Summer is in full swing here in beautiful Vancouver, there's an air of excitement and plenty to look forward to. Whether it's enjoying the Celebration of Light fireworks, catching a show at the Vancouver International Jazz Festival, or simply taking in the stunning coastal views on a hike, there's something for everyone to enjoy this season.

This newsletter will focus on the following topics:

New Bank Notes (Bills)
Interest Rates
Trade Settlement
Canadian Federal Budget
Most Valuable Publicly Traded Company

New Bank Notes (Bills)

In researching our newsletters, we often turn to “fascinating” websites like the Bank of Canada. In the midst of preparing this letter, we noticed information on a new series of bank notes. As to be expected, the new $20 bill will see Queen Elizabeth’s image replaced by that of King Charles. They have also included a shortlist of historical Canadians for the revised $5 bill. We thought you would be interested in their included brief biographies below:

www.bankofcanada.ca/banknotes/bank-note-series/vertical-series/banknoteable-5/nominees/#short-list

Interest Rates

June has been the Tale of Diverging economies. The Bank of Canada (BOC) and the European Central Bank (ECB) both cut interest rates by 0.25%. The BOC to 4.75% and the ECB to 4.5%. The US Federal Reserve (The Fed) maintained rates at their range of 5% to 5.25%.

The US economy has been stronger than those of Canada or Europe, keeping inflation higher south of the border. The US Federal Reserve is very aware of history and does not want a repeat of the 1970’s, when it lowered rates only to see inflation return with a vengeance. Some of you will recall 5-year mortgage rates in Canada (briefly) being issued at 21% in 1981.

Structurally, several things have changed since the 1970s and interest rates steadily fell through to 2020. Today’s issue is that those years of low rates have pushed house prices to all-time high levels, which is a factor in inflation rates.

Inflation in the US has been stickier, currently about 3.3%, while inflation in Canada and Europe has fallen to about 2.7%. Because of higher inflation in the US, current expectations are for only one 0.25% rate cut this year in the US, possibly in September, while we expect one more rate cut of 0.25% in Canada and Europe in 2024.

Source: Bloomberg

Year to date we have seen strong market returns as company earnings continue to rise. Markets tend to get ahead of what is rational as investors rush in (or out). We feel markets will begin to normalize expectations over the summer, taking fundamentals into greater consideration and making valuations more reasonable. Next year, expectations are for the Canadian and European economies to improve relative to the US.

Trade Settlement

In the 1970s, when Jack first became interested in the markets, the settlement period for securities transactions was five days. This allowed time for the seller to deliver the security and the buyer to provide the cash. By the 1990s, this had been reduced to three days, and in 2017, it was further reduced to two days. On May 28th, 2024, settlement switched to just one day (T+1), reflecting the shift to electronic transactions in the modern era.

Interestingly, one-day settlement was the norm in the early 1920s during the "Roaring Twenties," a time of surging stock markets and massive speculation. However, as trading volumes increased, brokerages could no longer manually keep up, and settlement times were extended. This historical context shows that the financial world often cycles through changes, with old practices sometimes becoming new again.

Canadian Federal Budget

The Bad:

The federal government’s recent budget announced more program spending which will increase the deficit and long-term debt levels. To help pay for some of these ideas, the government will be targeting the “rich”. And while the “rich” may bring connotations of billionaires who avoid paying taxes, in reality, this budget targets ordinary people who have worked hard and have invested to fund their retirement and help their children. The taxable amount of capital gains will be higher for individuals who create more than $250,000 in gains in a year and also for privately owned corporations. The capital gains income inclusion rate is being raised from 1/2 to 2/3. For an individual’s non-registered investment accounts, we can generally work around this to avoid the higher tax rate, but for those selling a second property or who have corporate accounts, it is punitive.

One of the principles in Canadian Tax Law is called integration. The principle outlines the total tax burden should be approximately the same regardless of whether income is earned personally or through a corporation. The goal of integration is to ensure that individuals and corporations are not unduly incentivized to choose one form of income over another for tax reasons.

In our opinion, this new tax structure breaks the concept of integration and disincentivizes those individuals who want to create or grow a business.

The Good:

As we had mentioned before in our past newsletter, the Government of Canada has created the First Home Savings Accounts (FHSA) to help new home buyers build up the downpayment faster.

Another part of the Federal Budget has increased the RRSP home buyers plan from $35,000 to $60,000 per person. Both strategies should be used when buying your first home!

Most Valuable Publicly Traded Company

Over the last 18 months or so, we have witnessed remarkable gains in the value of several tech giants. Apple had held the crown as the world's most valuable publicly traded company for the better part of the last decade. In January of this year, it was surpassed by Microsoft and in June, Nvidia, briefly held the crown, marking a significant shift in the tech landscape.

Nvidia, a leading technology firm known for its graphical processing units (GPUs), has seen its influence expand beyond gaming and data centers into artificial intelligence and machine learning. Leveraging its advanced GPU technology, Nvidia has accelerated advancements in these cutting-edge fields, solidifying its dominant market position.

Its technology is integral to the operations of some of the world's largest and most influential companies, including Amazon, Google, Microsoft, Tesla, IBM, and Meta. This widespread adoption underscores Nvidia’s critical role in driving innovation across multiple industries.

Most of our clients have exposure or directly own Nvidia.

Hopefully everyone is able to take some time to enjoy the summer with friends and family. As always, don’t hesitate to reach out if you have any questions.

Jack Fournier B.Sc, FMA, CIM®
Portfolio Manager | iA Private Wealth
Insurance Advisor | iA Private Wealth Insurance Agency
700-609 Granville St. Vancouver, BC
p: 604 895 3348
jack@beaconwealthpartners.ca

Travis Kidson, B.Sc, CFP®, CIM®
Portfolio Manager | iA Private Wealth
Insurance Advisor | iA Private Wealth Insurance Agency
700-609 Granville St. Vancouver, BC
p: 604 895 3486
travis@beaconwealthpartners.ca

This information has been prepared by Travis Kidson and Jack Fournier who are Portfolio Managers for iA Private Wealth Inc. and does not necessarily reflect the opinion of iA Private Wealth. The information contained in this newsletter comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any of the securities mentioned. The information contained herein may not apply to all types of investors. The Portfolio Managers can open accounts only in the provinces in which they are registered.

iA Private Wealth Inc. is a member of the Canadian Investor Protection Fund and the Canadian Investment Regulatory Organization. iA Private Wealth is a trademark and business name under which iA Private Wealth Inc. operates.

Insurance products are provided through iA Private Wealth Insurance Agency which is a trade name of PPI Management Inc. Only products and services offered through iA Private Wealth Inc. are covered by the Canadian Investors Protection Fund.

Beacon Wealth Partners is a personal trade name of Jack Fournier and Travis Kidson.