April 9, 2025

Finding opportunity amid trade war uncertainty

Investor sentiment turned cautious in the first quarter of 2025, as markets faced heightened uncertainty stemming from significant shifts in U.S. trade policy. These changes, driven by the return of President Trump, led to increased volatility in North American markets, testing investor resilience. While the S&P/TSX Composite Index posted modest gains, the S&P 500 underperformed. In contrast, developed European markets significantly outperformed, benefiting from a rotation away from U.S. equities toward Europe. This shift reflected investors' perception of stronger global growth potential and Europe's relatively attractive valuations compared to U.S. equities. 

 

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The return of President Trump and his abrupt shift in U.S. trade policy toward longstanding trade partners — most notably Canada, Mexico and China — had a considerable impact on equity and bond performance. The unpredictable nature of these tariffs, particularly those targeting Canada, created volatility in equity markets as investors grappled with “on-again, off-again” announcements and hastily introduced sector-specific carve-outs. This uncertainty, coupled with the risk of escalating reciprocal trade tariffs, weighed heavily on the S&P 500, potentially impacting earnings growth.

Despite the challenges posed by trade disruptions, the market still expects year-over-year earnings growth to remain in the low- to mid-teens. The strength in manufacturing provides a glimmer of hope. Although the U.S. administration's initial deregulation efforts offered some early support to the market, this was quickly overshadowed by rising trade tensions.

“Diversification across sectors, asset classes and geographical regions, and remaining focused on the long term will be key to weathering short-term turbulence.”  Philip Petursson

Looking ahead, we remain optimistic, despite recent market volatility and lingering uncertainties. While U.S. equities have faced challenges, including a pullback from February highs and sensitivity to tariff concerns, other regions, such as Canada, Europe and emerging markets, offer compelling opportunities. These regions have shown resilience, supported by stronger fundamentals and more attractive valuations compared to U.S. markets.  

Ongoing volatility, driven by evolving and unpredictable U.S. trade policies, has created uncertainty in global markets. Diversification across sectors, asset classes and geographical regions, and remaining focused on the long term will be key to weathering short-term turbulence.  

Find out more in our 2025 First Quarter Market Review and stay up to date on the latest market trends with our weekly market commentary.

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