Caroline Jarmash
April 09, 2025
Money Commentary TrendingMarket Volatility Update April 2025 - by Andrew Lacas
TARIFF WEDNESDAY
I have put the release of our Q1 update on the back burner as I wanted to get out a quick note
regarding the Trump tariffs announced last night as well as current high level portfolio
positioning. We are now in a position that none of us have ever experienced, this creates doubt and
uncertainty.
With the first round of reciprocal tariffs announced, we have countries like China
with a roughly cumulative 67% tariff rate. When taking all the tariffs that were announced into
account, the global impact is a 26% tariff rate on all goods sold into the U.S. President Trump
announced that back in 1913 the U.S. was a tariff country with no taxes and was in great
economic shape. Fast forward 112 years and the world is a very different place and I’m not
sure if these tariffs will have the same “positive” impact. That being said, I can understand in
theory what the administration is attempting to achieve. If global trade patterns don’t change,
and that is a significant IF, according to research from Hedgeye Research, the announced
tariffs could potentially generate roughly $800B in revenue for the US, eating into the $1.8T
deficit. That is the first leg of the stool. The second leg of the stool is spending cuts. I think we
have all seen and heard about DOGE and what they are attempting to do. Whether we agree or
not with what they are doing or how it’s being done, at its core they are trying to get a handle on
government largess. These two actions when combined may also give the Fed cover to start
cutting interest rates thereby making it cheaper for the U.S. government to roll over the
astronomical debt that has to be re financed.
All these staggering changes paves the way for the third leg of the stool. From our research, we
believe that tax cuts are planned by the end of this year into early 2026. By reducing spending
and reducing the deficit this can allow for tax cuts as the ratios for the deficit to GDP would
actually improve. Cutting taxes could stimulate the economy at a time when it will most likely
already be starting to show rate of change improvements from the year before. Why this timing
you may ask? It would allow the tax cuts and improving economy to align perfectly with the
2026 mid-term elections. There may be a method to their madness but they are playing a
dangerous game.
What does all of this mean for us today and in the weeks and months? First, volatility will be
here for a while so we need to make that our friend and take advantage. We also have
continued concerns about the U.S. economy and as such will be watching the data closely to
see any signs of positive rate of change. As well, we are concerned about the continued heavy
concentration in a handful of companies and will continue to have an underweight exposure
until the data changes. We will take the administration at their word that this is the opening salvo and that it’s a starting point for negotiations. I don’t have to like it, but I do believe that to be the case. There will continue to be winners and losers and we believe being nimble and
active will benefit us. Don’t be shocked to see more activity in your portfolios as we continue to adjust to the economic changes and data as they come in. We always reserve the right to change our thinking and therefore positioning when the data changes.
For our two major equity portfolios I have some good news. Both our Alpha and North American core portfolios were coming into April with strong relative and absolute performance as they were both in strong positive return territory even with the NASDAQ -10%, S&P 500 roughly -4% and the TSX +1.5% YTD for the first quarter. Both the NA Core and Alpha portfolios outperformed all three benchmarks in Q1. Coming into today’s tariff meltdown Alpha was the most defensively positioned. In fact on April 2nd we raised another roughly 2.5% in cash taking our cash and fixed income position to just
north of 20%. Our NA Core model portfolio also came into the tariff announcements with just under 15% in cash and short term bonds. Both models also own bullion and or gold related companies which are trading with % points of all-time highs. We are positioned for volatility and have a healthy weighting of defense in our equity portfolios. We also have a number of companies that are positive on the day in both portfolios which will help to offset some of the red numbers we are seeing. We are not rushing into the equity markets and are also not panicking. Since we do have such a defense position
to our portfolios we will be making long term investment decisions on companies that we like from a fundamental standpoint that are getting caught up in this reaction. We are prepared and we have a plan.
If anybody would like to chat about their specific portfolios, Peter and I are both at our desks on our phones so please feel free to reach out at any time.