January 2026
The United States is reliant on global capital markets to fund its budget deficits and relies on the premise that the U.S. is a predictable and reliable steward of the world’s financial system. U.S. efforts to rewrite the rules of international trade, to pressure allies, and to treat economic relationships as instruments of coercion all increase uncertainty. The U.S. economy’s growth forecast has been downgraded by the OECD to 2% for 2025 and 1.7% for 2026, with inflation expected to rise to 3% in 2026.1 The US dollar declined against global currencies in January as foreign official accounts continue to diversify away from America’s government while gold bullion hit record highs in January. In January we maintained our twelve-month forward outlook of three months of Stagnation (U.S. Real GDP growth less than 2.5%) followed by nine months of Recession (negative GDP growth) over the next twelve- month period.
China’s economy expanded 4.5% year over year in Q4 2025, slowing from 4.8% in Q3.2 China’s annual inflation rate edged higher to 0.8% in December from 0.7% in the prior month,3 while surveyed urban unemployment stood at 5.1%.4 China posted a record USD 1.189 trillion trade surplus in 2025, with exports rising 5.5% while imports were flat. Faced with Trump’s tariffs, Chinese exporters shifted away from the U.S. market and toward alternative destinations, particularly the EU and Southeast Asia.5 Eurozone consumer price inflation eased to 1.9% in December, down from 2.1% in November,6 while the unemployment rate decreased to 6.3%.7 The Eurozone’s trade surplus narrowed to €9.9 billion in November 2025 from €15.4 billion a year earlier, as exports fell 3.4% while imports decreased 1.3%. Exports decreased 20.3% to the U.S. while imports from the U.S. declined 7.1%.8
The U.S. economy expanded at an annualized rate of 4.4% in Q3 2025.9 The annual inflation rate in the U.S. remained at 2.7% in December,10 while unemployment edged down to 4.4%.11 The trade deficit in the U.S. widened sharply to $56.8 billion in November 2025, compared to a $29.2 billion gap in October. The figure underscores pronounced monthly swings amid President Trump administration’s frequently changing tariff stance. Imports increased 5% to $348.9 billion, while exports were down 3.6% to $292.1 billion, led by a decline in nonmonetary gold. The deficit widened with Vietnam, China, and the European Union, while it narrowed slightly with Mexico and Taiwan.12 The headline inflation rate in Canada rose to 2.4% in December of 2025 from 2.2%,13 while the unemployment rate rose to 6.8% from 6.5% in the previous month.14 Canada’s trade swung to a deficit of C$0.58 billion in October 2025 from a C$0.24 billion surplus in September. Exports rose 2.1% month over month. Exports to the U.S. fell 3.4%. As a result, Canada’s surplus with the U.S. narrowed from C$8.4 billion to C$4.8 billion, while the deficit with non-U.S. partners narrowed to C$5.4 billion.15
U.S. equity markets capped 2025 with double-digit gains, up 17.9% amid geopolitical, tariff, and inflation -related tensions, coupled with a government shutdown and labor market concerns. The market’s comeback was powered by mega-cap strength and AI-related optimism. The S&P Mid Cap 400 and S&P Small Cap 600 gained 7.5% and 6.02%, respectively. Canadian equity indices finished the year with the S&P/TSX Composite up 31.7%. The S&P/TSX Global Gold Index climbed 146.2%. The S&P Europe 350 yearly gain of 20.5% outperformed the euro-denominated S&P 500 by 16%. Due to the 5% outperformance of its country-specific benchmark, the U.K. was the primary driver of the S&P Europe 350’s positive performance. Asia Pacific outperformed, as the S&P Pan Asia BMI (USD) gained 27.3%. Greater China posted solid results, with the S&P Hong Kong BMI and Taiwan BMI both up 31% and the S&P China 500 rising 26.6%.
In January we maintained all exposures established in December. We continue to believe that Canada is managing the U.S. tariff uncertainty relatively well, replacing some U.S. exports with contracts in Europe and abroad. Gold is held across all models as a long-term strategic asset, playing a role as an effective hedge against the heightened geopolitical uncertainty and market volatility. Gold has historically been negatively correlated with the dollar. The combined effect of heightened geopolitical risk and US dollar weakness contributed to Gold’s January record high.
We continue to monitor the global selloff of U.S. treasuries and the growing holdings of gold. Our approach to portfolio management is nimble, opportunistic, and deliberate in identifying asset classes that are best placed to generate returns in a new world order. Our focus is on protecting portfolios from downside risk, and we believe that our investment process is working to achieve that goal.
Deborah Frame, President and CIO
Drew Millard, Portfolio Manager
1 OECD Economic Outlook. December 2, 2025.
2 Trading Economics. China GDP. January 19, 2026.
3 Trading Economics. China Inflation. January 9, 2026.
4 Trading Economics. China Unemployment. January 19, 2026.
5 Trading Economics. China Trade. January 14, 2026.
6 Trading Economics. EU Inflation. January 19, 2026.
7 Trading Economics. EU Unemployment. January 8, 2026.
8 Trading Economics. EU Trade. January 15, 2026.
9 Trading Economics. U.S. GDP. January 22, 2026.
10 Trading Economics. U.S. Inflation. January 13, 2026.
11 Trading Economics. U.S. Unemployment. January 9. 2026.
12 Trading Economics. U.S. Trade. January 29, 2026.
13 Trading Economics. Canada Inflation. January 19, 2026.
14 Trading Economics. Canada Unemployment. January 9, 2026.
15 Trading Economics. Canada Trade. January 8, 2026.
Index return data from Bloomberg and S&P Dow Jones Indices Index Dashboard: U.S., Canada, Europe, Asia, Fixed Income. December 31, 2025. Index performance is based on total returns and expressed in the local currency of the index.
