Global fourth-quarter data has provided evidence that the recovery remains on solid footing, pointing to continued, but slower growth in the first three months of 2024. In the U.S., layoffs remain low, and job growth has held steady. Cooling inflation has meant that wages are now rising faster than prices. In January we maintained our U.S. twelve -month forward looking outlook to reflect our view for Stagnation over the entire period. Stagnation will put downward pressure on rates, as moderating inflation will lead to less restrictive monetary policy.

China’s economy grew 5.2% in 2023. China’s consumer prices fell by 0.3% in December.¹ China’s surveyed urban unemployment rate inched up to 5.1% in December.² The inflation rate in the Euro Area was confirmed at 2.9% in December.³ The Euro Area posted a trade surplus of EUR 20.3 billion in November 2023. Imports tumbled by 16.7%, while exports fell at softer 4.7%.⁴

The U.S. economy continued to grow at a healthy pace at the end of 2023, capping a year in which unemployment remained low, inflation cooled, and a widely predicted recession never materialized.  Gross domestic product, adjusted for inflation, grew at a 3.3% annual rate in the fourth quarter, down from the 4.9% rate in the third quarter.⁵ The annual inflation rate in the U.S. went up to 3.4% in December from a five-month low of 3.1% in November.⁶ The unemployment rate in the United States held at 3.7% in December, influenced by a slowdown in new entries into the labor force.⁷ The U.S. trade gap narrowed to $63.2 billion in November. Total exports were down 1.9%, prompted by a fall in sales of nonmonetary gold and crude oil. Total imports fell 1.9%. The deficit decreased with China and the European Union but increased with Switzerland.⁸ The annual inflation rate in Canada rose to 3.4% in December.⁹ The unemployment rate in Canada was at 5.8% in December.¹⁰ Canada recorded a trade surplus of CAD 1.6 billion in November of 2023. Foreign purchases rose for 8 of 11 product sections, led by an increase in energy imports (11.6%) amid significant buying of uranium for Kazakhstan, consistent with mining troubles from domestic mines.¹¹

After a dismal 2022, the market recovered with a vengeance in 2023. The S&P 500 finished with a 26.3% return for the year. The strength of the Magnificent Seven powered those gains throughout, pushing the mega-cap S&P 500 Top 50 up 38%. The S&P Mid Cap 400 and S&P Small Cap 600 rose 16.4% and 16.1%. Strong gains in gold helped Precious Metals rise 11.5%, but Agriculture, Industrial Metals, and Energy posted losses. Canadian equities finished the month on the upside with the S&P/TSX Composite rising 3.9%. The S&P Europe 350 soared 3.7% in the final month to finish 2023 with a 16.8% total return. Fifteen of sixteen countries contributed positively to pan-European equity returns this year. The heavyweight French market was the brightest spot, contributing +3.3%. Germany and the United Kingdom also made major contributions of 2.5% and 2.3%, respectively. Finland was the only country that slipped in 2023, subtracting 0.05% from the S&P Europe 350’s annual return. The S&P Pan Asia BMI rose 4.7% in December after an 8% rally in November, closing the year with a total return of 12.8%.

In January we maintained the asset allocation from December. We continue to hold gold across all models. Gold is considered a long-term strategic asset alongside bonds as it provides returns in a wide range of economic conditions. The diversification and risk reduction advantages of fixed income relative to equities will continue to benefit our portfolio models during stagnation, with longer duration bonds eventually being added back into the mix.

Our twelve- month forward outlook focusses on the size and scale of the U.S. budget deficit, coupled with the substantial Treasury debt issuance required to address it. The outlook for deficits will be a driver of rate-market volatility in 2024, especially around quarterly refunding announcements and longer-dated Treasury auctions. In addition, the U.S. presidential election outcome could precipitate a material rise in yields and volatility. A Republican control of Congress would dampen any move toward entitlement reform, raise market expectations that the 2017 tax cuts would be extended, and increase the odds that corporate tax increases in the Inflation Reduction Act would be eliminated. Progress on fiscal reform would be kicked down the road. We will continue to monitor these as we move through 2024. Our approach to portfolio management is nimble, opportunistic, and deliberate in identifying asset classes that are best placed to generate returns in a new world order. Our focus is on protecting portfolios from downside risk, and we believe that our investment process is working to achieve that goal.

Deborah Frame, President and CIO

Drew Millard, Portfolio Manager

¹ Trading Economics. China GDP. January 12, 2024.

² Trading Economics. China Unemployment. January 17, 2024.

³ Trading Economics. EU Inflation. January 17, 2024.

⁴ Trading Economics. EU Trade. January 15, 2024.

⁵ Trading Economics. U.S. GDP. January 25, 2024.

⁶ Trading Economics. U.S. Inflation. January 11, 2024.

⁷ Trading Economics. U.S. Unemployment. January 5, 2024.

⁸ Trading Economics. U.S. Trade. January 9, 2024.

⁹ Trading Economics. Canada Inflation. January 16, 2024.

¹⁰ Trading Economics. Canada Unemployment. January 5, 2024.

¹¹ Trading Economics. Canada Trade. January 9, 2024.

Index return data from Bloomberg and S&P Dow Jones Indices Index Dashboard: U.S., Canada, Europe, Asia, Fixed Income. December 31, 2023. Index performance is based on total returns and expressed in the local currency of the index.

Global economies, overall, have performed better than expected in 2023 in the face of high levels of debt, less than accommodative monetary policy, a growing number of geopolitical tensions, and an unstable Chinese economy present challenge. Central bank hiking and cutting cycles continue around the globe and we expect that the historical pattern of rates rising into a recession, falling just prior, and continuing to fall into the first four to five months of recessions is likely to continue in many economies.  In the United States, a gap has emerged between real GDP (Gross Domestic Product) growth, signaling a “soft landing”, and real GDI (Gross Domestic Income) growth, providing support to the view that a recession is pending. In November we revised our U.S. twelve -month forward looking outlook to reflect our view for Stagnation over the entire period.

The Chinese economy expanded by 4.9% year over year in Q3 2023, as sustained stimulus from Beijing offset the impact of a prolonged property crisis and weak trade.¹ China’s surveyed urban unemployment rate was 5% in October 2023, the same as in the previous month.² China’s trade surplus in October 2023 narrowed sharply to USD 56.53 billion from USD 82.35 billion in the same period the previous year.³ The Gross Domestic Product (GDP) in European Union stagnated at 0% in the third quarter of 2023 over the previous quarter. Among the bloc’s biggest economies, the GDP shrank in Germany (-0.1%), stalled in Italy, and rose modestly in France (0.1%) and Spain (0.3%).⁴ The inflation rate in the Euro Area was confirmed at 2.9% year-on-year in October primarily driven by a decline in energy prices and a slowdown in food inflation.⁵ The Euro Area seasonally-adjusted unemployment rate increased to 6.5% in September. Amongst the largest Euro Area economies, the lowest jobless rate was recorded in Germany (3%), while the highest rates were observed in Spain (12%), Italy (7.4%) and France (7.3%).⁶

The U.S. economy expanded an annualized 4.9% in the third quarter of 2023.⁷ The annual inflation rate slowed to 3.2% from 3.7% in September.⁸ The unemployment rate for full-time workers was 3.70%.⁹ The annual inflation rate in Canada fell to 3.1% in October. Lower energy costs and slowing grocery price growth were the main contributors. Inflation is impacting a smaller share of products in the consumer basket. Most of the drop in Canadian headline CPI growth came from a 4.5% month over month decline in gasoline prices.¹⁰ The unemployment rate in Canada rose to 5.7% in October.¹¹ Canada posted a trade surplus of CAD 2 billion in September of 2023, widening considerably from the upwardly revised CAD 0.95 billion surplus in the previous month. Higher crude oil prices during the period lifted energy exports by 10.6%, representing over one-third of Canadian foreign sales.¹²

Mixed earnings results, surging Treasury yields, geopolitical tensions, and uncertainty surrounding the Fed’s future rate trajectory spooked U.S. equities, with the S&P 500 down 2.1% in October. Continued concerns around an impending recession were detrimental to the more domestically oriented S&P Mid-Cap 400 and S&P SmallCap 600, down 5.3% and 5.7% respectively. Canadian equities finished the month on the downside. The S&P/TSX Composite fell 3.2%. The S&P Europe 350 slipped 3.6% in October. Three of 16 countries contributed positively to pan European equity returns with Denmark contributing +0.03%. Among the detractors, the U.K. subtracted 1.0% from the S&P Europe 350’s return in October. The S&P Pan Asia BMI plunged 4.3% in October. Japan was responsible for over a third of the S&P Pan Asia BMI’s monthly loss.

In November we eliminated exposure to the Canadian equity market and reduced exposure to U.S. Municipal Bonds and Cash. The allocations from these reductions were added to U.S. Mid-Caps. We continue to maintain gold exposure across all models. Gold is considered a long-term strategic asset alongside bonds as it provides returns in a wide range of economic conditions. The diversification and risk reduction advantages of fixed income relative to equities will continue to benefit our portfolio models during stagnation.

Our approach to portfolio management is nimble, opportunistic, and deliberate in identifying asset classes that are best placed to generate returns in a new world order. Our focus is on protecting portfolios from downside risk, and we believe that our investment process is working to achieve that goal.

Deborah Frame, President and CIO

Drew Millard, Portfolio Manager

¹ Trading Economics. China GDP. October 18, 2023.

² Trading Economics. China Unemployment. November 15, 2023.

³ Trading Economics. China Trade. November 7, 2023.

⁴ Trading Economics. EU GDP. November 14, 2023.

⁵ Trading Economics. EU Inflation. November 17, 2023.

⁶ Trading Economics. EU Unemployment. November 3, 2023.

⁷ Trading Economics. US GDP. October 26, 2023.

⁸ Trading Economics. US Inflation. November 14, 2023.

⁹ Trading Economics. US Unemployment. November 16, 2023.

¹⁰ Trading Economics. Canada Inflation. November 21, 2023.

¹¹ Trading Economics. Canada Unemployment. November 3, 2023.

¹² Trading Economics. Canada Trade. November 7, 2023.

Index return data from Bloomberg and S&P Dow Jones Indices Index Dashboard: U.S., Canada, Europe, Asia, Fixed Income. October 31, 2023. Index performance is based on total returns and expressed in the local currency of the index.

Reassured by the resilience in macro data, and frustrated that inflation isn’t falling fast enough, major central banks have continued with monetary tightening. The result has been eroding purchasing power, a rising cost of living, and persistent inflationary pressures. For those facing mortgage term renewals, the higher rates remove purchasing power from their discretionary budget. The cost of rent is soaring as landlords push through higher carrying costs to renters. This creates a self-perpetuating inflationary cycle. The recent upturn in oil prices and the widening federal budget deficit in the U.S. have led to the government’s net interest outlays soaring. Bond yields might have to rise higher to attract buyers for the mounting supply of Treasuries. The inverted U.S. Treasury yield curve is suggesting bond market participants have taken up longer-dated Treasury bonds in anticipation of a dramatic economic and/or inflation slowdown. As the lagging impact of the aggressive rate hikes ripples through economies, the trend remains for slowing growth with rolling recession and recovery in the back half of the year. In September, we maintained our twelve-month forward outlook for the U.S. economy of six months of Stagnation, followed by three months of Recession and then, three months of Stagnation.

China’s consumer prices rose by 0.1% year over year in August.¹ China’s surveyed urban unemployment rate inched down to 5.2% in August.² China’s trade surplus slumped to USD 68.36 billion in August 2023 from USD 78.65 billion in the same period a year earlier, as exports dropped more than imports. Exports shrank 8.8% year over year, the fourth straight month of decline, while imports fell by 7.3%.³ The annual inflation rate in the Euro Area was revised lower to 5.2% in August.⁴

The U.S. economy grew at an annualized rate of 2.1% in the second quarter of 2023. Exports experienced the largest decline since the aftermath of the COVID-19 outbreak.⁵ The annual inflation rate in the U.S. accelerated for a second straight month to 3.7% in August. Oil prices have been on the rise in the previous two months, which coupled with base effects from last year.⁶ The unemployment rate in the U.S. rose to 3.8% in August.⁷ The U.S. trade deficit widened to $65 billion in July 2023. Exports were up 1.6%. Imports increased 1.7%.⁸ Canadian GDP stalled in the second quarter of 2023.⁹ The annual inflation rate in Canada rose to 4% in August from 3.3% in the previous month. The increase was largely attributed to a rebound in the cost of transportation (2.3% vs -0.8% in July), as the extension of crude oil production cuts from OPEC nations and limited capacity in North American oil refiners pushed gasoline prices higher. The CPI also accelerated for shelter (6% vs 5.1%), lifted by higher rent costs, as soaring interest rates by the BoC disfavored home ownership and saturated the rental market. Despite remaining high, prices continued to subdue for food (6.8% vs 7.8%). The unemployment rate in Canada was at 5.5% in August of 2023.¹⁰

Despite a strong recovery in the latter part of the month, the U.S. market rally took a breather in August, with the S&P 500 down 1.6%. Smaller caps performed even worse, with the S&P SmallCap 600 down 4.1%. Canadian equities finished the month on the downside. The S&P/TSX Composite posted a decline of -1.4%. The S&P Europe 350 retreated 2.4% in August. 14 of 16 countries detracted from pan-European equity returns this month. Denmark was a bright spot, contributing +0.3%, while the Netherlands was the biggest detractor with a contribution of -0.6%. The S&P Pan Asia BMI plunged 4.2% in August, erasing most of its quarter to date gains. All S&P Pan Asia BMI regions ended August in the red, with China the largest detractor from the regional benchmark’s return with -1.5%.

In September, we maintained exposure to all asset classes, reflecting the prolonged interest rate tightening cycle and the impact that it is having on the economy. Our view remains that a U.S. recession will occur. We continue to maintain gold exposure across all models. The recent changes in yields have led to a ‘bear steepening’ of the yield curve. But the expectation of a slowdown is a scenario in which gold has historically performed well. Gold is considered a long-term strategic asset alongside bonds as it provides excellent returns in a wide range of economic conditions.

As the cost of capital becomes more expensive, banks are likely to be more selective in lending, driven by the potential for increased regulation, as well as heightened competition for deposits. We anticipate that economic deterioration will drive an increase in defaults and other unintended consequences. Production capacity is expected to be constrained in the new regime of higher macro and market volatility. Historically, such periods have resulted in significant stock market pullbacks, and an overall appetite for high quality, liquid assets such as gold. Our approach to portfolio management is nimble, opportunistic, and deliberate in identifying asset classes that are best placed to generate returns in a new world order. Our focus is on protecting portfolios from downside risk, and we believe that our investment process is working to achieve that goal.

Deborah Frame, President and CIO

Drew Millard, Portfolio Manager

¹ Trading Economics. China Inflation. September 9, 2023.

² Trading Economics. China Unemployment. September 15, 2023.

³ Trading Economics. China Trade. September 7, 2023.

⁴ Trading Economics. EU Inflation. September 19, 2023.

⁵ Trading Economics. U.S. GDP. August 30, 2023.

⁶ Trading Economics. U.S. Inflation. September 13, 2023.

⁷ Trading Economics. U.S. Unemployment. September 1, 2023.

⁸ Trading Economics. U.S. Trade. September 6, 2023.

⁹ Trading Economics. Canada Inflation. September 1, 2023.

¹⁰ Trading Economics. Canada Unemployment. September 8, 2023.

Index return data from Bloomberg and S&P Dow Jones Indices Index Dashboard: U.S., Canada, Europe, Asia, Fixed Income. August 31, 2023. Index performance is based on total returns and expressed in the local currency of the index.

The four-decade period of stable inflation and interest rates has ended, and a new regime of greater macro and market volatility is playing out. As the global economy continues to recover from the energy crisis, we continue to expect moderate global growth in 2023-24, with a drag from the cumulative impact of monetary policy tightening on economic activity and employment, and significant divergence between advanced and emerging market countries. While growth projections for certain major economies have improved, Europe is likely to face tighter-for-longer financing conditions. We continue to anticipate a mild contraction in the U.S. in late 2023 and slow growth in other developed markets. Long-term trends will keep production capacity constrained in the new regime of higher macro and market volatility. In July, we maintained our twelve-month forward outlook for the U.S. economy of six months of Stagnation, followed by three months of Recession and then three months of Stagnation.

China’s trade surplus fell from a year earlier, as exports dropped more than imports amid persistent weak demand from home and abroad. Meanwhile, the trade surplus with the U.S. widened slightly in June.¹ China’s annual inflation rate edged up to 0.2% in May² while China’s surveyed urban unemployment rate stood at 5.2% in May.³ The Eurozone economy shrank 0.1% in the first three months of 2023, falling into a mild technical recession.⁴ Annual core inflation in the Euro Area increased to 5.4% in June.⁵ The seasonally adjusted unemployment rate in the Euro Area was at a record low of 6.5% in May 2023.⁶ Eurozone imports tumbled 11.9%, the lowest level since February 2022, down mostly from Russia, Norway, U.K., Switzerland, China, and Turkey. Exports declined 3.6%.⁷

The U.S. economy grew by an annualized 2% in Q1 2023. Exports were up 7.8% and imports rose at a slower 2%, pushing the contribution from net trade higher to 0.58 percentage points.⁸ The annual core consumer price inflation rate in the United States fell to 4.8% in June⁹ while the unemployment rate in the U.S. decreased slightly to 3.6%, indicating a consistently tight labor market and allowing the Federal Reserve the flexibility to continue raising interest rates as a means to combat inflation.¹⁰ The Canadian economy expanded an annualized 3.1% in the first three months of 2023.¹¹ The annual inflation rate in Canada fell to 3.4% in May¹² while the unemployment rate in Canada rose to 5.4% in June.¹³ Canada posted a trade deficit of CAD 3.44 billion in May of 2023, shifting from a downwardly revised surplus of CAD 0.89 billion in the prior month.¹⁴   

Concerns around the Fed’s future rate trajectory did not deter U.S. equities from posting gains across the board, with the S&P 500 up 16.9% in the first half of 2023. Mid Caps and Small Caps turned in 8.8% and 6.03%, respectively. The S&P 500 posted a gain of 6.6% in June, trailing smaller caps, with the S&P Mid Cap 400 up 9.2% and the S&P Small Cap 600 up 8.2% for the month. Canadian equities finished the month on the upside. The S&P/TSX Composite climbed 3.4%. The S&P Europe 350 extended its year-to-date gains in June, with the pan-European bellwether ending 2.5% higher for the month. All but Denmark among the 16 countries contributed positively to pan-European equity returns in the month. The French market was the brightest spot, contributing +0.8%, followed by Germany and Italy, with 0.4% each. The S&P Pan Asia BMI advanced 3.4% in June, extending its YTD gain to 6.3%. Eleven of 14 S&P Pan Asia BMI regions ended June in the black, with Japan the largest contributor to the regional benchmark with 1.4%.

In July, exposure to Canadian equities was reduced to reflect concerns about the prolonged interest rate tightening cycle in Canada and the impact that it is having on the economy. Cash across all models was reduced, from 20% to 10%, reflecting our view that the anticipated U.S. recession will be short and mild and is priced into valuations outside of Technology and Healthcare. U.S. equity exposure was increased while 5% was added to the 3-to-7-year treasury bond, across all models. We continue to maintain our gold exposure across all models as we expect gold to remain supported on the back of rangebound bond yields and a weaker dollar.

We are positioned for a mild recession in the U.S. in the third quarter. An economic deterioration could be driven by a significant increase in defaults following tighter credit conditions or other unintended consequences of the rate environment. Historically, such periods have resulted in higher volatility, significant stock market pullbacks, and an overall appetite for high quality, liquid assets such as gold.  Our approach to portfolio management is nimble, opportunistic, and deliberate in identifying asset classes that are best placed to generate returns in a new world order. Our focus is on protecting portfolios from downside risk, and we believe that our investment process is working to achieve that goal.

Deborah Frame, President and CIO

¹ Trading Economics. China Trade. July 15, 2023.

² Trading Economics. China Inflation. June 9, 2023.

³ Trading Economics. China Unemployment. June 16, 2023.

⁴ Trading Economics. EU GDP. June 8, 2023.

⁵ Trading Economics. EU Inflation. June 30, 2023.

⁶ Trading Economics. EU Unemployment. June 30, 2023.

⁷ Trading Economics. EU Trade. June 15, 2023.

⁸ Trading Economics. U.S. GDP. June 29, 2023.

⁹ Trading Economics. U.S. Inflation. July 12, 2023.

¹⁰ Trading Economics. U.S. Unemployment. July 7, 2023.

¹¹ Trading Economics. Canada GDP. May 31, 2023.

¹² Trading Economics. Canada Inflation. June 27, 2023.

¹³ Trading Economics. Canada Unemployment. July 7, 2023.

¹⁴ Trading Economics. Canada Trade. July 6, 2023.

Index return data from Bloomberg and S&P Dow Jones Indices Index Dashboard: U.S., Canada, Europe, Asia, Fixed Income. June 30, 2023. Index performance is based on total returns and expressed in the local currency of the index.

For over a year, the global economy has avoided recession. Beneath the surface however, imbalances can be seen in the latest upturn. Much of the gain experienced globally owes to a reopening surge in China. Regional imbalances outside of China as well as sectoral imbalances have emerged as the goods-producing sector stalled last quarter after tumbling in the fourth quarter of 2022. Rates are currently on hold for most central banks outside the U.S. and Western Europe. Lags incorporated in models suggest that the drag from tightening in global policy rates (ex. China) will continue to build. Policy stances are now seen as sufficiently restrictive to maintain central bank credibility and ensure that inflation gradually returns to acceptable levels.

In the U.S., the failure to raise the U.S. debt ceiling is an immediate concern. As it is delayed, credit conditions are likely to tighten further. Our baseline remains that these forces combine to tip the U.S. into recession by year-end. In May, we maintained our twelve-month forward outlook for the U.S. economy of six months of Stagnation, followed by three months of Recession and then three months of Stagnation.

The Chinese economy advanced 4.5% year over year in Q1 of 2023, accelerating from a 2.9% growth in Q4, amid efforts from Beijing to spur the post-pandemic recovery.¹ China’s annual inflation rate fell to 0.1% in April.² China’s surveyed urban unemployment rate declined to a 16-month low of 5.2% in April.³ China’s trade surplus surged in April including the trade surplus with the United States.⁴

The Eurozone’s quarterly economic growth was confirmed at a modest 0.1% during the first quarter of 2023, following a stagnant fourth quarter. The European Central Bank’s aggressive tightening of monetary policy has added to the economic strain. Germany registered no growth in the first quarter, while the Netherlands experienced a contraction. The economies of France, Italy, and Spain did see some expansion during the same period.⁵ The Eurozone posted a trade surplus in March. Exports climbed 7.5% and imports fell 10%.⁶ The consumer price inflation rate in the Euro Area slightly increased to 7.0% in April 2023.⁷  

The U.S. economy grew by an annualized 1.3% in Q1 2023, slightly higher than 1.1% in the advance estimate but the weakest since Q2 2022. Consumer spending growth accelerated to 3.8% despite stubbornly high inflation.⁸ The U.S. trade gap narrowed to a four-month low in March. Exports were up 2.1% while imports edged 0.3% lower.⁹ The annual inflation rate in the U.S. fell to 4.9% in April. Food prices grew at a slower rate (7.7% vs 8.5% in March) while energy costs fell further (-5.1% vs -6.4%).¹⁰ The unemployment rate in the United States edged down to 3.4% in April.¹¹ 

Canada’s GDP grew by 0.6% in the first quarter of 2023, 2.5% at an annualized rate.¹² The annual inflation rate in Canada rose to 4.4% in April.¹³ The unemployment rate in Canada was at 5% for a fifth consecutive month in April.¹⁴ Canada posted a trade surplus of CAD 0.97 billion in March. Total imports slumped 2.9% over while total exports fell at a slower 0.7%.¹⁵

Lingering concerns around inflation, coupled with recession jitters stemming from continued turmoil within the banking space led to uncertainty over the Fed’s future rate hike trajectory. Despite the ambiguity, better than expected Big Tech corporate earnings managed to sustain the U.S. market in April. The S&P 500 posted a gain of 1.6%, outpacing smaller caps, with the S&P Mid Cap 400 down -.8% and the S&P SmallCap 600 down -2.8%. Canadian equities finished the month with the S&P/TSX Composite up 2.9%. S&P Europe 350 extended its year-to-date gains in April, with the pan – European bellwether ending 2.7% higher for the month. The U.K. market was the brightest spot, contributing +0.9%, followed by Switzerland and France, with 0.7% each. The S&P Pan Asia BMI dropped 0.6% in April. 

In May, we maintained our asset allocation from March, including the presence of gold and the twenty percent cash position across all models. We continue to maintain short duration exposure to fixed income and a greater exposure to Canadian equities over U.S. equities as we anticipate a continuing weaker underlying economy through the remainder of 2023.

The support from declining energy prices and pandemic recovery is beginning to fade. With central banks unlikely to ease policy rates due to persistent inflation, the adjustment of private sector balance sheets to higher rates will bite. We are positioned for a recession in the U.S. in the third quarter. Our approach to portfolio management is nimble, opportunistic, and deliberate in identifying asset classes that are best placed to generate returns in a new world order. Our focus is on protecting portfolios from downside risk, and we believe that our investment process is working to achieve that goal.

Deborah Frame, President and CIO

¹ Trading Economics. China GDP. April 18, 2023.

² Trading Economics. China Inflation. May 11, 2023.

³ Trading Economics. China Unemployment. May 16, 2023.

⁴ Trading Economics. China Trade. May 9, 2023.

⁵ Trading Economics. EU GDP. May 1, 2023.

⁶ Trading Economics. EU Trade. May 16, 2023.

⁷ Trading Economics. EU Inflation. May 2, 2023.

⁸ Trading Economics. U.S. GDP. May 25, 2023.

⁹ Trading Economics. U.S. Trade. May 4, 2023.

¹⁰ Trading Economics. U.S. Inflation. May 10, 2023.

¹¹ Trading Economics. U.S. Unemployment. May 5, 2023.

¹² Trading Economics. Canada GDP. April 28, 2023.

¹³ Trading Economics. Canada Inflation. May 6, 2023.

¹⁴ Trading Economics. Canada Unemployment. May 5, 2023.

¹⁵ Trading Economics. Canada Trade. May 4, 2023.

Index return data from Bloomberg and S&P Dow Jones Indices Index Dashboard: U.S., Canada, Europe, Asia, Fixed Income. April 30, 2023. Index performance is based on total returns and expressed in the local currency of the index.