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November brought an end to the six-month streak of record-setting markets, among the longest runs of consecutive new monthly highs since the 1970s. Even with volatility returning, our portfolios held up well. Growth finished the month up 1.21% and is now up 27.8% year over year. Income slipped 0.72% and remains up 2.8% year over year. American Growth declined 1.85% but is still ahead 29.4% over the past year.

Markets swung sharply from highs to lows and almost back again within the month, yet many of the strongest leaders of 2025, including Nvidia, Microsoft, Tesla, and Palantir, failed to recover their intra-month losses. While some interpret the rebound in small-cap stocks as improving breadth or a sign of market strength, we see a different story of institutional de-risking. Large investment firms appear to be quietly reducing exposure to the market by unwinding both long positions in market leaders and short positions in smaller companies. Increasing scrutiny on the ability of AI companies to economically fund their expansive capital spending plans may have prompted the move. We see this as a critical shift in sentiment, marking a turning point in the market.

Additional data suggests material near-term volatility is possible. Even as indices reached new all-time highs in late October, only a historically small number of companies were likewise making advances. Such narrow leadership into all-time highs has only appeared at major market tops, including 1960, 1973, 1980, 1987, 2000, and 2022. Each episode was followed by declines of 15% to 35% over the following year, with no false signals.

Economic fundamentals held up through most of 2025, but the fiscal engine that supported so much of the post-pandemic expansion is now losing momentum. After adjusting for November’s shutdown, October’s U.S. federal deficit came in at $180 billion, a 29% drop from a year earlier. A shrinking deficit means the private sector is receiving fewer financial inflows; in other words, the government is creating less money. Historically, every sustained contraction in U.S. money creation has led to recession. What makes this cycle unique is the speed of the adjustment: nearly the entire decline in deficit spending occurred within the third quarter of 2025.

What remains of the deficit is shifting toward interest payments, a form of low-multiplier spending, as opposed to capital investment or wages, a form of high-multiplier spending which drives real growth. This dynamic could produce a scenario that feels like stagflation into 2026: softer real growth alongside sticky inflation.

Months ago we had identified the refund of tariffs as a potential source of government stimulus. While odds remain high that the U.S. Supreme Court will find some of the recent tariffs unlawful, new analysis suggests refunds could now take years to distribute, if at all. U.S. Treasury Secretary Scott Bessent has already indicated a willingness to reconstitute tariffs under different authorities if necessary.

Could an increase in bank lending offset these contractionary fiscal effects? If labour markets soften as fiscal flows slow, demand for new credit typically declines as well. History illustrates rate cuts are unlikely to change that relationship. In today’s fiscal environment, lower interest rates actually tighten conditions because they reduce the government’s interest payments, currently a major source of financial inflows to the private sector. Each rate cut removes money that would otherwise land in household wallets and business balance sheets. Investors must also remember that for every borrower paying a lower rate of interest, there is a lender receiving lower interest income. We believe investors cheering rate cuts as a “save” for the economy or the stock market may be misunderstanding the mechanics in 2025.

While some expect a renewed round of quantitative easing from the U.S. Federal Reserve to ease financial conditions, the proposed approach, purchasing short-term U.S. Treasury bills, offers little stimulus. This action merely swaps one short-term asset, recently-issued Treasury bills, for another, cash, without expanding the overall balance sheet in a way that drives risk-taking. In our view, the impact on asset prices would be largely neutral.

At the same time, energy costs appear poised to rise. Recent corporate earnings calls highlight that AI infrastructure capacity faces an energy bottleneck. If AI-driven energy demand accelerates, prices for electricity, natural gas, gasoline, and other energy products could climb. Meanwhile, today’s oil supply glut looks temporary. Sanctions, geopolitical tensions, and near-capacity floating storage all point toward eventual production pullbacks, potentially marking an inflection point for energy markets. Adding to the pressure, costs for essentials such as food, beverages, and medical insurance continue trending higher. Combined with slower money creation, these rising input costs create the potential for a consumer spending squeeze, amplifying economic headwinds in the months ahead.

Taken together, this rather sudden turn in the financial markets and economy has led us to shift our outlook. We now expect a meaningful equity drawdown to unfold within the year, anticipating a decline of between 15% to 35%. Markets may retest the October highs or even make a marginal new high, but we do not expect a sustained advance beyond those levels.

In response, we have taken a more defensive stance across the model portfolios, building a barbell of short-term U.S. Treasury bonds and longer-term U.S. Treasury Inflation-Protected Securities (TIPS). This positioning seeks to balance protection with the possibility of capital appreciation.

The U.S. dollar typically strengthens when equities decline or energy prices rise, which could benefit the portfolios. TIPS offer rising interest payments if inflation, as measured by the Consumer Price Index, accelerates as we expect. If labour conditions continue to deteriorate, policymakers have signalled a willingness to prioritize employment over inflation control, meaning rate cuts could support bond values even if they later prove to be a policy mistake. And by focusing on U.S. government securities, we position the portfolios to benefit from a flight to safety with minimal credit risk if our view is correct. On the other hand, we risk relatively little if we are wrong.

Ultimately, we view volatility as an opportunity to deploy capital at more attractive prices. Our top priority remains clear: protect your capital so we can take advantage of those opportunities when they arrive.

Model Portfolio Highlights
Growth Portfolio: We exited Constellation Software, Kinross Gold, and Tesla. We continue to hold a position in Dollarama. Remaining assets are equally allocated to short-term U.S. Treasury bonds and U.S. Treasury Inflation-Protected Securities.

American Growth Portfolio: We exited Intel, Tesla, and Netflix. All capital is equally allocated to short-term U.S. Treasury bonds and U.S. Treasury Inflation-Protected Securities.

Income Portfolio: We exited global growth stocks. All capital is equally allocated to short-term U.S. Treasury bonds and U.S. Treasury Inflation-Protected Securities.

Our approach targets opportunities with a significant margin of safety with minimal risk of permanent loss. Patience remains essential in realizing long-term gains.

Our clients value proactive risk management, clear communication, and a disciplined approach to growth. If you know someone who might benefit from this perspective, feel free to forward this note. If you have questions or would like to schedule a conversation, please be in touch. As always, thank you for your continued trust.

Yours,

Ben

Ben W. Kizemchuk
Portfolio Manager & Investment Advisor
Wellington-Altus Private Wealth

Office: 416.369.3024
Email: bwk@wellington-altus.ca
Book time with Ben W. Kizemchuk: Portfolio and Plan Review

Ben Kizemchuk offers full-service wealth management for high-net-worth Canadians including families, business owners, and successful professionals. Ben and his team provide investment advice, financial planning, tax minimization strategies, and retirement planning.

Performance reporting disclaimer: Performance results reflect the returns of each representative model portfolio. Returns are calculated using each model portfolio’s monthly performance, including changes in securities values, and accrued income (i.e., dividend and interest), against its market value at the closing of the last business day of the previous month. Performance results are expressed in the stated strategy’s base currency and are calculated on a net of fees basis. Individual account performance may materially differ from the representative performance history set out in this document, due to factors such as an account’s size, the length of time the strategy has been held, the timing and amount of deposits and withdrawals, the timing and amount of dividends and other income, and fees and other costs. Investors should seek professional financial advice regarding the appropriateness of investing in any investment strategy or security and no financial decisions should be made solely on the basis of the information provided in this document. This is not an official statement from WAPW. Please refer to your official WAPW statement for your specific performance numbers.