The month of April has come and gone, and so too has some of the drama and market volatility resulting from the threat of a global trade war. Below, we discuss why the past month served an important lesson for investors. We also briefly address the Canadian elections and developments on the tariff front.

April saw wild moves but remarkably ended flat

Global stock markets finished the month close to where they started. That is an impressive feat given what transpired. More specifically, the global stock market fell nearly 10% during the first week of April as the U.S. unveiled its initial reciprocal tariff plan. The global market subsequently recovered those losses, finishing the month marginally higher in constant currency terms (i.e. ignoring the effect of the Canadian dollar, which itself moved higher). Moreover, bond yields and currencies also saw relatively large moves. Uncertainty remains elevated, but the past month should serve as a reminder that while periods of heightened volatility can be unnerving, it is best to resist the urge to react to the noise and avoid straying too far from targets in investment plans.

Canadian elections

Canada has elected a minority Liberal government. It is too early to discuss the implications for the short and long-term. Nevertheless, there are a few takeaways worth sharing. First, there is an expectation that this Liberal government will shift towards the centre and be more focused on economic than social policy. Beyond tariffs, the objectives at a high-level are expected to include lower immigration, the reduction of interprovincial barriers, and increased spending in areas like infrastructure, housing, resources and defense. Given its minority position, the Liberals are expected to negotiate with the Bloc Québécois and New Democrats, both of whom lost a number of seats in the election, to get policy pushed through. Near-term, Prime Minister Carney is expected to meet with U.S. President Trump to discuss trade and evaluate a range of potential concessions that could lay the groundwork for a new potential trade agreement between the U.S., Canada, and Mexico next year.

A de-escalation taking hold

The U.S. administration has been scaling back some of its trade demands recently. For example, many of the reciprocal tariffs announced on “Liberation Day” have been temporarily reduced, exceptions have been granted for key electronic components, and certain accommodations have been made for the automotive sector. Moreover, the U.S. administration is showing more willingness to negotiate than it did just a few weeks ago. In other words, it would appear there is a de-escalation of the aggressive approach to trade undertaken by the U.S. earlier this year. This trend has moved us further away from a worst-case scenario that would have been marked by elevated blanket tariffs across all sectors and countries for an extended period of time.

Improved sentiment but caution still warranted

Despite some improved market sentiment, many questions remain unanswered. Most importantly, how much damage will the U.S. approach on tariffs cause to the U.S. economy? The recent first quarter U.S. GDP figure revealed a significant uptick in imports, suggesting consumers and businesses were front-loading their purchases of goods ahead of the arrival of tariffs. This indicates that tariff threats have already had an impact. Whether they continue to have an impact will depend on how long the tariffs remain in place and whether the levels of trade hostility from the past month can subside more meaningfully. Given the heightened level of uncertainty and overall market valuations, we continue to approach the management of our client portfolios with caution.