The past couple of weeks have continued where January and February left off: a dizzying barrage of policy decisions, reversals, and confusion. Even at the time of writing, the tariff situation between the U.S., Canada, and the rest of the world is changing seemingly from hour to hour.
This newsletter will be focusing on the potential impact of tariffs on the Canadian, U.S. and global markets - although this is a topic that is getting increasingly tiring to keep up with, it's still important for us to understand the implications of what we're seeing in the news. It is also important to remind ourselves to take a breath and focus on the long-term view. Removing emotion (whether its uncertainty, greed or even anger) is easier said than done, but remains a cornerstone to a disciplined investment strategy.
On a positive note, we are also highlighting our annual International Women’s Day event held last week, as well as our participation in the Power Panel with the Milton Chamber of Commerce. We are passionate about shining a light on the incredible women entrepreneurs and leaders in our region, and giving them a platform to share their experiences and journeys with others.
Economic Update
It has been quite the year already given the policy shifts and turns undertaken by the U.S. administration. While many people are “tariff-ed” out at this point, it is important to keep a plus on the developing situation. We discuss some of the early impacts from the trade war thus far.
Tariff quick sands continue to shift, leading to uncertainty
With the break-neck pace of decision making and news, it is prudent for us to refrain from providing much of an update on where things stand with respect to tariffs. On the one hand, temporary exemptions and delays have emerged recently, which lessens the immediate blow to the economic outlook, and potentially moves us further away from a worst-case scenario. But on the other hand, the constant upheaval in policy has made an already uncertain environment even more unpredictable. Not surprisingly, it is beginning to weigh on consumers, businesses, and investors.
Consumers bracing for the impact of tariffs
A variety of different surveys released in the U.S. over the past month have suggested a deterioration in consumer sentiment. It has been felt across all demographic and most income groups. Expectations on future business conditions, jobs availability, and income prospects have worsened. Not surprisingly, references to trade and tariffs were evident from those consumers that responded to the survey, as were comments around inflation. On the latter, there has been a notable uptick in short and long-term U.S. inflation expectations as consumers have started to brace for the impact that tariffs may have on the price of every-day goods and services.
Uncertainty is leading to slowing growth in the U.S.
On the business front, recent U.S. economic reports suggest some signs of weakness are starting to emerge. Business activity and new order measures within recent services sector reports are pointing to a slowing in growth through the first quarter of the year. The surveys highlighted that policy uncertainty is weighing on demand growth, both domestically and outside the country. Separately, the U.S. Federal Reserve’s “Beige Book”, which is published eight times during the year, was released recently. It provides a collection of anecdotal feedback taken from a variety of sources across the U.S. Overall, it suggested a slowing of growth across some of its districts. The report highlighted that some manufacturing and construction firms suggested tariffs were already raising material costs and creating uncertainty for long-term pricing and investment decisions.
Global equity declines have been modest so far
Global equity markets have been weaker in the face of these developments, with signs that investors are getting increasingly uncomfortable. Gages of investor sentiment have shown a significant pickup in the percentage of investors that are bearish (ie. negative on the outlook) and vice versa (a large fall in the percentage of investors that are bullish). Yet the equity market declines have been relatively modest thus far. Notably, the U.S. stock market has underperformed other markets including those in Canada, Europe, and Asia. It is hard to completely rationalize this, but it may be attributable to the fact that U.S. stocks were quite expensive relative to others, which left them potentially more vulnerable to a “risk off” scenario. Historically speaking, investors typically look to reduce risk in their portfolios in an environment of heightened uncertainty, and expensive stocks can sometimes be an easy funding source.
Summary
The question for investors is: what’s next? It is possible the market may see some relief in the short-term given the recent tariff reprieve. Better yet is the possibility of a less threatening tariff outcome by April should some favourable negotiations transpire in the weeks to come. However, the risks of a longer lasting trade war are high enough that caution is warranted in our view, even if the markets have fared better so far than we would have expected. As a result, we continue to review and assess our portfolios to ensure that our clients’ exposures are appropriate.
It is hard to believe – we are only in the month of March. The fire hose of policy changes and grim news cycles can be difficult to stomach at times – on a human level, this can lead to added stress to our daily lives and decision making. From an investing perspective, it is important to avoid emotion-led decisions or knee jerk reactions during these periods of uncertainty. Remaining disciplined, investing in good companies, and maintaining a long-term view are critical components to a successful strategy.
How U.S. steel and aluminum tariffs would impact Canada’s economy
Just a week after the threat of blanket 25 percent tariffs on imports from Canada were avoided, the Trump administration announced significant 25 percent tariffs on U.S. imports of steel and aluminum products from key trade partners including Canada that comes into effect on March 12th. Even with the ambiguity of trade relations going forward, this article from RBC Wealth Management discusses the implications of U.S. steel and aluminum tariffs are on Canada.
You can read the full article and analysis by clicking here.
Celebrating International Women's Day
This past Wednesday, we hosted our annual International Women’s Day event at Cutten Fields in Guelph, Ontario.
We had over 110 attendees at this year's event, where we heard from Jenny Bird about her inspiring professional and personal journey of success and hardship, along with the voice and experiences of our own Karie Huisman. Jenny’s was engaging - sharing stories of perseverance, the value of hard work, and the balance of being a mother and a business leader.
We are also excited to announce that together, the RBC Foundation and Jenny Bird’s Possibilities Fund are donating a total of $5,000 toward two incredible causes: womenmind™ (a women focused initiative by the Centre for Addiction and Mental Health) and the YMCA Guelph.
Thank you to Jenny Bird, Karie Huisman, and everyone who was able to attend and celebrate the extraordinary women in our community.
Power Panel - with the Milton Chamber of Commerce
We are proud sponsors and participants in the Milton Chamber of Commerce's Power Panel breakfast event. On Wednesday March 5th, our own Jennifer Goody-Brown moderated a panel of inspiring female leaders and entrepreneurs. It was a fantastic event, with many incredible stories and learning points for everyone who attended.
Thank you to everyone who attended, and to the Milton Chamber of Commerce for hosting this great event.
As always, we are available to connect with you personally. Please don’t hesitate to contact us at 519-822-2024 or elineskyschuett@rbc.com.
