Q – I read your article in the Dec. 16 issue regarding taking profits. What would be your advice on the Canadian banks? For the most part they had a very good year. However, I don’t understand how they would be affected if a 25% tariff comes to be. As always, thank you for your help. – Steve A.
A – Banks won’t be directly hit by tariffs but their stocks are economically sensitive. If the tariffs are enacted and remain in place for any length of time, the impact on the Canadian economy will be significant, perhaps pushing us into a recession.
Banks thrive during periods of economic growth when people and companies are borrowing, IPOs are coming to market, merger and acquisition activity is strong, and wealth management services are in demand. When the economy sags, business falters, putting downward pressure on share prices.
Long term, bank stocks will recover when the economy rebounds. But who knows how long Trump will apply the pressure. It seems he wants a lot more from us than border security. If you’re prepared to ride it out, hold on to your shares and collect the dividends. Royal Bank will still be a great company 50 years from now. But if you have good profits and want a more defensive portfolio in the face of this threat, consider taking some money off the table. Look first at any registered plans you have, where selling will not trigger a taxable gain. – G.P.