A Letter from the President: Life, Liberty and the Pursuit of Happiness
Charles Thompson (1729 – 1824)1
During the holidays, my Irish-born father proudly told me that in 1729, Charles Thompson was born in his family’s home in the town of Maghera, Northern Ireland.2 Charles Thompson is famous for having been the person who hand wrote the Declaration of Independence of the United States of America and is one of only two people to sign it – the other was John Hancock! Thompson moved to America as a 10-year-old.
Thompson’s birthplace was of particular interest to me as I happened to be reading a series of lectures by Oxford Professor Daniel N. Robinson about the founding of America. Robinson highlighted the Scots-Irish influence on the ideals of the new country. After centuries of British control in their homelands, the Scots-Irish had developed a strong belief in the need for life, liberty and the pursuit of happiness, and they made sure this was foundational in the birth of America.3 Robinson put it this way:
“Never before had a new government been brought into being by a document declaring that the very ends and purposes of government are the life, liberty and happiness of those governed.”4
His lecture emphasized three basic ideas: (1) God made all men equal and gave them the rights of life, liberty, and the pursuit of happiness; (2) the main business of government is to protect these rights; (3) if a government tries to withhold these rights, the people are free to revolt and to set up a new government.5
Source: Beineke Rare Book & Manuscript Library, Original Author: #N/A, Created: July 4, 1776.
I raise this issue not to promote my history as the son of Scots-Irish immigrants, but to highlight a crucial ingredient in American society that I think helps explains Trump’s victory, and perhaps the strong US economy. Most Americans believe in the power of the individuals versus the power of the state, and I would argue that this belief caused enough of them to vote for the man who, while convicted of multiple felonies, said he would limit the power of the state and “drain the swamp”. Trump won both the popular and electoral college votes.
American Exceptionalism
I think there is also an argument that these same factors, sometimes called American Exceptionalism, continue to drive the US economy. In his shareholder letter in 2015, Warren Buffet said: “For 240 years it’s been a terrible mistake to bet against America, and now is no time to start. America’s golden goose of commerce and innovation will continue to lay more and larger eggs.”
In 2024, and in fact for the last 200 years, the US economy has mostly been the center of the world for innovation and entrepreneurial spirit. Most recently it has been the focal point of some of the latest greatest technology innovations, such as the advent of Artificial Intelligence (AI).
Top 10 countries with the most AI investment (2019 – 2023, total for 5 years, in millions of US $):
| United States | $328,548 |
| China | $132,665 |
| United Kingdom | $25,541 |
| India | $16,147 |
| Germany | $14,300 |
| Canada | $12,457 |
| South Korea | $10,348 |
| France | $10,185 |
| Sweden | $8,281 |
| Singapore | $7,005 |
Source: https://ifamagazine.com/ai-investment-race-discover-which-countries-are-dominating-the-future-of-technology
In January last year we wrote: “Despite the challenges of the past 18 months, the economy has successfully avoided a recession. Looking ahead to 2024, many economists now project that instead of a full-blown recession, there is a likelihood of experiencing a period of economic slowdown”. In fact, the US economy just kept growing. Wall Street predicted the S&P 500 would be between 4,200 and 5,100 by the end of 2024, but it ended the year at 5,881!
Wall Street Predictions for the S&P 500 by December 31, 2024:
| JP Morgan Chase | 4,200 |
| Morgan Stanley | 4,200 |
| Wells Fargo Securities | 4,625 |
| Jeffries | 4,700 |
| UBS Global Wealth | 4,700 |
| RBS Capital Markets | 5,000 |
| Bank of America | 5,000 |
| Citigroup | 5,100 |
| Deutsche Bank | 5,100 |
| Goldman Sachs | 5,100 |
Source: Company reports 2024, FactSet, by New York Times
The S&P 500 has had back-to-back years growing over 20%. As we’ve talked about before, much of the gains in the S&P 500 over the last two years have been concentrated in the “Magnificent Seven” – Apple, Alphabet, Amazon, Microsoft, Meta, Nvidia, and Tesla. Apple and Nvidia are now valued at about $3.5 trillion each! The top 10 names by market capitalization (seven companies above plus Broadcom, Berkshire Hathaway and Walmart) now make up 39% of the market value of the S&P 500, and the US stock markets now represent more than 60% of the world equity market (see chart).
But here is something to note. The S&P 500 is up 24.01% in 2024, but the equal-weight index is up only 10.93%. What this means is that much of this growth can be attributed to these big companies. Some analysts are certainly concerned that equity values are too high, but there is also a view that AI has driven the “Big Cap” end of the market, and the Big Cap companies (the top 39%) may be facing more modest gains going forward. Many of the other 490 companies are more reasonably valued. Their values can grow based on growth of earnings if the US economy continues to grow.
Wall Street is projecting continued growth, with S&P 500 reaching 6,400 to 7,000 by year end.
Wall Street Predictions for the S&P 500 by December 31, 2025:
| JP Morgan Chase | 6,500 |
| Morgan Stanley | 6,500 |
| Wells Fargo Securities | 6,500-6,700 |
| UBS Global Wealth | 6,400 |
| RBS Capital Markets | 6,600 |
| Bank of America | 6,666 |
| Citigroup | 6,500 |
| Deutsche Bank | 7,000 |
| Goldman Sachs | 6,500 |
Company reports 2024, FactSet, by New York Times
No matter how we feel about US politics, a prudent investor would be ill advised to forgo the US opportunities. However, the prudent investor would also be ill advised not to be diversified and have exposure to Canadian equity and defensive strategies such as bonds and hedged alternative strategies.
ZLC Wealth Portfolios
Our investment strategies are rooted in our core values of diversification. From our “Conservative” to our “Maximum Growth” mandates, we have consistently outpaced our benchmarks underscoring the strength of our approach.
We prioritize alternative strategies that have low correlations to the overall markets, an approach that enhances diversification, ensuring all-weather performance. Alternative strategies align with institutional trends, an approach used by the Canada Pension Plan, and underscores our commitment to a pension-style management process, a fundamental pillar of our success.
While we evaluate manager performance, our lens remains broad, always prioritizing the future growth of our portfolios. A hallmark virtue is our independence and our ability to select managers from entire universe of investments. Independence is foundational to our commitment to delivering optimal outcomes for those who entrust us with their financial well-being.
Q4 2024 MARKET REVIEW
Below is a review of the market trends in the fourth quarter prepared by Yin Chan, CFA, our Investment Analyst.
The final quarter of 2024 revealed significant trends that defined the economic and financial landscape. The Bank of Canada concluded the year with a 0.5% rate cut.6 This decision reflects ongoing challenges, including an economy operating below its potential. National Bank economists emphasized the BoC’s commitment to “absorbing unused capacity,” necessitating a gradual path toward normalization.
Source: https://www.bankofcanada.ca/core-functions/monetary-policy/key-interest-rate/
Equity markets demonstrated resilience during this period, with strong gains across the NASDAQ, S&P 500, and TSX.7 Investor optimism, supported by robust corporate earnings, prevailed despite geopolitical uncertainties and lingering inflationary concerns. This resilience highlights the importance of focusing on sectors with sustainable earnings growth, such as technology and healthcare. At the same time, diversifying across geographies can help mitigate risks associated with geopolitical disruptions.
Source: https://ca.finance.yahoo.com/news/us-markets-to-lead-the-way-in-2025-but-canadian-stocks-will-do-just-fine-mackenzie-investments-173131002.html
As we move into 2025, the market outlook reflects both challenges and opportunities. Global economic growth is expected to remain robust, albeit unevenly distributed. U.S. equities are anticipated to outperform global stocks, supported by strong consumer spending and fiscal stimulus. According to Mackenzie Investments’ market outlook, while Canadian stocks face headwinds from domestic economic concerns, they are still positioned for positive performance, benefiting from rising domestic demand and improving corporate earnings prospects.
Monetary policy will likely play a pivotal role in shaping market dynamics. While rate cuts by the Bank of Canada are anticipated to provide some relief, the trajectory remains cautious. The potential for a second wave of inflation or labor market tightening could disrupt the easing cycle, necessitating heightened vigilance.
Goldman Sachs Research forecasts another solid year of global economic growth in 2025, with worldwide GDP expected to expand by 2.7%, matching the estimated growth in 2024 and slightly above consensus forecasts.8 The U.S. economy is projected to lead the way, with GDP growth of 2.5%, well ahead of the consensus estimate of 1.9%. Canada is projected to experience a promising year with GDP growth estimated at 1.9%, reflecting a steady improvement in economic activity. According to Goldman Sachs’ Chief Economist Jan Hatzius, global labor markets have rebalanced, inflation is trending down, and central banks are cutting interest rates toward more normal levels. However, risks remain, particularly with the policies anticipated under U.S. President Donald Trump, including higher tariffs, reduced immigration, fresh tax cuts, and regulatory easing. While these policies could stimulate certain sectors, a large tariff poses a significant risk to global growth.
Source: https://www.goldmansachs.com/insights/articles/the-global-economy-is-forecast-to-grow-solidly-in-2025
In addition, Canada is set to host a federal election in 2025, further shaping its economic and political trajectory. Prime Minister Justin Trudeau’s recent announcement of his resignation introduces additional uncertainty, the urgency for a swift transition is apparent. The new leader will need to navigate critical trade negotiations with the Trump administration while addressing pressing domestic policy issues.
Additionally, political dynamics indicate shifting voter sentiment. Current polls suggest the opposition Conservative Party is extending its lead, with the Liberal Party potentially falling behind the NDP.9 A majority Conservative government appears likely, barring significant changes in public opinion. The prorogation of Parliament until March 24 adds complexity, as legislative progress will stall until its resumption, potentially affecting fiscal and economic planning. Investors should remain vigilant, as political shifts could influence market confidence and sector performance.
Source: https:/www.rbcgam.com/en/ca/article/macromemo-jan-7-27-2025/detail
Navigating the complexities of 2025 calls for a diversified and adaptable investment approach. Geopolitical developments will play a pivotal role in shaping market trajectories. Investors must remain agile, ready to adjust strategies as trade policies and geopolitical tensions evolve. Diversifying across geographies and asset classes can reduce risks associated with regional conflicts or policy shifts.
Overall, the economic landscape underscores the importance of focusing on quality assets and maintaining a global perspective to capture growth while mitigating regional risks. By staying informed and proactive, portfolios can be positioned to navigate uncertainty and capitalize on emerging opportunities.
Some Tax & Admin Updates
2024 RRSP
Don’t pay more tax than you need to! Your 2024 RRSP contributions are due by March 3, 2025. Subject to being limited to 18% of your 2023 “earned income”, the annual limit for 2024 is $31,560.
TFSA Contributions
The Tax-Free Savings Account (TFSA) annual contribution limit for 2025 is $7,000. This means your lifetime contribution room is now at $102,000 (subject to age and residency conditions). Your available confirmation room can be determined by using the “My Account” feature on the CRA website.
A TFSA is a “must have” for investors and we can help!
Designating a Trusted Contact Person (TCP)
The designation of a Trusted Contact Person is a prudent step for any client with any type of investment account and is particularly recommended for those over 65. We operate as discretionary portfolio managers empowered to make specific investment decisions on your behalf but, of course, there are instances where direct contact with you is required. If for some reason we can’t reach you, a TCP solves the problem.
A TCP is not a power of attorney, legal guardian, trustee or executor and cannot request trades, deposits or withdrawals, or information about your account (balance, contributions, returns, etc.).
Speak with us today about designating a TCP.
Piersight
If you haven’t signed up for Piersight now’s the time. Piersight is our online client portal that lets you access your account holdings and quarterly statements at any time.
Piersight uses 2-Factor Authentication for logon so you will need to download the Google or Microsoft Authenticator Apps on your phone.
If you would like assistance, or if you have any other questions or comments, please contact us at wealthinfo@zlc.net and we will be happy to help.
It is our privilege to be your Investment Managers!
– The ZLC Wealth Team
From Left to Right:
- Yin Chan, CFA, Investment Analyst
- Vilayphone (Violet) Smith, CPA, CGA, CFP, CLU, CHS, TEP, FEA, Associate, Integrated Financial Planning
- Mark van Koll CPA, CGA, FCSI, CAMS, Chief Compliance Officer
- Grace Domingo, Vice President Administration
- Jon McKinney CPA, CA, CIM®, President & Portfolio Manager
- Garry Zlotnik FCPA, FCA, CFP, CLU, ChFC, Chief Executive Officer & Portfolio Manager
- Tom Suggitt CFA, CIPM, CFP, FCSI, Vice President, Portfolio Manager & Head of Investment Oversight Committee
- Lisa Der, Senior Account Manager
- Michelle Richier CPA, CA, Chief Financial Officer
Disclaimer:
This newsletter is solely the work of the author for the purpose to provide information only. Although the author is a registered Investment as a Portfolio Manager at ZLC Wealth Inc. (ZLCWI), this is not an official publication of ZLCWI. The views (including any recommendations) expressed in this newsletter are those of the author alone, and are not necessarily those of ZLC Wealth Inc. The information contained in this newsletter is drawn from sources believed to be reliable, but the accuracy and completeness of the information is not guaranteed, nor in providing it does the author or ZLCWI assume any liability. This information is not to be construed as investment advice. Your own circumstances have been considered properly and that action is taken on the latest available information. This newsletter is not and under no circumstances is to be construed as an offer to sell or the solicitation of an offer to buy any securities. This information is given as of the date appearing on this newsletter, and neither the author nor ZLCWI assume any obligation to update the information or advise on further developments relating to information provided herein. This newsletter is intended for distribution in those jurisdictions where both the author and ZLCWI are registered to do business. Any distribution or dissemination of this newsletter in any other jurisdictions is prohibited. The rate of return shown is used only to illustrate the effects of the compound growth rate and is not intended to reflect future values of the Fund or returns on investment in the Fund. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the offering memorandum or prospectus of the Fund before investing. The indicated rates of return are the historical annual compounded total returns including changes in unit value and reinvestment of all dividends and does not take into account sales, redemption, distribution or optional charges or income taxes payable by any unitholder that would have reduced returns. Performance results are not guaranteed, values may change frequently, and past performance may not be repeated.
IMPORTANT INFORMATION: The above commentary may contain an update on certain funds offered through ZLC Wealth Inc. Returns are net of fees and include reinvested dividends. The performance of the fund presented in this document may be for a different series of fund than the series that you hold in your account. The performance of the series that you hold may be different than what is shown. This information does not constitute an offer or solicitation to anyone in any jurisdiction in which such an offer or solicitation is not authorized, or to any person to whom it is unlawful to make such an offer or solicitation. These products may not be appropriate for all investors. Important information about the funds is contained in the offering documents which should be read carefully before investing. You can obtain these documents from ZLC Wealth Inc. Please speak to a ZLC Wealth Portfolio Manager or Representative to determine if these products are right for you.
Sources:
1. Portrait “Charles Thomson” Oil on canvas; Joseph Wright (1756 – 1793), American; c. 1785
2. Famous Mahera Men, Eion Walsh, Ballinascreen Historical Society, 1987.
3. American Ideals: Founding a “Republic of Virtue, Professor Daniel N. Robinson, Oxford University and Columbia University, 2004.
4. American Ideals: Founding a “Republic of Virtue, Page 70.
5. Britannica Merriam-Webster, Declaration of Independence, Key Facts, https://www.britannica.com/summary/Declaration-of-Independence-Key-Facts#:~:text=The%20Declaration%20of%20Independence%20states,and%20to%20set%20up%20a.
6. https://www.bankofcanada.ca/core-functions/monetary-policy/key-interest-rate/
9. https:/www.rbcgam.com/en/ca/article/macromemo-jan-7-27-2025/detail