March 2025
For decades, Canada, Europe, and parts of Asia have trusted America’s “superpower stack”—defence treaties, trade deals, nuclear weapons, the dollar banking system—because it is mutually beneficial. The Trump overhaul of the global economy with sweeping tariffs has led to concern over inflation and growth. Now, global consumer spending has slowed outside of China due to the escalating trade war threat. The most obvious warning sign is the sharp decline in American stock markets in recent weeks. In March we updated the twelve-month forward outlook to reflect our view 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 consumer prices dropped by 0.7%1 while surveyed unemployment edged higher to 5.4% in February from 5.2% in the previous month.2 China’s trade surplus with the U.S. reached USD 49.05 billion, with exports and imports rising by 2.3% and 2.4% respectively.3 Inflation in the Euro Area decreased to 2.3% in February,4 while unemployment remained unchanged at 6.2% in January.5
The U.S. economy expanded an annualized 2.4% in Q4 2024.6 The U.S. consumer price index increased by 0.2% month-over-month in February 2025,7 while the U.S. unemployment rate rose to 4.1% in February.8 The U.S. posted a record trade deficit of $131.4 billion in January 2025. Imports surged 10%, driven by anticipation of upcoming tariffs. Exports rose at a slower 1.2%.9 The Consumer Price Index in Canada increased 1.1%,10 while the unemployment rate was 6.6%.11 The Canadian trade surplus widened to CAD 4.0 billion in January 2025, the largest since May 2022. Canada’s merchandise exports rose 5.5%, while imports increased 2.3%. Export growth was driven by motor vehicles and parts (+12.5%), energy products (+4.8%), and consumer goods (+7.8%), particularly pharmaceutical products (+41.5%). Exports to the U.S. surged 7.5%, amid tariff threats.12
U.S equity markets were buffeted by several headwinds in February, including potential impending tariffs, geopolitical tensions, economic weakness, and a decline in consumer confidence, with the S&P 500 closing the month down 1.3%. Mid and small caps fared worse than their large-cap peers, with the S&P Mid Cap 400 and S&P Small Cap 600 falling 4.4% and 5.7%, respectively. Canadian equities finished the month on the downside. The S&P/TSX Composite decreased 0.4%. The Bank of Canada highlighted growing uncertainty in its economic outlook due to the unpredictability of U.S. tariff threats, which could impact prices for Canadian businesses and consumers, dampening demand for riskier assets in Toronto. February was a strong month for European equities, with the large-cap S&P Europe 350 gaining 3.6%, followed by the S&P Europe Midcap and Smallcap indices rising 2.6% and 1.1%, respectively. Pan Asia equities faced pressure in February due to concerns over U.S. tariffs, with the S&P Pan Asia BMI (USD) declining by 0.6%.
In March, in response to pending U.S. tariffs, we reduced exposure across all models to U.S. Large Caps by 5 percent and added that exposure to Gold. We use diversifiers including short duration U.S. fixed income exposure as yields are expected to respond to renewed inflation. 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. Despite its rally, gold is a long way from its all-time inflation-adjusted peak, which was set in 1980 and equates to about $3,800 an ounce.
The onset of the North American Trade War has created unprecedented near-term distortions to trade flows across the region, with a surge in imports in the U.S. and of exports from Canada. 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. The uncertainty alone is causing harm. 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 Inflation. March 9, 2025.
2 Trading Economics. China Unemployment. March 17, 2025.
3 Trading Economics. China Trade. March 7, 2025.
4 Trading Economics. EU Inflation. March 19, 2025.
5 Trading Economics. EU Unemployment. March 4, 2025.
6 Trading Economics. U.S. GDP. March 27, 2025.
7 Trading Economics. U.S. Inflation. March 12, 2025.
8 Trading Economics. U.S. Unemployment. March 7, 2025.
9 Trading Economics. U.S. Trade. March 6, 2025.
10 Trading Economics. Canada Inflation. March 18, 2025.
11 Trading Economics. Canada Unemployment. March 7, 2025.
12 Trading Economics. Canada Trade. March 6, 2025.
Index return data from Bloomberg and S&P Dow Jones Indices Index Dashboard: U.S., Canada, Europe, Asia, Fixed Income. February 28, 2025. Index performance is based on total returns and expressed in the local currency of the index.
