Good Morning,
This week was anything but boring. Political turmoil here at home, a Federal Reserve that has turned hawkish, and a US Congress that can seem to pass a needed funding bill. No wonder interest rates are up and markets down. The Grinch is alive and well this Christmas season.
| Index | Close Dec. 13th 2024 | Close Dec. 19th 2024 |
| S&P500 | 6,047 | 5,869 |
| TSX60 | 25,411 | 24,414 |
| Canada 10 yr. Bond Yield | 3.17% | 3.37% |
| US 10 yr. Treasury Yield | 4.34% | 4.57% |
| USD/CAD | $1.42065 | $1.43894 |
| Brent Crude | $73.50 | $72.58 |
| Gold | $2,680 | $2,597 |
| Bitcoin | $99,952 | $96,492 |
Source: Trading Economics & Factset
We’ll start with the more mundane but nonetheless most important development this week, the latest rate decision by the US Federal Reserve. While the 25-bps rate cut was widely expected, the change in outlook for future rate cuts came as a nasty surprise. Expectations were that the Fed would cut interest rates 4 more times next year. The “dot plot”, which maps the Fed Governors rate expectations, showed only 2 more cuts in 2025. In his post decision remarks, Jerome Powell pointed to sticky inflation and a need to be cautious going into 2025.
The change in outlook for interest rates had a major effect on all asset classes. The rise in the 10 yr. treasury yield hit equities hard as investors adjusted their forecasts for economic activity and lowered their multiples due to a higher discount rate. The fundamental story remains inflation and rates.
Throwing fuel on the fire was the failure of Congress to pass spending measures needed to keep government services (and paycheques) going. Republican House Speaker Mike Johnson thought he had cobbled together a deal with enough votes to pass. The Elon Musk and Donald Trump took to the Twitter (X) Waves and roasted the deal. Legislators have until Friday to pass something, or the US Government will need to start curtailing services.
While all of this was unfolding to the south of us, Canada said, “Hold my beer, I can go one better”. Scheduled to deliver the Fall Economic Statement on Monday, Chrystia Freeland resigned from Cabinet before the release. If the resignation wasn’t enough, her letter, released on social media, was a damning indictment of the fiscal policy as laid down by the Prime Minister’s Office.
Aside from being told she was going to lose her position in an upcoming cabinet shuffle, Freeland was at odds with the PMO over the deficit which came in at $61.9 billion for the 2023-24 fiscal year. This overshot the government’s own “guardrails” of a deficit of no more than $40 billion. Of course, these things are never as simple as the headlines, or a soundbite would have us believe. The drivers behind this miss were lower than expected revenues (-$5.5 billion), contingent liabilities for Indigenous claims (-$16.4 billion) and moneys not recovered from Covid-19 support programmes.
On the good news side of the ledger, Canada’s inflation rate dropped again to 1.9% in November. While the Bank of Canada will, understandably, be cautious in 2025 (tariffs & trade) they should still have room to cut rates further.
In corporate news, Honda and Nissan are in merger talks. Nissan has been struggling for a while and needs a saviour. Both companies have faced increasing competitive pressure from Chinese car manufacturers, especially with hybrid & electric vehicles. Mitsubishi, which is partly owned by Nissan may also be brought into the deal.
We are coming up to the end of the year, so it is time to make sure you have taken advantage of some tax saving strategies. Here is a quick list of things you can do to lower your tax bill for 2024:
- Make a charitable donation. Donations up to $200 will get you a 15% tax credit. Anything over $200 gets a 29% tax credit.
- If you are so inclined, make a political donation. Donations to a federal party or riding association will garner a 75% tax credit on the first $400, 50% on the next $350, and 33 1/3% on the amount over $750 to a maximum contribution of $1,250.
- Sell your losers if they are in a non-registered account. Capital losses can only be applied against capital gains. They can be carried back 3 years or carried forward forever.
- If you are making a charitable donation, consider doing it “in kind” by donating shares that have a gain. You will not have to declare the gain but will bet a tax receipt for the fair market value.
- Top up your RRSPs and First Home Savings Accounts. You do have until the first 60 days of 2025 to contribute to your RRSP. Your FHSA contribution needs to be done by the end of the year.
We’ll close off here and wish everyone a Merry Christmas and Happy New Year. We won’t publish next week but will be back again in January. Oh… and this song is dedicated to Jerome Powell & the US Federal Reserve for their little surprise this week…. Enjoy
Russ Lazaruk, RIAC, CIWM, CIM, FCSI
Managing Director & Portfolio Manager
