To my clients:

It was an up week for North American stock markets with the Canadian TSX finishing up 1.3%; the U.S. Dow Jones Index up 3.0%; and the U.S. S&P 500 up 2.9%.

Well, the month of April has come and gone. Ignoring the effects of currency (the U.S. dollar fell 4.1% in the month lowering the value of U.S. denominated investments held by clients), stock markets were very close to flat in April. That is something that few might have imagined in the immediate aftermath of the April 2nd “Liberation Day” tariff announcements (the Dow Jones Index fell over 10% in just two days after the announcement!). Of course, uncertainty remains elevated, and the path ahead is sure to have many more bumps than any of us would like, but the past month should serve as a reminder that while periods of heightened volatility can be unnerving, it is typically best to resist the urge to react to the noise and avoid straying too far from targets in investment plans. There are exceptions to this guidance, most notably when a broad-based business cycle slowdown portends imminent and significant recession, but that’s not necessarily the case right now, although it’s not out of the question either.

On the economy, the U.S. Employment Report was released this morning and, despite the turmoil wrought by Trump’s tariff agenda, the U.S. economy added 177,000 new jobs in the month which was better than even the most optimistic forecast of surveyed economists. Further, 177k new jobs in the month, while not stellar, is nonetheless a very solid report even in “normal” times – and few would say the April landscape was “normal”. This result speaks to the resilience of the U.S. economy. Again, the economic and employment landscape may yet deteriorate but, for now, the “hard data” indicators are holding up better than most would have thought.

But hold on, if one reflects upon my assertion that the “hard data” is holding up well, then one might counter that U.S. first quarter GDP was reported this week and it showed the U.S. economy contracted by 0.3% in the January to March period. How can this be squared with my contradictory assertion? The answer lies in the details of the GDP report. I won’t dig too deeply into the weeds, and there are many moving parts, but the most notable line item leading to a 1st Quarter economic contraction was a surge in imports as importers rushed to beat the April 2 Liberation Day tariffs. Imports subtract from GDP, and this single line item, owing to the rush to beat tariffs, subtracted a whopping 4.8% from GDP for the quarter! Again, there are give and takes with the data details, and its not the case that absent this surge in imports that Q1 GDP would have been +4.5%, but it definitely would have been firmly positive.

Speaking of moving parts, trade negotiations are said to be underway with a great many of the U.S.’s most important trading partners. Further, Commerce Secretary Howard Lutnick said in an interview with CNBC the following about an unnamed country: “I have a deal done, done, done, done, but (before I can announce the deal) I need to wait for their Prime Minister and their parliament to give its approval, which I expect shortly.” Other countries are said to be close to deals in principle also. Newly elected Canadian Prime Minister Mark Carney spoke with Trump and is supposed to have said “let’s get a trade deal done.” Notably absent from the rumored list of trade negotiations is China. However, there have been comments over the past week from both U.S. and Chinese officials that suggest a softening in stance from both sides. In fact, mid-morning today, comments from Chinese officials indicating that China would be willing to address the U.S’s fentanyl concerns as a way to kickstart wider trade negotiations sent markets sharply higher.

I reiterate, the path ahead is littered with potholes and will remain bumpy. But, unless the business cycle meaningfully deteriorates and significant recession is both likely and imminent, I don’t intend to meaningfully adjust strategy on behalf of clients. Stay the course.

One last note: for discretionary clients, I sold Linamar (a Canadian-based auto parts manufacturer) and replaced it with Pembina Pipelines this week. While Trump’s threats and postures remain constantly in flux, it does seem that he is particularly focused on restoring the prominence of the U.S. auto industry and this will likely be a persisting headwind for Canadian auto parts suppliers. In retrospect, I should have done this much sooner, but a modest uptick in Linamar’s share price this week gave me an opportunity to make the switch. While clients will know that I do not invest in oil and gas producers (mostly owing to price volatility), pipelines are an exception in that they have long-term contracted throughput agreements that offer a high level of earnings and cashflow visibility. Adding an element of “steady as she goes” in the current environment seems appropriate.

That’s it for this week. All the best,

Nick

Nick Scholte, CIM, FCSI

Senior Portfolio Manager

Scholte Wealth Management
RBC Dominion Securities Inc. │ Tel: 604.257.7569 │ Fax: 604.235.9950
3200-1055 West Georgia │ Vancouver, BC │ V6E 3P3
Toll Free: 1.844.665.9900 │Email: nick.scholte@rbc.com

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