DIARY OF A PORTFOLIO MANAGER
June 27, 2025
“I know it's up for me
(If you steal my sunshine)
Making sure I'm not in too deep
(If you steal my sunshine)
Keeping versed and on my feet
(If you steal my sunshine)”
Steal My Sunshine, Len
Good morning,
I am supposed to head out this afternoon / evening with office colleagues to a neighbour’s place by boat. The 100% chance of rain and possibility of thundershowers in the forecast has me feeling that someone has stolen my sunshine hence the lyrics above. I won’t let it get me down. Summer is here and so is summer concert season!
It has been an eventful few weeks in case you weren’t aware. Due to world events, oil prices have been volatile and global equity markets have remained resilient. I am hearing stories about the commodity super boom that we are on the precipice of. This should be good for Canada if we manage it properly. We will see how this works out.
Tariffs, the “BBB”, and the economy back on the front burner in the weeks and months to come
As we move into the summer, three issues come to mind: tariff deadlines, the One Big Beautiful Bill Act, and progression of the economy.
1) On the tariff front, two deadlines are approaching. On July 9th, the reciprocal tariffs that were lowered to 10% across a host of countries are set to expire. Meanwhile, on August 12th, the 90-day grace period that China and the U.S. had agreed to will come to an end. In theory, tariffs are set to increase meaningfully thereafter. However, there is the possibility of agreements being reached, or some extensions being offered to buy more time for negotiation. It appears that China and the U.S. have settled on some framework for an agreement, though details have not been revealed. It is hard to predict, but the strength of the global equity market suggests markets are not too concerned.
2) The U.S. government is working hard to try to pass the One Big Beautiful Bill Act. This Bill represents President Trump’s key piece of legislation and includes a collection of tax cut extensions and increases to military spending, among many other things. The U.S. government bond market showed some signs of concern when the initial Bill was first unveiled as markets became anxious about the potential long-term impact to the government’s budget deficit. But bond yields have since retreated, reflecting less concern or a view that meaningful changes to the Bill could be forthcoming. Either way, investors are bound to focus on this in the weeks to come.
3) The most important factor in the second half of the year may be the progression of economic data and corporate guidance. Markets will be watching for signs of any potential impact of higher tariffs, either through pricing pressure or slower growth. There have been some small signs here and there, but overall, there have been limited indications of a meaningful impact to the U.S. economy so far. If data continues to be resilient, the confidence in the corporate earnings outlook will rise, providing further opportunities for equities to move higher.
Returns have been surprisingly good despite the headlines
Investment returns through the first half of the year have been reasonable, which is impressive considering the circumstances. On the one hand, this has served as a reminder that despite headlines that seem concerning and unnerving, markets can be resilient and it’s important to avoid being swayed by short-term developments. On the other hand, equity markets are now trading at or near all-time highs. This suggests that expectations have also risen leaving some room for disappointment. Also, there is potential for weakness should the economic and earnings trajectories not unfold as positively as markets seem to be expecting. We don't want to let complacency set in, and for these reasons your team at RBC DS continues to remain vigilant despite a renewed sense of optimism.
Happy Friday,
