March 2025

It has been a tumultuous first six weeks in office for the Trump administration. On the one hand, US economic growth is expected to lead all developed economies for the upcoming year while the S&P 500 Index is also expected to produce leading earnings growth and profitability when compared to most other global equity markets. In the short term, this trend seems likely as the new administration has lowered corporate tax rates and continued deregulation.

On the other hand, risks are mounting for the US economy. US consumers' bottom lines are already stressed by several years of high inflation, and we are starting to see spending decrease. Last week's consumer spending data showed a decrease of 0.2% in January – the first such decline in over 2 years. Consumer confidence data, also published last week by the Conference Board, shows a significant rise in uncertainty.

Uncertainty index - Source Scotiabank GBM Portfolio Strategy, Bloomberg.

Of course, the most impact is coming from the array of policy initiatives coming from the Oval Office. Things like tariffs, immigration, DOGE, geopolitics, just to name a few.  The threat of “on again/off again” US tariffs being implemented against key trading partners (not to mention retaliatory tariffs) is having a significant effect on investors. The stock market, in both the US and Canada, has been responding negatively to these high levels of uncertainty. (https://qvinvestors.com/a-small-cap-perspective-on-american-exceptionalism/)

The good news is the Canadian economy is in better shape heading into a trade war with the US than many economists expected. GDP grew at 2.6% in the fourth quarter of 2024, well ahead of Bay Street estimates.  This seems to suggest that the Canadian economy was responding positively to interest rate cuts last year.

The problem is, what’s next? Trump has already partially backed down on the most serious tariff threat. He exempted all goods that are compliant with the United States-Mexico-Canada Agreement for a month and lowered the rate on energy, critical minerals, and potash. At the same time, a 25% tariff on steel and aluminum is scheduled to begin on March 12th.

These tariffs cause significant disruption for many Canadian businesses, and the threat of them is already having a profound effect. A KPMG survey of 602 export-oriented companies published last week found that more than half had already begun reducing production or laying off employees in anticipation of tariffs. Unfortunately, even if we see another Trump flip-flop, these companies are unlikely to feel comfortable changing course in the short term.

An added complication is the change in Prime Minister over the weekend and the upcoming Federal election. Mark Carney has said that he plans to continue counter-tariffs for now, but a lot can change as we go through an election campaign.

I think we can all agree that the best thing to come from all of this is that Canadians are united in a way we haven’t seen in a long time. We are focused on supporting Canada through our purchasing and travel decisions.

(https://www.theglobeandmail.com/business/article-bank-of-canada-rate-decision-tariffs/)

This information has been prepared by Shannon Straathof who is an Investment Advisor for IA Private Wealth® and does not necessarily reflect the opinion of IA Private Wealth. The information contained in this newsletter comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any of the securities mentioned. The information contained herein may not apply to all types of investors. The Investment Advisor can open accounts only in the provinces in which they are registered. IA Private Wealth® is a member of the Canadian Investor Protection Fund and the Canadian Investment Regulatory Organization.