Market Update - Putting Things In Perspective

Putting The Recent Volatility In Perspective—Stay The Course
The S&P 500 is currently down 9.3% from its recent high. It's important to remember that market volatility is normal. Since 1980, the S&P 500 has typically seen 3 to 4 pullbacks of over 5%, one pullback of over 10%, and an average maximum intra-year drawdown of 13% each year. Despite these fluctuations, the S&P 500 has averaged an annual gain of 12.3% over the same period. This indicates that while market downturns can be unsettling, staying invested and avoiding panic selling has historically been beneficial.

Bank Of Canada Cuts Rates by 0.25% As Trade War Intensifies
Despite a surprisingly strong 4Q24 Canadian growth rate (2.6% annualized) and escalating trade tensions with the US, the Bank Of Canada (BOC) delivered an 'insurance' rate cut today. After 200 bps Of rate cuts since last June, today's decision marks the BOC's seventh consecutive rate cut, bringing the central bank's policy rate down to 2.75%—its lowest rate since September 2022. With one-fifth of Canada's GDP tied to exports to the US, long-lasting tariffs could have a meaningful impact on the Canada's economy.

High Yield Spreads Widen To A Six-Month High—But Still Not Reflecting Recession Risks
High yield credit spreads have been affected by rising volatility and falling equity prices. The average risk premium on high yield debt increased to a six-month high of 310 bps, 54 bps wider than its tightest levels YTD. However, most Of this spread widening has been driven by the riskiest credits (CCC-rated and lower), which are more susceptible to economic weakness and a higher probability of default.
Importantly, spreads are not indicating any recessionary concerns, as they can widen by more than 300 bps during recessions.

Your unique circumstances and risk tolerance are key factors in the ongoing management of your portfolio. As always, to discuss how this or other financial opinions may affect your investments please contact me.

Sincerely,

Marc