The first weeks of the new administration underscored what our team expects to be a new reality for markets – that the only certainty about Trump's presidency, looks to be uncertainty.  As I reflect on the last five years in financial markets, I am hard pressed to find a time where we had true certainty. In the 2020s, the financial markets have encountered extreme volatility. The decade started with a sharp COVID-19-driven bear market which quickly rebounded due to massive government stimulus efforts and low interest rates. In 2022, markets faced severe headwinds from inflation, rising interest rates, and geopolitical tensions. These eased in 2024, and optimism returned to the market amid easing supply chains, lowering of Interest rates, and the euphoric rise of AI. And now, global stock markets continue to flirt with record highs. The last five years have been a real-life case study on why staying invested during uncertainty is a key pillar in building long term wealth. 

Photo description - graph of S&P 500 between 2020 and 2025

 

What’s Happening with Trump's Tariff Rollout

 

President Trump’s decision to impose sweeping tariffs on some of America’s largest trading partners sent shock waves through markets across the globe on Monday. The day began with stocks dropping sharply, as investors dumped shares of companies that would be hardest hit by tariffs on imports from Canada, Mexico and China. Then came an announcement late Monday morning that tariffs on Mexico would be delayed for a month and then, after the markets closed, a similar announcement about the tariffs on Canada. On Tuesday, US Stock were little moved as China slapped tariffs of up to 15% on U.S. imports of coal and liquefied natural gas and 10% higher duties on crude oil, farm equipment and selected cars, effective Feb. 10. It looks like Trump's trade war with Mexico and Canada is on hold for now, but it is our view that the relationship with China is fundamentally different. 

 

What’s Next?

Tariffs will hurt all parties involved

The timing and scale of tariffs have been the biggest unknown hanging over financial markets since Trump's re-election last year. Even as the Federal Reserve begins a rate cutting cycle, concerns that tariffs and subsequent retaliation could reignite inflation are leading bond yields higher. If tariffs are implemented, Canada could face a 2.6% GDP contraction, equating to a $78 billion economic loss, with some estimates suggesting the impact could surpass 4% by 2026 (Source: GlobalX). In response to tariffs from the U.S., Our leadership has made it clear that they would introduce tariffs of their own, including US steel, alcohol and orange juice. Your whiskey sour just got a lot more expensive.

 

Our energy sector, which currently holds the title of primary U.S. supplier, will have to battle with increased crude oil production in addition to said tariffs.  If there is a change in leadership north of the border, A Conservative-led government in Canada would undoubtedly benefit the energy sector but faces headwinds from the U.S. push for energy independence. In summary, if the new administration continues building walls around America, and further pushing the protectionist agenda, the resulting impact will drain investment capital out of Canadian businesses.

 

Persistent Inflation Might Keep Rates Higher for Longer

Inflationary policies ranging from across-the-board tariffs, extending tax cuts, and mass deportations of illegal immigrants, have already contributed to a dramatic rise in U.S. Treasury yields as investors worry about further rise in the cost of goods and services, as well as the ability of the U.S. government to sustain rising fiscal deficits with a lack of a clear plan to address it. From an investment standpoint, the yield spread between Canadian and US government issued debt provides an opportunity for a slight yield pickup, though through a currency hedged approach given rising risks to the CAD$.

 

Industry Shifts: Risks and Opportunities

Some of the main themes of the past year are still in focus in 2025. Continued growth of AI (with the Deep Seek launch being viewed as a competitive threat to incumbents which may spur further investment) and interest rate cuts are likely. Certainly, the Trump administration will continue to deliver surprises, but a reinvigorated U.S. corporate sector has already shown steady earnings growth which will lead to stock price appreciation. At home, the sharp decline in cash rates will benefit Canadian dividend payers. There is still plenty of excess funds sitting in bank term deposits and these will continue to mature into a lower rate environment, leading investors back into higher yielding markets. Much more attractive valuations in Canada and the higher dividend yield should allow the S&P/TSX to keep pace with our US counterparts, though near-term Canadian dollar weakness is certainly a headwind.

 

Final Thoughts

As our team continues to navigate this rapidly changing landscape, both at home and abroad, we continue to stress the value of active portfolio management, and goal-oriented planning. We continue to believe that the best way to build and preserve your financial future is with a long-term approach to investing. With that said, “buy and hold” doesn’t mean “buy and ignore.” We continue to be hyper focused on the investment landscape at home and internationally. Furthermore, we continue to hold the highest-quality companies that have proven track records of success across varying economic backdrops.