To my clients:
It was an up week for North American stock markets with the Canadian TSX finishing up 2.3%; the U.S. Dow Jones Index finishing up 0.3%; and the U.S. S&P 500 up 1.1%.
It’s been another busy week, so I’ll go with a point form update again:
- The big news of today (and the week, month and year-to-date for that matter) was the ruling from the U.S. Supreme Court that the tariffs imposed by President Trump last April are unconstitutional. Truthfully, this was not a huge surprise given the skeptical questioning posed by the majority of sitting justices when the case went before the court. That said, now that the ruling is official, uncertainty is reintroduced as to what comes next: do collected tariffs get refunded? What tariffs will follow in their place (Trump has already said he will pursue tariffs by other means)? Does this mean a new round of negotiations with U.S. trading partners?
- Despite the questions posed above, Trump said in his press conference this morning that “tariffs will not be going down”. Treasury Secretary Scott Bessent similarly said that using alternative tariff measures will see 2026 collected tariff revenue substantially “unchanged” from projections made before the Supreme Court ruling.
- Market reaction has, so far, been moderately positive (though not substantially so). I suspect a stronger reaction (either for the better or the worse… I honestly don’t know at the moment) when next week’s trading begins after a narrative coalesces around what this tariff ruling means.
- More importantly though, despite whatever tariff narrative might emerge, the bigger story is that the U.S. economy continues to do well. While 4th quarter GDP was reported at a lackluster gain of 1.4%, this figure reflects an estimated 1% reduction in GDP owing to the lengthy U.S. government shutdown at the beginning of the quarter. More importantly, current quarter GDP estimates are much higher and are supported by certain credible estimates like the Federal Reserve Bank of Atlanta’s “GDPNow” model which sees growth tracking at a real pace of 3.1% through February 20th (i.e. today). “Real” GDP estimates include the impact of inflation. Nominal GDP growth (i.e. excluding inflation) is therefore tracking near 6% for the quarter. With a strong economic backdrop, and no “credible and imminent threat of recession” (a phrase I often use in these updates as well as state verbally in my annual reviews with clients), I will continue to give equities the benefit of the doubt.
- Last point: the U.S. continues to build its military presence in the Persian Gulf as it pressures Iran - ostensibly on the nuclear front, although there are humanitarian undercurrents to the negotiations given recent suppressed protests in Iran. Trump has said Iran has 10 days to agree to a deal or “bad things will happen”. Even if military conflict breaks out, unless other major powers are drawn into the conflict, I intend to ignore the “noise” of such a conflict (despite the inevitably sad human toll). Regional conflicts, even significant ones, simply don’t move the needle on U.S. economic expansion (despite initial, and often short-lived, market reactions).
Well, I guess I typed more than I intended! That’s it for this week. All the best,
Nick
Nick Scholte, CIM, FCSI
Senior Portfolio Manager
RBC Dominion Securities Inc. │ Tel: 604.257.7569
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Toll Free: 1.844.665.9900 │Email: nick.scholte@rbc.com
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