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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.

The month of May witnessed yet another recalibration of market participants’ expectations in a year where frequently changing narratives have dominated the price action thus far. Stripping away the impact of mega-caps in the S&P 500 Index, where the frenzy for artificial intelligence has pushed valuations to dizzying heights, the broader US equity market is in fact in red during the first five months of 2023 (See Figure 1). In our view, the year-to-date price action of the broader market reflects abundance of caution, given frequent and abrupt shifting of expectations around inflation and central banks’ interest rate policy. Figure 1: Broader US equity market has traded cautiously. Since the hint of a pause by the US Fed chairman last month, the US Personal Consumption Expenditure Core Price Index (PCE), the Fed's preferred measure of inflation, came in at +4.7%, ahead of expected and last months reading of +4.6%. Earlier, the headline inflation in Canada came in at +4.4%, much ahead of expected +4.1% and last month’s reading of +4.3%. The readings for the ISM Manufacturing and Services PMI (Purchasing Managers’ Index), leading indicators of future manufacturing and services sector activity, also advanced from previous months and unemployment in the US dropped to +3.4% for April (reported in May). In Canada, higher-than-expected inflation and stronger-than-expected GDP growth also brought back expectations of rate hikes restarting. These macroeconomic datapoints have corroborated to suggest that the economy is chugging along just fine and perhaps expectations of a rate pause and/or a cut are premature. The economic data supporting a hawkish stance of central banks and escalating risk of a US default as the debate around raising the US debt ceiling approached deadline amidst political brinkmanship, had created a perfect storm for the broader markets in May. The past few days brought respite to the wary markets after comments from a few Fed officials indicated that the Fed might be willing to pause the interest rate hikes and wait and watch the macroeconomic data evolve for some time. This was upended by the Bank of Canada, which raised policy rates by 25 basis points to +4.75% citing persistent excess demand in economy. Nevertheless, we note that ISM Manufacturing and Services PMI data for May (reported early June) showed signs of cooling off, and US unemployment rose to +3.7%. As per CME Group’s data, the target rate probability for a 25 basis-point hike during the June Federal Open Market Committee meeting increased from +8.5% as on May 5th to +64.3% as on May 26th and had dropped to +25.3% as on June 2nd. More importantly, the probability of no rate cut by the end of the year increased from +0.1% as on May 5th to +36.1% as on June 2nd, indicating market participants are warming up to the message that the expectations of rate cuts during this year are unwarranted as inflation remains too high and the economy is resilient enough to withstand the rate hikes. The price action during the last month validates our stance that near-term caution is warranted, given choppiness of the incoming economic data put together with differences in central banks’ outlook and baked-in expectations of equity and debt market participants. In our view, diminishing friction between market participants’ expectations of rate cuts and central banks’ guidance is a constructive set up for risk assets. We think the broader markets could start to climb the wall of worry during the second half of the year if central banks display restraint while inflation cools off in fits and starts and the economy keeps chugging along.

By Cyndy Batchelor, FMA, BCom Financial Advisor, O’Farrell Wealth & Estate Planning | Assante Capital Management Ltd. ETFs (exchange-traded funds) are a popular investment option among investors seeking portfolio diversification. In this article, we'll break down what ETFs are, their advantages and disadvantages, and how to get started with them. What are ETFs? ETFs are investment funds traded on stock exchanges, just like stocks. They typically hold a basket of assets, such as stocks, bonds, or commodities, and aim to track the performance of a specific market index or benchmark. A variety of ETFs are available, from broad-based index funds to sector-specific funds. Advantages of ETFs ETFs have a low cost. Unlike traditional mutual funds, ETFs typically have lower expense ratios, which means investors can keep more of their investment returns. Additionally, ETFs provide diversification, allowing investors to easily invest in a variety of assets with just one fund. Similar to stocks, they can also be traded throughout the day, allowing investors to buy and sell shares as they see fit. Disadvantages of ETFs One potential disadvantage of ETFs is that they can be complex. Some ETFs may invest in complex financial instruments, which beginners and casual investors may struggle to understand. Additionally, while ETFs are typically low-cost, some specialty ETFs can have higher expense ratios, which can eat into returns. How to Get Started with ETFs To get started with ETFs, you'll need an investment account and an understanding of your investment goals and risk tolerance. As soon as your account is set up, you should evaluate your wealth plan. We highly recommend contacting a financial planner to help you decide which ETFs are right to include in your portfolio. Before investing in ETFs, it's important to do your research and understand the risks and benefits. Consider your investment goals and risk tolerance and talk to a financial advisor if you have questions or concerns. In conclusion, ETFs provide low-cost diversification, ease of trading, and flexibility, making them an ideal option for casual and experienced investors alike. With research and a solid investment strategy, you can use ETFs to achieve your wealth goals. Cyndy 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.

By Andrew Goetz Financial Advisor, O’Farrell Wealth & Estate Planning | Assante Capital Management Ltd. As we’ve discussed in a prior article (See Tax-free First Time Home Savings Account), the Canadian Government has created an innovative way to save money for first time home buyers. It's called the First Home Savings Account (FHSA) and you are eligible if: - You are between 18 and 71 years of age - Are a current tax resident of Canada - Have not lived in a home you or your partner have owned for the past 4 calendar years - The objective for opening the account must be to save for a qualifying home in Canada Individuals can contribute to these accounts to the tune of $8,000 dollars per year and $40,000 over a lifetime. FHSA can be a huge advantage for the average person looking to buy a home. This fund sees “the best of both worlds” meaning that contributions to the FHSA are deductible from your yearly income tax and investment growth within the account is also tax free. How does this compare to TFSAs and RRSPs? Well, it's pretty interesting. Wealth inside your TFSA grows tax free to a maximum contribution of $88,000 lifetime (as of 2023). The problem is you cannot deduct TFSA contributions from your income tax. From an RRSP perspective, any contributions up to your personal yearly limit can be deducted from your income tax. However, any growth inside the account will be taxed upon withdrawal. That’s where we get the idea of the newly introduced FHSA being the ideal combination of both worlds. It combines the benefits of a TFSA and an RRSP into one account. Of course, a tool this powerful has drawbacks— the contribution stipulations and limits discussed earlier in the article. So, the question is, where does one put their money? These three accounts are designed to work together to provide you with more contribution room, more tax savings, and more opportunities for investment growth. However, the answer is that each person's situation needs to be assessed accordingly. Are you planning to buy your first home or haven’t owned one in 4 years? You’ll want to reap the benefits of the FHSA. Unfortunately, if you already own a home, you won't be eligible for the FHSA. In that case, an investment strategy that fits your income, risk tolerance, and time frame should be implemented in your RRSP and TFSA accounts. Investing in a home is one of the biggest financial decisions you'll ever make. With so many options available, it can be overwhelming to figure out which path is right for you. That's why it's important to work with a financial advisor who can help you navigate the complex world of home buying and investing. They can help you decide which options are right for your unique financial situation and long-term wealth goals. We welcome questions so please reach out! See our ad in this week’s North Dundas Times and follow us on Facebook @OFarrellWealth. 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 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.

During April, the North American Capital markets traded back and forth between investor optimism and concerns. With one eye on the US Federal Open Market Committee (FOMC) decision after their meeting on May 3, the developments during the month and their read through on the potential future trajectory of policy rates dictated the price action. A decline in headline inflation from +6.0% in February (reported in March) to +5.0% in March (reported in April) in the US and from +5.2% in February (reported in March) to +4.3% in March (reported in April) in Canada helped investor sentiment. The markets later pulled back with more regional bank failures in the US increasing investor concerns of a potential contagion, only to be helped again by the better-than expected reported earnings by a few mega-caps in the index. Overall, the price action during the last week of the month helped equity markets end in green. On May 3rd, the US Federal Reserve Chair, Jerome Powell, announced a 25 basis-points policy rate hike, in line with market expectations but stopped short of explicitly announcing a pause to the policy rates hikes. Nevertheless, the use of language such as “close to a pause or maybe even there” and “possibly at sufficiently restrictive levels” led industry participants to believe that a pause might be announced as soon as the next meeting in June. While this was in line with the market expectations, we think equity markets reacted poorly as on the balance the message was perceived as hawkish. The US Federal Reserve Chairman re-emphasized that the committee is sticking to the goal of bringing inflation back to 2% and rebutted any expectations of a rate cut during the year. The message is at odds with fixed-income market expectations that are baking in ~59.8% probability (as on May 4th) of an interest rate cut as soon as during July meeting (Source: CME Group). The news flow of regional banks failures in the US has continued unabated and added to investor angst over the past few weeks. The Fed chair stated that the overall financial system is sound and the recent regional bank problems are supportive of the Fed’s objective of bringing down inflation by further tightening financial conditions. In other words, the central bank is prepared to let markets endure some pain while it awaits inflation to get close to the 2% goal before it even considers a rate cut. Reduction in availability of credit, leads to destruction of demand and thus helps bring back the demand-supply imbalance. The risk in this approach is that the tightening could worsen to the level of a credit crunch which would lead to a severe recession. Thus far, markets have traded consistent with the expectations of a mild recession or a soft landing. The Fed chair further pointed out that inflation as measured by the ‘core services ex-housing’ is still too high and the committee would like to see it receding before even considering a rate cut. The bad news is that the measure typically declines during a recession (See Figure 1) and the good news is that with interest rates now at 5.25%, the Fed has ammunition to help the economy should a recession ensue in the quest to bring this inflation measure down. Figure 1: Inflation typically declines during a recession Overall, we think the reduction of the gap between market expectations and the Fed’s guidance is fraught with more bank failures and crisis scares in the short-term. While peak policy rates do make a case for adding some risk to the portfolios, an overall defensive position makes sense to navigate through the near-term volatility at this stage of the cycle, in our view.