Lexicon Financial Group Weekly Update — March 12, 2025
“In my view, the biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital. Not only is the mere drop in stock prices not risk, but it is an opportunity. Where else do you look for cheap stocks?. ”
From the desk of Craig Swistun, CIM, MFA-P, Portfolio Manager, Raymond James Investment Counsel, and Wayne Hendry, Client Relationship Manager, Raymond James Investment Counsel
Looking Around
These days, it seems like it’s a tariff here, a tariff there and tariffs everywhere, with little end in sight. Tariffs are not new and have been around for hundreds of years. Trade wars are nothing new, either. But that doesn’t mean we want them.
Canada has weathered trade wars with the United States as far back as the late 19th century. Tariffs can affect economic growth, consumer spending, trade flows, government revenue, exchange rates, employment, and inflation. As a result, tariffs can and do introduce a layer of uncertainty. (1)
Market uncertainty leads to volatility, as investors try to make sense of everything. People often think of volatility as a measure of risk. So in that sense, uncertainty can inflate the real or perceived risk of investing. (2)
The latest rounds of tariffs and other policies enacted by President Donald Trump have certainly increased uncertainty and fear for stock. Consumers, now anxious, have cut back on their spending. In Canada especially, consumers are shifting their buying patterns to choose more “Made in Canada” products than ever before. Whether these shifts are short- or long-term, it will take some time for their impact to be reflected in economic data.
The ”textbook” analysis certainly suggests that tariffs run the risk of inflation and slower economic growth. But, if people aren’t spending as much, prices could, in fact, come down. Couple this with the massive spending and job cuts in the United States and inflation numbers might come down – potentially at the expense of economic growth. Are we going to discuss the ”R” word, namely recession, again? (3)
Well, history shows us that having a long-term financial plan and sticking to it works. Why? Stock markets, as you can see from the graphic below, over time, have delivered a positive return, despite periods of volatility and other shocks.
Also, as you can see from the chart below, trying to time the market can hurt investment returns.
Sources: Standard & Poor's, RIMES, and Capital Group as of 06/30/2023. Values in USD. Past performance is not indicative of future results.
The other thing we know is the importance of diversification for investors. That’s why our portfolio construction process begins with diversification as a core tenet. Too much risk in any one stock or area of the market increases risk and volatility. Spreading assets around and diversifying doesn’t exactly make the market more predictable, it reduces the highs and lows. We continue to look for opportunities to enhance investment portfolios, and remain committed to keeping all clients diversified.
We are managing your investments through this but are here for you if you have any anxiety or just want to get our view on the current situation.
Read and Watch
Want deeper insight into topics in your Weekly Update? Then, read and/or right click:
Donald Trump makes uncertainty great again
Rocky U.S. stock market faces inflation data test
How tariff uncertainty is hitting U.S. businesses
China unveils big plan to fix its ailing economy and transform into a high-tech power
Looking Back
Canada's main stock index, the Toronto Stock Exchange's S&P/TSX (TSX) clawed back some of its weekly decline last Friday, as higher oil prices boosted energy shares, with the market rallying, despite domestic jobs data that undershot expectations and the latest U.S. tariff threat. Canada's unemployment rate held steady at 6.6 per cent in February, but new job additions were only slightly up and short of the 20,000 increase that analysts had forecast. For the week, the TSX was down 2.5 per cent - its biggest weekly decline since December. (4)
As you know, the Bank of Canada (BoC) cut its key policy rate by 25 basis points last Wednesday to 2.75 per cent, due to its concerns about inflationary pressures and weaker growth, stemming from trade uncertainty and President Donald Trump's tariffs. We will have to see how this move by the BoC plays out, but it will put more downward pressure on the Canadian dollar.
Major U.S. stock markets declined during what ended up as the worst week for them since early September 2024. The S&P 500 Index and Nasdaq Composite, both fell by over three per cent, while the Dow Jones Industrial Average shed 2.37 percent, almost erasing most of its year-to-date gains.
The Federal Reserve (Fed) released its Beige Book—a summary of economic conditions in each Fed region—which noted that that, although overall economic activity has rose slightly since mid-January, consumer spending was lower as prices increased moderately in most districts. Worth noting is that tariffs were mentioned 49 times in the report, and most districts reported continued uncertainty regarding the potential impacts of the Trump administration’s new policies. Last Friday, the Labor Department’s closely watched nonfarm payroll employment report revealed that the U.S. economy added 151,000 jobs in February, slightly below expectations but ahead of January’s reading of 125,000. Health care, financial activities, and transportation and warehousing saw the largest increases in employment, while federal government employment dropped the most. The U.S. unemployment rate increased to 4.1 per cent up from 4.0 per cent in January.
Unsurprisingly, given the current uncertainty, the pan-European STOXX Europe 600 Index ended 0.69 per cent lower and ended 10 weeks of gains. Uncertainty about U.S. trade policy weighed on investor sentiment. However, the prospect of increased spending on defense and infrastructure by Germany and the European Union helped to moderate losses. Other major European stock indexes posted mixed returns last week.
The performance of Japan’s stock markets was mixed last week. Uncertainty about U.S. President Donald Trump’s tariff and other policies has certainly dented global risk appetite.
Major stock markets in China advanced last week, after its government unveiled economic growth targets in line with forecasts and signaled more stimulus later this year, amid an escalating U.S. trade war. The U.S.-sparked trade war has increased expectations that the Chinese government will substantially ramp up borrowing and spending to meet its annual growth target. Boosting consumption is the government’s top priority for 2025 and the Chinese government has increased its fiscal deficit target to four per cent. (5)
The opinions expressed are those of Craig Swistun and not necessarily those of Raymond James Investment Counsel which is a subsidiary of Raymond James Ltd. Statistics and factual data and other information presented are from sources believed to be reliable, but their accuracy cannot be guaranteed. It is furnished on the basis and understanding that Raymond James is to be under no liability whatsoever in respect thereof. It is for information purposes only and is not to be construed as an offer or solicitation for the sale or purchase of securities. Raymond James advisors are not tax advisors, and we recommend that clients seek independent advice from a professional advisor on tax-related matters.
Understanding tariffs and how they can affect your finances, Advice+ team, Scotiabank, February 28, 2025
Taking stock of market uncertainty, Monica Sather, Quinlan School of Business, Loyola University of Chicago
Investment expert weighs in on stock market uncertainty, Tasmin Mahfuz, WGAL8, March 12, 2025
TSX rallies but still posts biggest weekly decline in 2025, Fergal Smith, Reuters, March 7, 2025
Global markets weekly update – Tariff fears, inflation, and growth concerns weigh on U.S. stocks, T. Rowe Price, March 7, 2025
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Looking to Learn?
If you want to know more about some of the topics we wrote about this week, just click on the links below:
Historic market volatility events and strategies to hedge investment risks
Understanding stock market volatility and how it could help you
10 Things You Should Know About Stock Market Volatility
Benefits of Holding Stocks for the Long Term
Good Things Come to Those Who Wait: An Argument for Long-term Thinking