Summary of the Investment Committee – December 5, 2024
We are pleased to share a detailed analysis of the conclusions from our recent Investment Committee. This report highlights economic forecasts for the United States and Canada, as well as strategic adjustments designed to align your portfolios with emerging opportunities and risks.
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1. U.S. Economic Outlook: Moderate and Structured Recovery
The United States continues to demonstrate resilience in a global context marked by uncertainty.
• GDP Growth: Projections for 2025–2026 indicate annual growth of 1.5% to 1.9%. This moderate progression reflects a successful “soft landing,” where the economy avoided a major contraction despite interest rate hikes.
• Household Consumption: Consumer spending, a key driver of the U.S. economy, is steadily increasing at a rate of 1.5% to 2% per year, showcasing household resilience despite higher borrowing costs.
• Industrial Production: After a slowdown in 2023–2024, industrial production is gradually recovering. PMI indicators confirm a positive trajectory, supporting solid contributions to GDP.
• Controlled Inflation: CPI continues its decline toward the Fed’s 2% target. However, slight inflationary pressures may resurface in 2026 due to rising energy prices. This dynamic remains contained and aligns with market expectations.
• Unemployment Rate: Stabilized around 4.15% to 4.22%, the unemployment rate indicates an economy near full employment, limiting risks of social or macroeconomic degradation.
• Monetary Policy: Rate cuts of 1.25% to 1.5% are expected over the coming year, in increments of 25 basis points per quarter. This should stimulate mortgage credit and private investment.
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2. Canadian Economic Outlook: More Fragile Growth
Canada’s economy proves more vulnerable, though targeted opportunities remain.
• GDP Growth: Anticipated growth for 2025 is modest at approximately 2%. Household consumption, hindered by higher taxes and elevated debt levels, contributes to this limited dynamic.
• Labour Market: With unemployment stable at 6.4%-6.5%, Canada shows less flexibility and greater exposure to labour market disruptions.
• Monetary Policy: Like the U.S., quarterly rate cuts of 25 basis points are expected. These reductions should support the real estate market, though mortgage default risks persist.
• Inflation: Short-term CPI acceleration is possible, driven by rising energy prices and weak domestic demand.
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3. PRM 101 Portfolio: Equities
This growth-focused portfolio requires adjustments to better diversify performance sources.
• Technology Overweight: Currently allocated at 40–50%, we recommend gradually reducing this exposure to bolster sectors such as healthcare and financial services, which offer stable growth and lower volatility.
• Geographic Diversification: With an international weighting of just 5%, increasing this to 10% is advised. This would capture opportunities in emerging and European markets while reducing concentration risk in the U.S.
• Value Traps: Heightened vigilance is necessary to avoid “value traps”—high-dividend stocks with limited growth prospects. Active selection remains crucial in this context.
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4. PRM 201 Portfolio: Fixed Income
Focused on a fixed-income strategy, PRM 201 provides a strong foundation, but strategic adjustments can optimize its risk-return profile.
• Addition of U.S. Treasury Bonds: A 5% to 8% allocation to long-term government bonds is recommended. These highly rate-sensitive securities will offer valuable hedging against increased market volatility.
• Duration Optimization: With an average duration of 8.07 years and a yield of 5.44%, the portfolio is well positioned to benefit from rate cuts. Further diversification into international bonds could enhance resilience.
• Sectoral Allocation: While current exposure to federal, provincial, and corporate bonds is balanced, introducing specialized ETFs could target geographic regions offering better yield prospects.
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5. Recommendations and Follow-Up
To maximize performance while managing risks, we propose the following actions:
1. Sectoral and Geographic Diversification: Increase exposure to defensive sectors and international markets to reduce systemic risks.
2. Active Risk Management: Closely monitor macroeconomic indicators and adjust positions swiftly in response to fundamental changes.
3. Strategic Bond Allocation: Incorporate long-term U.S. Treasury bonds to strengthen hedging against rate cuts and volatility.
4. Portfolio Optimization: Reduce technology concentration while identifying opportunities in underrepresented sectors such as healthcare.
5. Monitoring Key Economic Data: Track inflation trends, unemployment rates, and rate cuts to adjust allocation strategies.
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We are confident these strategic directions will align your portfolios with a rapidly evolving economic environment. Please do not hesitate to reach out for a deeper analysis or tailored solutions to meet your specific needs.
Thank you for your trust, and we remain at your disposal for any questions.
Sincerely,
Philippe Pratte and the Asset Management Team
