Insights & Resources

Canadian stocks moved sideways until the final week of February and then fell before recovering some ground on the last day of the month. US shares also advanced, initially, and the S&P 500 Index hit a record high on February 19th. However, indices then turned down and posted losses for the month. In contrast, European shares rose briskly in February. A key theme for Canadian investors remained uncertainty about US tariffs. On February 1st US tariffs on Canada and Mexico were announced to take effect February 4th and Canada announced countermeasures the same day, also to be effective the 4th. But on February 3d the US postponed any action until March 4th. Then on February 10th the US said tariffs of 25% would be applied on March 12th to steel and aluminum imports. On February 13th the US announced that a study due by April 1st will examine applying tariffs on all countries who impose tariffs on imported US goods. The S&P/TSX Composite Index ended the month down 0.40%, the S&P 500 Index fell 1.34%, the Nasdaq Index fell 3.91%, the MSCI World Index fell 0.96% and the MSCI EAFE Index up 0.95%. The FTSE Canada Universe Bond Index rose 1.10%.

Monthly market developments

• According to Statistics Canada the economy added 76,000 jobs in January on the heels of December’s unexpectedly strong gain of 91,000 jobs. The unemployment rate dipped slightly to 6.6%, down from 6.7% in December and 6.9% in November.
• Inflation was 1.9% in January, on an annualized basis, up slightly from 1.8% in December, the benefits of the GST/HST tax holiday being offset by higher fuel costs. Excluding the tax break, headline inflation rose 2.6%, annualized, from 2.3% in December. The January data lowered rate cut expectations for the Bank of Canada’s March 12 meeting.
• December retail sales were unexpectedly robust, climbing 2.5%, month over month, the largest increase since January 2022. However, sales activity, like the inflation reading, probably benefited from the GST/HST holiday.
• Existing homes sales in Canada for January fell 3.3% on a month-over-month basis.
• February ended with a surprisingly high Statistics Canada Q4 2024 GDP report of 2.6% growth, quarter over quarter, annualized, well above expectations. Consumer spending was robust. GDP growth for December was 0.2% and preliminary data for January suggested a 0.3% monthly gain, a healthy start to Q1 2025. GDP growth for all of 2024 was 1.5%.
• In the US, the labour market remained strong in January with the unemployment rate dropping by 0.1 percentage points to 4.0% as the economy added 143,000 jobs.
• January’s ISM manufacturing index revealed increased orders and production in the US. The ISM services index also continued to signal growth, but at a slower pace than in December.
• The January US consumer price index (CPI) rose 3% percent, more than expected, from a year earlier as food and energy prices picked up. This was up from 2.9% in December. Inflation ex volatile food and energy prices rose 0.4% from December and 3.3% over the year. The monthly core increase was the highest since April 2023 and dampened 2025 rate cut outlooks. Stocks fell and bond yields rose on the news.
• US retail sales fell 0.9% in January, month over month, after four months of rising data, although unusual factors, including weather and seasonal, could have been factors.
• Q4 2024 GDP expanded 2.3%, down from 3.1% growth in Q3 2024. The US economy grew 2.8% in 2024, compared with 2.9% in 2023.
• Q4 2024 corporate profits continued to be reported in February. By month end 77% of S&P 500 companies reporting posted better earnings per share than had been estimated, equal to the 5-year average. “Tariffs” was mentioned at least once in earnings calls of 221 S&P 500 companies between December 15^th and February 21^st.
• The US stock selloff that began in the final week of the month was prompted in part by several pessimistic business and consumer sentiment surveys which highlighted uncertainty around the possible impact of tariffs, including higher inflation.
• The yield on the benchmark 10-year US Treasury note fell in February from 4.54% to 4.22%, off from a YTD high of 4.79% in mid-January. Bond yields fall as bond prices rise.
• Eurozone inflation inched up in January to 2.5%, year over year, from 2.4% in December, driven by higher energy prices. However, core inflation held steady at 2.7% with services inflation moderating in the month.
• Inflation in England accelerated to 3%, year over year, in January, the fastest rate in 10 months, driven in part by rising food prices.
• The UK economy unexpectedly grew slightly in Q4 following a boost to the construction and services sectors.
• The Bank of England lowered its key policy rate by 25 bps to 4.5% during the month.
• In China, S&P Global’s Caixin manufacturing PMI fell to 50.1 in January, with a sharp decline in the employment subindex. Continued weakness in the price subindex suggests ongoing deflationary pressures on the economy. The Shanghai Composite Index gained ground in February.
• The Reserve Bank of Australia (RBA) trimmed its policy rate by 25 basis points to 4.1%, acknowledging progress on inflation but remaining cautious about further easing. Headline CPI inflation decelerated to 2.5%, year over year, in January.
• Japan’s Tokyo CPI inflation data for February came in lower then expected after accelerating in January. Despite the softer data, underlying price momentum remained firm.

How does this affect my investments?

The application of US tariffs and Canadian countermeasures in March could pull the Canadian dollar down further and spark some volatility as investors weigh the broader economic fallout. Employment and growth data released in February suggested that the Bank of Canada’s (BoC) series of rate cuts in 2024 are having positive effects. But further cuts in 2025, as the BoC stated in December, will be dependent on the scale and duration of US tariffs. US investors will also be digesting the implications of tariffs on Mexico and China (and any countermeasures) and the S&P 500 Index has already given back the gains recorded since Trump’s election. Caution may continue to prevail in the face of softening business and consumer sentiment, expectations of fewer interest rate cuts, US government spending cuts, tariffs, and geopolitics. Finally, Canada will have a new Liberal prime minister on March 9th. Any impact of that development on the direction of Canada/US negotiations remains to be seen. In this environment portfolio diversification matching your personal risk tolerance and time horizon remains important.

We Can Help

We’re happy to meet with you and ensure you’re prepared for any upcoming changes. We work with business professionals, executives, and families to grow and protect their wealth using our Wealth Plan formula. To discuss our approach and if it is the right fit for you, we invite you to schedule a no-obligation discovery consultation.

Disclaimers

The information in this letter is derived from various sources, including New York Times, BNNBloomberg, Wall Street Journal, FactSet Insight, Global and Mail, and Statistics Canada as at various dates. This material is provided for general information and is subject to change without notice. Every effort has been made to compile this material from reliable sources and reasonable steps have been taken to ensure their accuracy. Market conditions may change which may impact the information contained in this document. Before acting on any of the above, please contact me for individual financial advice based on your personal circumstances. Certain statements contained in this communication are based in whole or in part on information provided by third parties and CI Global Asset Management has taken reasonable steps to ensure their accuracy. Market conditions may change which may impact the information contained in this document. Assante Capital Management Ltd. is a Member of the Canadian Investor Protection Fund and Canadian Investment Regulatory Organization.