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Bill Harris, CFA A Comment -- General Comments From an Expert A Commentary COMMENT Jul 10, 2025
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Premium contentWorking out better than expected. But it'll be a bit of a tough road as time goes on. A lot of what Canada does and sells is under pressure and likely to remain that way for some time.
Tomorrow's the deadline, and he doesn't think we'll have a new deal. Get used to it ;) Trump seems adamant that there will be no extension, and he seems to be taking a pretty tough stand on Canada.
Definitely uncertainty out there, which is surprising when you see that markets are at all-time highs in both Canada and the US.
But he looks at the market long distance from an options perspective. So he likes the uncertainty, as it keeps both options prices and implied volatility higher.
He couldn't tell you. His firm has maintained pretty cautious optimism. Businesses have to adapt to whatever the market throws at them. Investors have been more optimistic than he would have thought.
He's out there still trying to find value and maintain the positions that haven't gotten too extended.
He is a bit surprised by the rates of 15% on average across the board, as they're a lot lower than what first came out on "liberation day" April 2. And the markets are acting accordingly. Markets have done quite well over the last couple of weeks, but tariffs have brought it back down a bit. Could be a buying opportunity.
For those more sanctioned nations, they're seeing 35-40%. Canada is a big surprise with the rate going higher. Surprised we haven't been able to hash out a deal. We should really get rid of the slogan "Elbows up" and just get back to the negotiating table. It's worked well for the EU, Japan, and the UK, and we can live with 10-15%.
The rise to 35% isn't going to bode too well for Canadian equities. Trump continues to say that the issue is fentanyl at the border, but there's also the matter of Canada recognizing the Palestinian state. No tariffs were announced on China or Mexico because they're still negotiating. How could we not have achieved the same level of consideration? Suspects there are more issues underlying the US-Canada relationship than we're aware of.
Talking to colleagues around the office, it's a buying opportunity. The market's done so well since we got over the hump of "liberation day". Now you're seeing it pull back 1-2%.
Tariffs are being announced across the globe, and it's good to get a settlement and finalization of the numbers. As long as you have a number, then you can work around that.
There are 4 main asset class categories: cash, fixed income or bonds, equities/stocks, and alternatives. Knowing how much to put in each one for your investment portfolio means that you've achieved your target asset allocation.
If your investments are for the long term and you have regular income, you can continue paying down any debt and potentially take on a bit more risk. So you want a bit more in the equities and alternatives portion of your portfolio. But to understand how much to allocate among the 4 classes, you need a good understanding of your risk profile.
One risk factor his firm tends to focus on is maximum loss. In the 2008 financial crisis, markets dropped 50% in 6 months. How would you react if your portfolio did that? Or 25%, or 20%? At what point can you not take it anymore and want to sell everything? You never want to reach that point.
A low-risk investor is one who can stomach only a 10-15% drawdown. A moderate investor can handle 20%.
If you're retiring in a couple of years, it depends on whether you need your portfolio to drive your income. If so, you probably want to be in the moderate range. If you have enough assets built up and there are more for the next generation, then you can have more in equities and alternatives giving you more of a growth profile.
If you're a newbie investor, what's key are investment knowledge and experience. He'd recommend a more aggressive portfolio because you have the time to ride the ups and downs. Make sure you partner up with an investment advisor who can explain the risks, someone who can "hold your hand" when markets do what they're doing today to make sure you don't sell out too early. You need to stay for the long run to see your investments through.
Many people think that the younger you are, the more risk you should take on. But it depends on the size of your investment portfolio. Very wealthy people can take on a bit more risk because they want to grow their investments over a very long time horizon. It always depends on the time horizon and what the goal is for your money. If it's to sustain your lifestyle, and you're close to retirement, perhaps a more balanced and conservative approach is best. But if there's more money than you need, then you can consider more growth so your investments keep growing down the road.
Again, his team is advising on asset allocation. A properly defined portfolio lets an investor ride the ups and downs. When a new client comes in, they don't put all the money to work at once. Stage it out over the next several months, taking advantage of buying opportunities as we're seeing today.
Investing 101: The Impacts of Inflation
Starting with cash, which in a savings or GIC accounts, can be termed as short-term interest-bearing instruments. As short-term interest rates adjust with expected inflation, such securities can earn a floating real rate. Such-term interest-bearing instruments are considered zero-duration and inflation-protected assets, and therefore are attractive in a rising rate environment.
Moving on to bonds; rising inflation leads to capital losses as bond prices decline. If inflation remains within an expected range, short-term yields rise/fall more than longer-term yields. However, if inflation moves out of the expected range, longer-term yields rise/fall more sharply. The inflation jump recently seen was out of the expected range, but expectations have adjusted quickly.
Coming to our favorite asset class, equities; if inflation stays within the expected cyclical range, there is little effect on stocks as the market prices in expectations fairly quickly and companies can raise prices in-line with inflation to some degree. Unexpectedly high inflation might make central banks take action to slow down the economy by raising interest rates, which is what affects valuations of high-growth and highly leveraged companies. High inflation benefits those companies that can pass on inflation, which generally tend to be of consumer staples, financial and industrial sectors.
Lastly, for real estate assets, if inflation stays within an expected range, rental income and property values rise with inflation. On a positive note, higher than expected inflation leads to high demand for real estate, and vice versa when deflation occurs (opposite of inflation).
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There are all sorts of strategies in the stock market, including being a moth that just wants to go to the flame. His firm's strategy is to not be the bullseye. Their idea is to find a great business that everyone's ignoring, and so to find things that are not going to be affected by tariffs. Focusing on the tariffs themselves is just too hard to figure out.
When Trump was elected in November he was already talking about tariffs, so they went through all their companies to see how they'd be affected by tariffs. So far, the one impacted the most is CP Rail. They own it for the long term, can't be replicated, monopoly. It has been hit, but has moved mostly sideways. Looking at the stock action over the last couple of days, it looks as though tariffs are all priced in and the market's looking through that.
A lot of things aren't affected by tariffs. The overall economy might get softer and it looks as though it is, and the consumer might be affected. Will auto manufacturers be affected? Yes, 100%. But they don't affect the earnings from MSFT. In Canada, earnings for a BN would be affected by interest rates and the 10-year bond yield. And the budget is way more important to the 10-year bond yield and how that affects the stock market. Those things are more important than tariffs.
That's why the market has digested tariffs so quickly. They have a specific impact on this little part of the stock market, but not the big picture.