our ability to work. Remember that term insurance is temporary in nature, and when the policy renews, the premiums can become exorbitant, and many people cancel the policies at renewal. What is Whole Life Insurance? Whole Life Insurance provides protection for life and is permanent. It covers the short and medium term needs above, as well as your long-term needs such as tax coverage, estate equalization, funeral costs and more. The insurance company will pay the death benefit regardless of when you pass away. The death benefit can be paid directly to your named beneficiaries which provides you a level of privacy in your wishes and allows the death benefit to by-pass probate. Whole Life Insurance Policies create asset diversification within your investment portfolio. A policy has an immediate estate enhancement value (death benefit) and grows a cash surrender value over time. How does the death benefit grow? When premiums are deposited, the insurance companies pool the life insurance premiums into a large investment account. Premiums go in, investment income grows the account and death claims come out over time. Each year, if the investment returns are higher than expected and the mortality is lower than expected, a dividend is distributed to all the policy holders. Most policies are structured so that the dividend is used to purchase additional permanent life insurance – in this way your death benefit and cash values grows over time. The cash value provides asset diversification for your retirement. The cash value can be leveraged as a tax efficient source of income for retirement. It can pair nicely with the RRSP, pension, TFSA, rental properties, business dividends and other sources of income you have built up for retirement. Protection and asset diversification are two of the many positive attributes of Whole Life Insurance. So, why doesn’t everyone have Whole Life Insurance? The simple answer is that Whole Life Insurance is typically more expensive, is a long-term investment and premiums are much higher than term insurance. Take the time to review your insurance needs and strategies with a trusted insurance advisor. Often a combination of term and whole life insurance will allow you to achieve both your short-term and long-term goals. Review your plan regularly, as your insurance needs will change over time. Sarah Chisholm. Financial Advisor Assante Capital Management Ltd. Sarah Chisholm is a Financial Advisor with Assante Capital Management Ltd. Please contact her at (613) 774 - 2456 or visit www.ofarrellwealth.com to discuss your particular circumstances prior to acting on the information above. The opinions expressed are those of the author and not necessarily those of Assante Capital Management Ltd. Insurance products and services are provided through Assante Estate and Insurance Services Inc. Assante Capital Management Ltd. is a Member of the Canadian Investor Protection Fund and Investment Industry Regulatory Organization of Canada.

By Sarah Chisholm, Financial Advisor Do you have any funds set aside as an emergency fund? Have you updated your emergency fund amount to keep pace with inflation? How much should you have set aside? What are the benefits of an emergency fund? When there is a serious sickness or injury, death in the family, job loss, or an unexpected major expense an emergency fund is an important backstop to protect your family. Cash could be used to pay rent while you are on the job hunt. If a loved one is hospitalized the emergency fund provides flexibility to cover the missing pay cheque and cover additional costs such as hospital parking fees, extra daycare costs and time off work to be with your loved one. An emergency fund provides you with flexibility. It reduces your stress in an already stressful time. How much should I have saved in my emergency fund? A good starting point is setting aside three to six months of expenses, but is this achievable? An emergency fund does not need to cover all your monthly expenses. Instead, the fund should replace your fixed costs such as food, housing, and transportation. Discretionary expenses such as eating out, gifts and clothing can often be eliminated in the short term. Other outflows such as contributions into retirement savings accounts or education savings accounts can also be paused – take care of the emergency first – then re-start the retirement savings. Run the numbers to see what 3-6 months really looks like for your family. What if I have existing consumer debt? Work towards paying off your consumer debts and making sure those credit card balances get paid off in fully monthly. As you pay down the balances – you are making more credit available – which could be used as a last resort for emergencies until your cash emergency fund is created. Can I earn interest on my emergency fund? With interest rates being so high, make sure that the high interest savings account you are using provides a competitive interest rate. A financial advisor can often build your emergency fund into your Tax-Free Savings Account or Non-Registered account using a high interest savings fund that is safe and liquid. Keeping the emergency fund separate from your daily banking account can also reduce the tendency to spend your emergency fund on non-emergencies. Can I insure the risk? Some emergencies are health related – a disease or injury can cause time off work and a death will change a family immediately. Consider using insurance along with an emergency fund to protect your family. Disability Insurance and Critical Illness coverage can provide protection from loss of earnings or a life-threatening condition. Health benefits can also provide access to paramedical practitioners to help recover from injuries or drug coverage to ensure a safe recovery. Life insurance provides a lump sum to the beneficiaries which can be used as desired, potentially to pay off a mortgage, create a buffer for a grieving period or create funds for a child’s future education. Chat with a trusted financial and insurance advisor to discuss your risk coverage needs and existing coverage. What if I already have an emergency fund? Congratulations! This gives you the flexibility to start planning for short term and long-term goals. Try creating a sinking fund for large purchases. Set aside funds monthly and when the fund is big enough, take the vacation or buy the new furniture, then start rebuilding the fund for the next big purchase. For retirement consider increasing your contributions to your Registered Retirement Savings Plan or Tax-Free Savings or putting extra funds towards your mortgage to pay it off sooner. Still not sure where to start, consider chatting with a financial advisor to look at your unique situation and create a personalized strategy.

By Sarah Chisholm, BA Financial Advisor, O’Farrell Wealth & Estate Planning | Assante Capital Management Ltd. Life insurance is all about risk mitigation. It’s about protecting your loved ones financially if something should happen to you unexpectedly. There are so many insurance products out there that it is often difficult to sift through policies and find the one that is right for you. Insurance companies aren’t always great at being clear about which insurance plans are best for each individual client. Here are a few things you should know about life insurance and some tips on how to pick the policy that is right for you. Insurance companies are for profit businesses Insurance companies make their money off calculating risk. Typically, the more likely you are to die the higher your insurance premiums will be. Insurance companies group people into different categories of risk (ex. non-smokers, smokers) and they know how much they need to charge in premiums based on calculating the risk of death for each grouping of people. A smoker will typically pay 3-5 times more in insurance premiums than a non-smoker because of statistical data that indicates that smokers are more likely to die sooner than those who don’t smoke. When it comes down to it insurance companies do protect you in case of unexpected death, but they are also in it to make money. The best policy is the longest you can afford As a general rule, the longer the policy the better. A Term 20 insurance policy will cover you for 20 years with a fixed premium that will not increase. A Term 10 policy will provide you with the same coverage but only for 10 years. At this point if you wanted to keep it you would face a premium increase. Term 10 policies are cheaper than Term 20 because there is less risk involved for the insurance company. A Term 10 policy might cost you $20/month while a Term 20 policy would be $30 or $35/month. While paying $20 for the same coverage might seem attractive in the short term, the issue comes up when it is time for it to be renewed. At the ten year mark it is certain that your insurance premiums will go up as you will be a decade older and if you decide to keep the original policy it could cost you as much as 3 to 5 times more premium. One option is to apply for a new policy altogether but there is no guarantee that you will be healthy enough to qualify for a new policy ten years down the road. This is why paying a bit more for a longer-term policy is better than saving $10-$15 a month for a shorter policy. You end up paying less in the long run and are guaranteed the insurance pay-out for longer should something happen to you unexpectedly. In certain situations, it might also a make sense to buy a Term 65 (which guarantees you coverage until you are 65) or Term 100 (which guarantees you coverage until you are 100). However, these policies are more expensive because it poses more risk for the insurance company. Buy young It may seem counter-intuitive to buy life insurance when you are in your 20s, have no money and likely no dependents to look after if you pass away. However, this is the best time to buy life insurance. Unless you have a health condition it is likely that you will be in the best shape of your life and as a result your insurance premiums will be at an all time low. Think long-term. If you buy a Term 20 insurance policy when you are 25 it will last until you are 45. In that time are you likely to have built a career? Gotten married? Had a family? Probably. Therefore, it is good to get locked into a plan young. It will never be cheaper to get insurance than right now. The most important part of buying insurance is understanding your options. A good financial advisor will typically look at how much debt you have, what your annual income is and if you have children or a spouse to calculate the amount of insurance you need. Using this information, they will be able to advise you on the insurance product that works best for your situation. There is no reason to go into a meeting with an insurance agent blind. Know what your needs are and what you are willing to spend before you buy into a policy to avoid getting trapped in an agreement that is not in your best interest.

It was Halloween month for investors as expectations of higher interest rates and for longer led to continuation of spike in bond yields across the US yield curve, with yields rising relatively higher at the long end than the short end. The month started with economic data tracking somewhat better-than-expected, exacerbating the narrative, and resulting in the US 10-year bond yield touching the 5% mark at one point. Like the fixed income asset class, the equity markets bore the brunt of rising yields too and closed the month in red. The Canadian fixed income investors had some respite as yields dropped at the short end of the curve. The rise in geopolitical tensions after the conflict in the middle east added to investors’ concerns. However, the sliver of hope returned around the actual Halloween when reports of softer economic data suggested the centrals banks are probably done hiking interest rates in this cycle. The Institute of Supply Management’s (ISM) US Purchasing Managers’ indices (PMIs) for Manufacturing and Services were both higher than expected for the month of September (reported in early October). The Manufacturing PMI index was at +49 (expected +47.9) and the Services PMI Index was at +53.6 (expected +53.5). However, the indices for the month of October (reported in early November) showed deceleration with Manufacturing PMI at +46.7 (expected +49) and the Services PMI at +51.8 (expected +53). The unemployment showed increase on both sides of the border with the US unemployment rising to +3.9% in October from +3.8% in September and Canada unemployment increasing to +5.7% in October from +5.5% in September. The Sahm Rule Recession Indicator signals start of recession if the three-month average unemployment rate is +0.50% above its low in the previous 12 months. Given that the low reading of unemployment in Canada was at +5.0% and in the US was +3.4% during the previous twelve months, the indicator suggests the much-anticipated recession might be around the corner (See figure 1). Figure 1: Sahm Rule Recession Indicator and US Recessions Source: Bloomberg As per Statistics Canada, the Canadian economy stalled for the month of July and August at +0.0%. Preliminary estimates suggest the GDP might contract for the month of September, i.e., the Canadian economy might be on track for contraction in the third quarter of 2023 after having contracted by -0.2% in the second quarter. Two consecutive quarters of GDP contraction meets the definition of a technical recession. Bank of Canada and US Federal Reserve kept the policy rates steady in their latest policy meetings. This put together with the more recent reports of softer economic data in the US fueled the narrative that the Central Banks are done hiking rates. Recessions are disinflationary and reduce the appetite of central banks to increase interest rates and cause more economic pain. The initial reaction of these developments has been a return of risk-on sentiment in the markets. We would like to highlight that the story of year 2023 thus far has been that of flipping narratives between hope and despair with broader markets largely trading range bound. We think a more decisive constructive move in the markets will follow when investors are confident that they can begin to peek towards the other side of the cycle. The recent developments suggest such a point is approaching, however, is not here yet. We think the markets still need to navigate through two risks in the near-to-medium term. First, the risk of policy error - central banks drew a lot of flak being stuck on the transitory inflation narrative for too long and therefore let inflation go out of control before starting the rate hikes. While unemployment has started to increase in recent months and consumer confidence is on a decline, suggesting the higher interest rates are perhaps beginning to bite, we think central banks are likely to err on the side of caution before indicating any pivot on the policy front. This increases the risk of policy error, i.e., keeping financial conditions tight for too long. Second, the reset of earnings expectations – a recessionary period is likely to coincide with corporate earnings downgrades, which is generally a headwind for stock markets in the short term. Nevertheless, we think broader markets already reflect a lot of caution and therefore maintain our cautiously optimistic stance on the back of our expectation that we are closer to the end of policy rate hikes.

By Cynthia Batchelor, Financial Advisor of Assante Capital Management Ltd. As costs go up and we all look to where we can save a little money, the talk about a budget comes up increasingly in conversation. It can often be overwhelming when your payments keep changing and the bills keep piling up. So, what can you do to make sense of it all? Make a budget. A budget is tally of your income and expenses for a set period. Planning out your budget can help you to understand what you are spending where and how you can cut costs. One of the first things I remind people when discussing their budget plan is to “pay yourself first”. What does this mean? Simply put, it means to commit a certain part of your income to savings each paycheque. This will allow you to ensure that you can retire comfortably, have funds for set aside for unforeseen expenses, or generally know that you are able to live comfortably. If you are looking for a budgeting framework, the rule would be 50/30/20. 50% of your income for needs (rent/mortgage, food, utilities) 30% for wants (dining out, the gym, sports & entertainment, trips) and 20% for savings (retirement and emergency funds). Remember to do the following. · Pay yourself first (this is the 20%) · Map out your spending (know exactly what you are spending each month – create a spreadsheet of the other 80%) · Always be prepared to adjust (you might need to reduce or stop the wants) · Calculate the actual cost of your debts (know your interest payments) · Make budgeting a regular routine (revisit your budget at least 4 times a year to ensure you are on track) Let’s now look at the most common budgeting mistakes. Not tracking expenses (it is important you know where all your money is spent down to the last $5 at Tim Hortons) Overspending (if you spend more than you earn you will end up paying interest charges which will eat up more of your hard-earned money) Not planning for unexpected expenses (let’s go back to that 20% rule) Not adjusting the budget as circumstances change (if you have fixed costs or needs that go up you will need to adjust your wants part of your budget) Underestimating expenses (sometimes your utilities are lower, like gas in the summer, don’t get caught in thinking that stays the same all year round, plan ahead) Relying too heavily on credit (high interest rates can eat away at your savings and income) Not prioritizing expenses (pay your high debt and needs first, forgo the wants) Not accounting for irregular income (if you don’t have stable income, don’t count on it) If you need help creating a budget, see a financial advisor. Cynthia 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.

The month of September lived up to its reputation of being one among the seasonally weak months for the year. The equities and fixed income markets both took the hit as investors factored in increasing probabilities of higher interest rates and for longer. The continued caution in the remarks from the Central Bank officials driven by choppy economic data supported the narrative that expected rate cuts might not materialize as soon as expected by the markets. The nervousness was palpable in markets up until the FOMC’s (Federal Open Market Committee) decision on policy rates and guidance on their forward trajectory on September 20th. The US Federal Reserve decided to keep policy rates flat at 5.50%. However, the dots plot, a chart showing the view of each committee member where the interest rate would be by the end of year, and next few years, suggested the central bank authorities now expected rates to fall back to ~5.25% rather than ~+4.75% as expected earlier (See figure 1), by the end of 2024. Bank of Canada too kept the policy rates unchanged, but kept the doors open for further tightening should inflation not appear to be on track to fall back to their target of 2%. Figure 1: FOMC Dots Median (June Meeting vs. September Meeting) Source: Bloomberg Headline inflation in the US picked up again and was reported at +3.7% year-over-year for August (reported in September), up from +3.2% year-over-year during the previous month. The headline inflation measure in Canada also picked up to +4.0% year-over-year for August (reported in September), up from +3.3% year-over-year reported during previous month. Higher inflation readings put together with caution in central banks commentary further layered on with somewhat better-than expected economic data (which reads through as inflationary or less disinflationary), fed the expectations that interest rates will stay higher for a longer time and consequently, the bond yields jumped across the yield curve on both sides of the border. The yields jumped higher on the longer dated maturities than the short dated, reducing the inversion of the curve in a move known as bear steepener (See figure 2 and 3). Bear steepeners are consistent with expectations of rising inflation. Figure 2: US Treasuries Curve (Sept 1st to Sept 29th) Source: Bloomberg Figure 3: Canada Sovereign Curve (Sept 1st to Sept 29th) Source: Bloomberg US ISM (Institute of Supply Management) Manufacturing and Services PMI indices, leading indicators of the US manufacturing and services activity, respectively, are suggesting that services sector is chugging along just fine, and manufacturing sector is getting incrementally less bad. This is at a time when unemployment is still in the range of historic lows and inflation is threatening to rise again. Therefore, should the economic activity pick up again, the risks of wage-price spiral could start to play on Federal Reserve members’ thinking, who have remained steadfast on their objective to bring inflation down to 2%. Better-than-expected economic activity would be a positive for markets provided the inflation readings remain benign and on the right trajectory. However, better-than-expected economic activity along with inflation beginning to pick up again would be a bad sign for financial markets as this implies more tightening might be required. With that backdrop, we think it is noteworthy that the recent uptick in the US headline inflation has been largely due to the energy component. Driven by production cuts announced by the OPEC+ in June 2023, the crude oil prices jumped by ~+28% during the third quarter, which reflects the jump in the energy component’s contribution to headline inflation (See figure 4). Since food and energy tend to be the more volatile components of the inflation calculations, they can obfuscate the inflation trend in the short term (the core inflation, which excludes food and energy, was steady at +4.3% for the month). We note that weather forecasters expect 2023 winters too be warmer than usual due to El Nino effect, which translates into lower energy demand for heating purposes. Lower demand should put a lid on energy prices and hence its contribution to inflation in the coming months. Furthermore, as outlined in our previous updates, the shelter component of inflation, which constitutes ~35% of the total weight in the inflation calculations has also begun to decline. We think this should help alleviate some of the investor concerns around inflation picking up again in the coming months and help risk assets in the short-term. Figure 4: Contributions to US Consumers Inflation, month-over-month % Source: Bloomberg Over the medium term, we think the bigger question the markets will grapple with is where the inflation will finally settle and if it does not drop back to the 2% level soon enough, how long can economy take higher interest rates without developing major cracks. Should the inflation settle above the targeted 2%, and the economy avoids a recession or experiences only a mild one, the bond yields should stay high as a justification of higher compensation for higher expected inflation. For equities, higher bond yields imply higher equity risk premium, i.e., lower valuation multiple. This will coincide with higher interest rates for longer as central banks will have no justification to reduce interest rates. Higher interest rates for longer only increase the risk of widening cracks in the economy, a risk to be watched out for during 2024, in our view.

The North American equities witnessed a whipsaw action during the month of August, much in line with the flipping narratives observed during most of the year so far. Early in the month, Fitch Ratings, a credit ratings agency, downgraded the ratings of United States’ sovereign credit by one notch from AAA to AA+ citing expected increase in fiscal deficit, growing government debt burden and erosion of governance that has repeatedly brought US on the brink of default around debt ceiling debates. This coincided with US treasury outlining its plans to raise more-than-expected debt during the third quarter of 2023, and Bank of Japan’s announcement of widening the tolerance band for its 10-year bond yields to +/-1.0% from +/-0.5%. These developments corroborated to increase bond yields on both sides of the border. Rising yields imply increasing equity risk premium and thus the equities markets also tumbled. The sell-off exacerbated after the monthly inflation reports showed the headline inflation in the US and Canada advanced again and the incoming economic data suggested economy is more resilient than expected, reigniting the fears of higher interest rates and for longer. The headline inflation in the US jumped to +3.2% from +3.0% and in Canada jumped to +3.3% from +2.8%. The unemployment rate in the US dropped to +3.5% (reported in August) from +3.6% (reported in July). The caution prevailed for most of the month up until the address of the US Federal Chair, Jerome Powell, at Jackson Hole, Wyoming. Central Bankers, economists, policy makers and academicians meet at Jackson Hole annually to discuss global central bank policies. The speech from the chairman of the world’s most powerful central bank, the US Federal Reserve, remains one of the most important addresses amongst others and given the macro dominated environment during the past few years, the speech assumed even more importance. At the conference, the US Fed chair emphasized that bringing inflation back to 2% remains the goal of the Federal Reserve, pushing back against any expectations of Fed potentially lifting the target from 2%. The Fed chair acknowledged some softening in labor market as a welcome development but reiterated it remains too tight to consider changing the current restrictive stance of the monetary policy. Bloomberg data suggests the US Job opening data has now surprised on the downside for three consecutive months and the ratio of US Job openings to total unemployed workers has dropped to 1.5 in July 2023 from its peak of 2.0 in March 2022 (See Figure 1). Also, the ‘quits rate’, which measures voluntary job separations as a percentage of total employment has dropped to 2.3% (See Figure 2). High ‘quits rate’ implies more confidence among workers to find another job in the current market conditions and vice versa. The latest jobs data (reported in September) showed the unemployment rate has now jumped to +3.8% from +3.5% and the labor force participation increased from +62.6% to +62.8%, i.e., increase in supply of labor. This above data shows the labor market is becoming more balanced and should reduce the wage-inflation spiral concerns the Fed has been vocal about, in our view. Figure 1: Total US Job openings to total unemployed workers. Source: Bloomberg, Bureau of Labor Statistics Figure 2. United States Quits Rate. Source: Bloomberg, Bureau of Labor Statistics. Furthermore, the Fed chair also stated that the bank can afford to move cautiously in the coming months. While the overall message was still hawkish on balance, the investors took comfort from the statement that suggested that Fed might be willing to pause in next meeting and wait a little longer for economic data to evolve before deciding on further course of action. This, coinciding with a few softer macroeconomic data points, supported the view that the lagged effect of tight monetary policy is perhaps beginning to show (supports the case for a pause in policy tightening), leading to a risk-on sentiment during the last week of August. In the US, the estimate of the second quarter annualized GDP growth was revised down to +2.1% from earlier +2.4% and in Canada, the second quarter annualized GDP unexpectedly contracted to -0.2%. In the wake of recent softening in economic data, Bank of Canada held policy rates steady, however, kept the door open for further hikes if inflation problem remains far from resolved. We believe the US Federal Reserve could deliver a similar message after the FOMC (Federal Open Market Committee) policy meeting in September. The data dependency of central banks implies that choppy economic data would continue to lead to bumpy ride, in the near-term, as investors flip through narratives of a soft landing or hard landing given the mixed economic data. Nevertheless, taking a step back, we think we are closer to the end of monetary policy tightening and thus keep our cautiously optimistic view on the risk assets.

By Cynthia Batchelor, BCom, Financial Advisor O’Farrell Wealth & Estate Planning | Assante Capital Management Ltd. With school just around the corner, you may wonder ‘how do I get funds out of my child’s self-directed RESP for post-secondary education’? One question that often comes up is does the withdrawal amount need to equal the cost of the school tuition, books etc. The answer is NO. No one is auditing what the money that is withdrawn is spent on. It can be used for rent, transportation, utilities, tuition, books, or food. Q: How do I get money out of a self-directed RESP? A: Once your child has enrolled in post-secondary school (university, college, trade school), they are entitled to withdraw up to $8,000 in Education Assistance Payments (EAP) from the RESP in their first 13 weeks of full-time school. This portion of the payment is from the growth and government grant inside the plan and is taxable to the beneficiary (child). They can also withdraw any amount of Post Secondary Education (PSE) from the plan. This portion of the payment is your capital and is not taxable. After the first semester, there are no restrictions on withdrawals for full time studies. Part time studies (Specialty Courses/Programs) are restricted to $4,000 per program/semester. (Note: the Canadian government recently changed legislation to these increased numbers in 2023.) Q: What constitutes proof of enrollment? A: A letter from the Registrar of the school, a copy of your child’s timetable with their name, student number, and school name. Q: What if a beneficiary does not pursue post-secondary education? A: There are several options: o You can wait – the plan can remain open for 36 years o You can choose a new beneficiary – in an individual plan, this can be anyone, but if it is not a sibling under 21, the grants must be repaid. In a family plan, the CESG can be allocated to other family plan members, if over $7,200 then excess grant needs to be repaid. o You can roll the RESP to your RRSP – the grants will be returned to the government; the capital can be withdrawn, and the income can be rolled into your RRSP – so long as you have the room to a maximum of $50,000 per contributor. o You can withdraw contributions anytime from the plan – however when you do so, the grants will be repaid to the government. o You can withdraw earnings and growth – an Accumulated Income Payment (AIP). If all beneficiaries have reached the age of 21 and are not attending post-secondary education, and the RESP has been in existence for at least 10 years, you can make an AIP payment – it is taxable at your marginal tax rate plus a 20% penalty tax. o You can roll the RESP to an RDSP – if the beneficiary has become disabled, you are able to move the accumulated income to an RDSP on a tax deferred bases with no 20% penalty.

The North American equity markets continued to trade in a “Goldilocks” fashion during the month of July driven by economic data that supported “soft to no landing” narratives. The headline inflation rate in the US dropped to +3.0% (expected +3.1%) from +4.0% and in Canada fell to +2.8% (expected +3.0%) from +3.4%. The labour market stayed strong with unemployment rates in the US and Canada at +3.6% and +5.4%, respectively. Declining inflation and strong labour markets were consistent with improving consumer confidence readings on both sides of the border. The Conference Board’s Consumer Confidence Index for the US has been on the upside for past two consecutive months and the Nanos Economic Mood Index in Canada has been on a rise this year. Resilient economic data put together with better-than-expected improvement in inflation numbers strengthened the case that perhaps the inflation problem can be solved without having to incur severe economic damage in the form of rising unemployment and GDP contraction. The annualized US GDP numbers for the second quarter were at +2.4%, ahead of expected +1.8%, and indicated acceleration from the +2.0% observed during the first quarter. The Canada GDP, on the other hand, showed deceleration during the second quarter (estimated at +1.2% annualized) after having registered annualized growth of +3.1% during 2023’s first quarter. In absence of any further deterioration, the Canada GDP appears on track to register annualized expected growth of ~+1.7%-1.8% for the year 2023. The Bank of Canada again started increasing interest rates with a +25 basis-points hike and the US Federal Reserve also delivered a +25 basis-points hike, citing persistently high core inflation numbers. Both the central banks indicated that future hikes will be contingent on the incoming data, keeping the flexibility on policy rates trajectory. The above backdrop implies that the market should start to put more stock in the economic datapoints over the central banks’ language, given their emphasis on dependency on future datapoints. Therefore, indicators suggesting lower inflation and continued economic growth should be received favorably by the markets and vice versa. The growth in Canada appears to have slowed over the past couple of months and in the US appears to have picked up again after contracting for some time. The US ISM Manufacturing and Services PMIs (Purchasing Managers’ Index) – Business New Orders Indices, have both shown improvement in the recent past (See Figure 1). The ‘New Orders’ component typically leads the headline index suggesting improvement in the manufacturing activity ahead. A reading of above 50 indicates the activity is expected to expand and a reading of below 50 indicates the activity is expected to contract. Figure 1: ISM Manufacturing and Services – Business New Orders Index Source: Bloomberg Given that the experienced economic slowdown is not as severe as one would have expected after a steep increase in interest rates and a deep inversion of the yield curve, the question now on investors mind is – does this means that the recession is cancelled, or has it not yet arrived because of the time lag in monetary policy action and its impact on economy? The authority on determining and declaring recessionary periods, NBER (National Bureau of Economic Research), looks at a variety of factors before declaring any period as a recessionary period. The most important factor is ‘significant decline in economic activity that is spread across the economy and lasts more than a few months’. Typically, it is safe to say that economy is in a recession if two consecutive quarters of negative GDP growth is observed. In practice, the NBER typically classifies any period as a recession long after it has passed, therefore, indicators that suggest economy might be in a state of contraction/expansion are the only reliable inputs for investors to position themselves. Given that the most recent leading indicators suggest manufacturing sector might be turning around while services sector continues to hum along, the expectations of fading recession risks are not far-fetched, in our opinion. That said, we also think it is early to entirely dismiss the probability of the lagged effect of monetary tightening beginning to show on economic growth. Looking ahead, we stay cautiously optimistic with eyes on what the balance of incoming economic data is telling us.

The North American equity and fixed income markets foreshadowed differing views in June. Equity markets advanced even in face of hawkish comments from the Central Banks. The yield curve inversion deepened on both sides of the border suggesting an increased risk of a recession as the Central Banks continued to emphasize a need to do more. The Bank of Canada restarted hiking interest rates during the month and the US Federal Reserve chairman, Jerome Powell, reemphasized that the committee foresees at least two more hikes this year. Stronger-than-expected economic data raised hopes that a potential recession can probably be avoided and simultaneously reduced expectations of any immediate pause in the rate hikes and any potential cuts later during the year. The headline inflation in Canada aligned with expectations of +3.4% during the month of May (reported in June), down from +4.4% in April (reported in May). In the US, the headline inflation was at +4.0% for the month of May (reported in June), down from +4.9% in April (reported in May) and expected +4.1%. The US inflation number (to be reported on 12 July) is expected to fall to +3.1%. While these numbers indicate movement in the right direction, the progress has been slower than what the US Federal Reserve would like. Layer on a very strong labor market, we have a Fed committee that is prepared to err on the side of caution as any premature hints of a policy pivot could blunt the impact of policy measures taken thus far. The monetary policy works with long and variable lags, and the lag seems to be longer this time. The housing starts, building permits, new home sales, durable goods orders, and the conference board’s consumer confidence numbers were all better-than-expected during the month, indicating economic reacceleration instead of a slowdown as one would have expected after the rate hikes over the last year. The US unemployment rate declined to +3.6% in June (reported in July) from +3.7% in May (reported in June). Half-way through the year, the Central Banks’ fight against inflation is still dragging on. Nevertheless, the equity markets price action in June was more broad-based in the face of better-than-expected economic momentum suggesting equity investors believed the inflation problem can be solved without having to incur substantial economic damage. We believe there is some merit to this narrative. The Fed has consistently pointed to core inflation and tight labor market as reasons for concern. Core inflation has remained stubbornly high between +5.3%-to +5.6%, year-to date. The job markets are exceptionally strong with 1.6 job openings for every unemployed worker in the labor force. It is noteworthy that the ‘shelter’ component of inflation constitutes about ~35% weight of the headline inflation and ~43% weight of the core inflation. This component has been on an increase for most part of the last couple of years but has begun to level off recently. As per Apartmentlist.com’s rent estimates and vacancy index, the year-over-year growth in rents is back to historical levels and vacancies have been on a rise. (See Figure 1). Figure 1: CPI Urban Consumers Shelter Index and Apartmentlist.com’s median rent and vacancy Index, year-over-year % Source: Apartmentlist.com, Bloomberg We think as the shelter component of the headline inflation calculations begins to factor in more recent growth rate in rents, the core inflation numbers should also begin to moderate. Moderating inflation numbers coinciding with healthy economic data in coming months could strengthen the narrative that a potential recession could be avoided and thus support risk assets. That said, the risks remain that impact of monetary policy tightening begins to show with a lag and the Fed continues with hawkish posture even as inflation recedes due to strong labor markets. The second-quarter earnings season and the economic data over next few months with bring more clarity and set the tone for markets.