FidelityNow: Rate decision day: What does it mean for the markets?

[00:00:04.471 Hi and welcome. I'm Institutional Portfolio Manager Ilan Kolet.

[00:00:09.175] This week brought major decisions from both the Bank of Canada and the Federal

[00:00:12.879] Reserve. Let's break down what happened and more importantly what it means for

[00:00:16.983] the portfolios we manage for Canadian investors.

[00:00:20.520] First, here at home, the Bank of Canada cut its overnight rate by

[00:00:24.491] a quarter point to 2.5%.

[00:00:26.526] The Governor pointed to a softening job market and easing inflation as the

[00:00:30.463] reasons. it's not impossible that we see at least one more cut this year.

[00:00:35.702] Meanwhile, south of the border, the U.S. Federal Reserve also cut rates,

[00:00:40.306] lowering their target range to 4-4.25%.

[00:00:44.277] Fed Chair Powell described it as a risk management move, also citing

[00:00:48.415] rising concerns about the labour market.

[00:00:51.751] The Fed is now signalling more cuts are on the way for 2025.

[00:00:55.955] So both central banks are cutting rates.

[00:00:57.991] How are we thinking about this in the context of the funds we manage?

[00:01:02.996] In the U.S., we see a market that is almost singularly focused on the AI

[00:01:06.966] rally. This has made the market highly concentrated and, in our view,

[00:01:11.704] somewhat riskier than it appears.

[00:01:13.940] When we look past the AI and the AI concerns, we see underlying

[00:01:18.244] concerns from policy uncertainty to the potential for a weaker U.S.

[00:01:22.315] dollar. As a result, we're more cautious around the U.S. than we were last

[00:01:26.386] year and our underweight U.S. equities.

[00:01:29.000] We've also reduced our exposure to the U.S.

[00:01:31.291] dollar. In contrast, we believe the story for Canada is one of

[00:01:35.328] darkest before the dawn.

[00:01:37.964] Yes, the economy has been struggling, but we believe that the worst of the

[00:01:41.401] headwinds from trade tensions to the pain of mortgage renewals are beginning to

[00:01:45.638] fade and could be behind us.

[00:01:48.041] A path to improvement is becoming visible for the first time in many, many

[00:01:52.045] years. That's why we've recently closed our long-held

[00:01:56.116] underweight in Canadian assets and moved to a broadly neutral position

[00:02:00.286] on the equity side.

[00:02:01.988] In short, our strategy is about looking to where the puck is going and not

[00:02:06.126] where it is now. We're balancing the crowd's momentum in the U.S.

[00:02:10.296] with the underappreciated recovery story that we see building

[00:02:14.300] here in Canada. Thanks again for watching.