Recent market turbulence underscores a shifting global outlook as tariffs usher in a new economic era. On April 2nd, the U.S unveiled the most significant tariffs in almost a century, deepening a decline in U.S. stocks. By April 9th, as broad-based tariffs took effect, the U.S. 30-year bond yield surged amid a sell-off in the Treasury market. Later that day, President Trump paused many of the tariffs for 90 days. Equity markets soared. While the pause creates time for negotiation, tariffs are an ongoing U.S. weapon. In April we maintained our twelve-month forward outlook of six months of Stagnation (U.S. Real GDP growth less than 2.5%) followed by six months of Recession (negative GDP growth) over the next twelve- month period.
China’s economy grew 5.4% year-on-year in Q1 of 2025, maintaining the same pace as in Q4.1 Core consumer prices in China increased 0.5% in March over the same month in the previous year, reversing a 0.1% fall in February,2 while China’s surveyed unemployment rate fell to 5.2%.3 China’s trade surplus surged to USD 102.64 billion in March 2025. The sharp increase was largely driven by a 12.4% year-on-year surge in exports, as factories rushed to ship goods ahead of U.S. President Trump’s upcoming tariffs. Meanwhile, imports fell by 4.3%, due to weak domestic demand. The trade surplus with the U.S. stood at USD 27.58 billion in March. For the first quarter of the year, the trade surplus with the U.S. reached USD 76.65 billion, as exports advanced 4.5% while imports declined 1.4%.4 The annual inflation rate in the Eurozone slowed to 2.2% in March. Among the bloc’s largest economies, inflation eased in Germany (2.3% vs 2.6%), Spain (2.2% vs 2.9%), the Netherlands (3.4% vs 3.5%), and Belgium (3.6% vs 4.4%), but steadied in France (at 0.9%) and accelerated in Italy (2.1% vs 1.7%).5 The unemployment rate in the Euro Area edged down to a fresh low of 6.1% in February.6
The U.S. consumer price index fell by 0.1% month-over-month in March. This marked the first decline in consumer prices since May 2020, largely driven by a 2.4% drop in energy costs.7 The U.S. unemployment rate rose to 4.2% in March.8 The U.S. trade deficit narrowed to $122.7 billion in February 2025 from a record high of $130.7 billion. Exports rose 2.9% to $278.5 billion. The U.S. trade gap narrowed with China, Switzerland, and Canada, but increased with the EU, Mexico, and Vietnam.9 The annual inflation rate in Canada fell to 2.3% in March,10 while the unemployment rate rose to 6.7%.11 Canada reported a trade deficit of CAD 1.5 billion in February 2025, shifting from a revised 32-month high surplus of CAD 3.1 billion in January. Exports decreased 5.5% over a month to CAD 70.1 billion.12
U.S. markets experienced a turbulent Q1, as concerns about impending tariffs, inflation, and economic growth spooked investors. The S&P 500 closed out the quarter with a 4.3% decline, posting its worst quarterly loss since 2022. Mid and small caps fared worse, with the S&P Mid-Cap 400 and S&P Small-Cap 600 falling by 6.1% and 8.9%, respectively. Despite negative results in March, Canadian equities finished the quarter on the upside. The S&P/TSX Composite increased 1.5%. Europe’s large- cap S&P Europe 350 advanced 6.1% for the quarter, led by its euro- based components, which gained 8%. Almost every country contributed positively, with Germany contributing the most. Global equities faced a downturn in Q1 amid escalating concerns on impending tariffs, geopolitical tensions, and their potential economic repercussions. The S&P Pan Asia BMI (USD) closed the month and the quarter unchanged.
In April, we eliminated exposure to U.S. Municipal Bonds and replaced it with exposure to investment-grade mortgage-backed pass-through securities issued and/or guaranteed by U.S. government agencies. We use diversifiers including short duration U.S. fixed income exposure as yields are expected to respond to renewed inflation. Municipal Bonds have become less attractive as their tax -exempt status is at risk. 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 that is currently in play. While Gold is not a direct target of tariffs, market reactions to trade uncertainty have driven a significant shift in trading behaviour, positively impacting the gold price. We maintained exposure across all models to U.S. Large Caps.
The onset of the North American Trade War has created unprecedented near-term distortions to trade flows across the region. Uncertainty over the economy and future trajectory of potential Fed rate cuts is weighing on investor sentiment. A protracted trade conflict will sharply reduce exports and investment. It will cost jobs and boost inflation in the next few years and lower the standard of living in the U.S. and all countries targeted. 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 Trading Economics. China GDP. April 16, 2025.
2 Trading Economics. China Inflation. April 10, 2025.
3 Trading Economics. China Unemployment. April 16, 2025.
4 Trading Economics. China Trade. April 14, 2025.
5 Trading Economics. EU Inflation. April 16, 2025.
6 Trading Economics. EU Unemployment. April 16, 2025.
7 Trading Economics. U.S. Inflation. April 10, 2025.
8 Trading Economics. U.S. Unemployment. April 4, 2025.
9 Trading Economics. U.S. Trade. April 3, 2025.
10 Trading Economics. Canada Inflation. April 15, 2025.
11 Trading Economics. Canada Unemployment. April 4, 2025.
12 Trading Economics. Canada Trade. April 3, 2025.
Index return data from Bloomberg and S&P Dow Jones Indices Index Dashboard: U.S., Canada, Europe, Asia, Fixed Income. March 31, 2025. Index performance is based on total returns and expressed in the local currency of the index.
