Over the past few weeks we’ve witnessed heightened volatility in equity and currency markets, accompanied by growing unease about the Canadian, U.S., and global economies. The uncertainty stems largely from recent policy decisions and executive orders from the Trump administration. For Canada, this has felt like a turbulent tug-of-war, with US tariffs on Canadian goods being imposed, paused, reimposed - prompting retaliatory measures and tariffs from our own government.

 

Putting Things in Perspective

• Portfolio Performance - with the constant negative media/social media attention paid to the diplomatic commotion, investors might feel they’re down -10 to -15%. While the stock market is indeed down roughly -8% to -10% from it’s peak set earlier this year, our balanced portfolios are actually up slightly year to date and are down only about -2% from their late January peaks. This follows two years of strong double-digit gains in 2023 and 2024.
• Historical Resilience - over the past five years, we’ve navigated significant volatility, including an -18% market drop in 2022 and a -37% decline in early 2020. Despite this our balanced portfolios have delivered a strong record of growth through this tumultuous period.
• Market Recovery Patterns - we often hear our experienced clients say ‘I don’t have time to recover’, regarding a market correction’s impact on their investment portfolio. The perception might be that market corrections take 5-10 years to recover and someone in retirement may not be willing to go through that. Let’s put that into context - there have been 26 stock market drawdowns exceeding -20% over the past century. On average, these drawdowns took about 12 months from peak to trough and on average another 17 months to recover fully to new all-time peaks. Market corrections of the current magnitude (-10%) have happened nearly 100 times in the past century and on average take a few months to recover. This demonstrates that market corrections are a routine part of the process for long-term investors, and that the resilience of markets is far greater than perhaps investors realize.

 

Why We Remain Confident

• Quality – our portfolios are focused on high quality investments. Whether this is equity shares in world-class businesses or fixed income focusing on strong credits, our portfolios have a focus on time-tested high quality investments. We have no appetite for speculative low-quality investments as they can’t be relied upon through difficult markets.
• Value – our portfolios are full of investments that we consider to be excellent value. We try to buy a dollar of assets for 60-75 cents to build in a safety barrier for our investment. Having done our homework, if we see prices fall on our favourite assets we are confident it isn’t because we have overpaid. This allows us to step in and add to our positions, often buying from people who are selling in a panic.
• Diversification - our portfolios are broadly diversified across cash, fixed income and domestic/global equity allocations. We don’t expose our clients to concentration issues and do our best to structure the portfolio to mitigate risk during periods of volatility. For example our cash and fixed income investments are all positive year to date. Within our overall equity allocation we have approximately 20% exposure to European stocks where the Eurostoxx50 index is up over 10% year to date. This diversification gives us an opportunity to rebalance, drawing from our unaffected asset class holdings to fund additions to our favourite positions that are on sale.

 

Addressing Current Market Dynamics

The recent sell-off has been particularly pronounced among high-growth technology companies like the formerly ‘Magnificent Seven’ (Apple, Microsoft, Nvidia, Google, Meta, Amazon, Tesla) a group whose strong performance was the primary driver of positive US index returns over the past 2 years. At one point they were the 7 largest companies in the US stock market, valued at nearly $20 trillion. For perspective that is 1.5x the entire European stock market and 6 times our Canadian market. Their influence on US and Global index direction is considerable.

 

This group has declined by nearly -20% from their peaks earlier this year. Their stretched valuations made them more vulnerable to corrections – times of uncertainty can cause market participants to question premium pricing and drive investors to focus on value.

 

We must keep in mind that the Mag7 as a group are still trading at a large premium to history, to the current market and to their peers. The entire NASDAQ index is similarly precariously priced. Our concern is that the process of these businesses coming back in line to a more reasonable valuation would be a result of one of three scenarios:

 

a) Their share prices suffering a -20 to -60% price correction – not fun. We are starting to see this begin actually in a number of high multiple companies.

b) A long period where the position trades sideways, waiting for its business/earnings to grow into today’s inflated share price. Also not fun.

c) Massive earnings growth well beyond even the most optimistic expectations. Quite fun, but unrealistic to plan for.

 

We are reminded of a time earlier in our careers when the high-tech heavy NASDAQ index delivered a price return from 2000 to 2015 of 0%! A strong correction from 2000-2002 was followed by a 13-year recovery period where high-tech investors spent 15 years just to break even.

 

We believe much of the current uncertainty is short-term in nature. The tariff disputes appear to be more about leveraging negotiations than causing long-term economic harm. With that being said, we are still positioned well to manage through a protracted period of trade war and will be actively adjusting where we see opportunity to do so. While Canada faces challenges like declining productivity and reduced investment attractiveness, these issues also highlight opportunities for necessary reforms by the current and/or future governments

 

Our Advice

We urge our clients not to react emotionally or attempt to time the market—history shows this approach rarely succeeds over the long term. Instead, staying disciplined and focused on your long-term goals remains the best strategy, and knowing your portfolio has been positioned appropriately to do so hopefully gives you the confidence to stay the course.

 

As always, we are here to address any concerns or questions you may have about your portfolio and financial plan.

 

Brady Clark Advisory Group