Market Moves: Where do we stand?

Following an 18.9 percent plunge due to substantial tariffs, the S&P 500 shot up 19.7 percent from April 8 through May 19 after very high tariffs were paused. Since then, it has backed off some but is still above the levels before big tariffs were levied and is now ~4.5 percent below the mid-February all-time high.

Such a large rally over such a short time frame hasn’t happened since the rebound following the most acute stage of the pandemic crisis in March 2020. And this one has eclipsed a similar move that occurred right after the global financial crisis low in March 2009. If you’ve had motion sickness along the way, you aren’t alone!

We think the rally, while stomach-churning for some, has been a gift. We are taking the opportunity to clean out any unwanted equity positions in portfolios Our overall positioning advice hasn’t changed: We think the high levels of uncertainty argue for holding higher quality positions and remaining sufficiently diversified.

Tax Bill Passes the House

U.S. President Donald Trump's signature tax bill passed the House of Representatives Thursday morning with a vote of 215-214. The bill now moves to the Senate, where lawmakers are expected to vote on approval by August. The bill includes an extension of Trump's first-term tax cuts that are due to expire at the end of the year, additional tax breaks for tips and overtime pay, an end to many green-energy subsidies, and increased spending on military and immigration enforcement. The Congressional Budget Office estimates that the bill will increase the U.S. debt burden by US$3.8 trillion over the next decade, as concerns surrounding rising U.S. debt following Moody's decision to downgrade the U.S. government's credit rating late Friday drove 30-year Treasury yields as high as 5.1%, just short of a two-decade high.

Tariff Update

While there remains a divergence between hard and soft data coming out of the U.S., the impact of the trade war has begun to bleed through to some economic data. Firms and consumers have attempted to front-run tariffs to avoid higher costs at a rapid rate. Temporary pauses for Chinese and other reciprocal tariffs provide an opportunity for firms and consumers to preemptively purchase goods

Real imports increased by an annualized 41% in Q1, the most since the pandemic-led recovery. This had an outsized adverse impact on GDP in the quarter, with net trade shaving 4.8 percentage points from Q1 real GDP growth

All in all, this data suggests that firms remain inadequately prepared for the full impact of tariffs should they come to fruition, and the door is open to additional surges in imports as the 90-day pauses wind down. Further front-loading efforts may temporarily insulate firms and consumers from the impact of higher prices, but Q2 GDP data may be distorted to the downside from such elevated import volume.

In Canada

The removal of the consumer carbon tax on energy products drove a significant drop in Canada’s headline inflation, coming in at 1.7% year over year in April (consensus: 1.6%) compared to 2.3% in March. When adjusting for this carbon tax impact, core inflation (which excludes food, energy, and the effects of changes in indirect taxes) rose above 3% year over year, the highest level since June 2024.

While the increase in core inflation could temper expectations for rate cuts from the Bank of Canada, markets are currently anticipating one to two 25 basis point cuts by the end of 2025 amid growing signs of labour market weakness.

Canadian home prices fell for a fifth consecutive month in April. The seasonally adjusted MLS Home Price Index dropped 1.2% m/m, with house prices down 3.6% year over year. The decline was spread across both single-family homes and apartments. With cold weather a smaller factor in April, the slowdown in home prices was likely driven by economic uncertainty that stemmed from the trade war and weighed on demand.

As always, we will continue to keep a close watch on ongoing developments and share timely updates as new information becomes available. Our team is available to address any questions you may have, so please do not hesitate to contact us.

 

Thank you,

 

Kayte