THIS WEEK WITH SADIQ
Trump resets the tariff clock. Now what?
April 14 to 18, 2025
Market Update
• Prior to this week, the S&P had only seen 10%-plus corrections compressed into the span of three days in 1987, 1998, 2008 and 2020 (dating back to the 1950s).
• On the flip side, Wednesday’s massive 9.5% rally was the third largest single-day advance over that period, and the fifth largest absolute move in either direction (in a sample of almost 18,000 trading days), topped only by the extreme volatility seen during the Global Financial Crisis and 1987 crash.
• Ultimately the S&P 500 finished up 5.7%, while the TSX rose 1.7%. The S&P 500 is now down just under 9% on the year and running well below the 200-day moving average. The TSX and Europe have held up better (up 2% to down 5%), while the Nasdaq has taken the brunt of the selling (-13%).
Monthly perspectives
Equities
Fixed Income
Cash
Asset Mix
- We downgraded equities further this month, now at a modest underweight as we don’t expect a rapid easing of trade tensions while the global economic outlook is likely to cool rapidly.
- We are raising the odds of a recession to about 50% if trade tensions do not ease soon.
- Our cautious market outlook leaves us overweight of fixed income; we think the U.S. Federal Reserve (“Fed”) and Bank of Canada (BoC) would have to cut interest rates later this year if the recession brings job losses.
Canada
U.S.A.
EAFE
EM
Equity
- We downgraded U.S. equities to a modest underweight as trade tensions are spooking equity investors and negatively recalibrating the outlook of U.S. corporate earnings.
- We remain overweight of emerging Markets (EM) equities as we think China and other EMs are better positioned to navigate trade wars.
- We remain neutral on Canadian equities as we continue to think Canada is better positioned to handle Trump’s policies, helped by BoC rate cuts and some fiscal help.
IG Credit
High Yield
Duration (U.S.)
Duration (Canada)
Fixed Income
- We downgraded Canadian bond duration back to neutral as we now see greater scope for the Fed to cut its interest rates more aggressively in 2025, leaving us to prefer U.S. duration.
- We also downgraded investment-grade credit back to neutral to reflect our more cautious market outlook.
- We remain underweight of high-yield fixed income with rising odds of recession.
- We remain slightly overweight to gold as we expect macro fear to remain elevated.
Value / Yield / Quality
Size
Momentum / Growth
Volatility
Style/Factor
- We continue to expect factor rotation because of Trump policies. We downgraded small caps stocks to neutral because of the recession risk.
- We downgraded momentum and growth to underweights while upgrading low volatility to an overweight.
- We continue to expect high-quality and high-dividend companies to do well and offer a better cushion against a softer economic outlook.
Canadian Dollar
Gold
Implementation
- The long-term bull case for gold remains intact as a portfolio diversifier while trade wars are escalating, fueling the case for stagflation (rising prices with slowing economic growth).
- EM central-bank appetite for gold also continues.
- We turned bullish on the Loonie this month as the United States-Mexico- Canada (USMCA) trade agreement avoided worst case, damaging scenarios.
- We think the Canadian Dollar offers good, long-term value and could benefit from the end of U.S. exceptionalism.
Disclaimers
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Weekly Commentary
Pause
After a week of historic market volatility, President Trump ordered a halt to the majority of reciprocal tariffs while simultaneously raising duties on China to 125%. Markets responded well to the news, and U.S. and global equity indexes rose dramatically in the immediate aftermath. Even Chinese stocks were up, as the country’s importance to global trade and large holdings of U.S. Treasuries made it likely that a deal could also be reached there. Whether or not the decision was part of a long-term negotiating strategy, the result was the same: temporary calm. It is important to remember, however, that Trump only deferred higher tariffs for a period of 90 days, and in the interim, there are still 25% duties on steel, aluminium, autos and non-USMCA goods from Canada and Mexico. Tariffs are merely suspended, and we have yet to receive much certainty about the U.S.’s desired endgame. The message now from the White House is that deals will be struck with individual partners so that pressure can be consolidated against China, which has become Trump’s primary target ever since they implemented retaliatory tariffs. Despite the market giving back about half the gains the day after the pause, the week still ended off strong.
Bottom Line: The deferral of higher tariffs should not be mistaken as an end to the crisis, or even the beginning of certainty, given Trump’s record on trade negotiations.
Patience
The day before “the pause,” my colleagues and I hosted a market outlook call to discuss how investors should respond to tariffs. Our message was clear: do not go completely risk off. You certainly need to manage the downside exposure, but markets move quickly and it’s easy to get left behind by stepping too far out of equities. The next day, the S&P 500 rose by more than 10%. Our perspective has not materially changed as a result of the deferral; it is as important to now resist the excess optimism as it was to then reject the overdose of negativity. The reality is we’re facing a very unpredictable U.S. administration, and even if the tariff dispute resolves, we do not know what comes next. Will it be tax cuts and deregulation? Or will it be another geopolitical skirmish? Managing the uncertainty requires discipline, which is why we use the Five Lenses approach as a guide to ensure we are staying invested and buying the dips as opportunities arise. For example, as vulnerable as U.S. equities look right now, they will likely bounce back fastest from a resolution compared with global counterparts. A recovery would also be led by the technology sector, so while it was important for us to take some profit off the table last month, we know it’s wise to dip our toes back in now when valuations are soft.
Bottom Line: Cooler heads tend to prevail when volatility is high, and as such, we remain disciplined about staying invested, managing risk and buying the dips.
Positioning
Last Monday, we increased our equity position in Global Income and Growth and Canadian Income and Growth by adding exposure to the BMO Global Equity Fund. We had been fairly underweight, but as stated, we saw a value play after the market pullback despite the possibility of another decline. Looking at a longer-term horizon than just a few months, we simply believed valuations were too attractive to ignore. Moreover, we knew the same logic would apply if markets sunk deeper—we could easily buy more if prices fell by another five to 10%. As a complement to the straight long position on equities, we also wrote out-of-the-money put options to monetize the volatility and collect premiums while we wait for additional opportunities to reduce our underweight further. Furthermore, we crystallized gains from some hedge trades that had been in place the week prior, namely put options on the S&P 500 and Nasdaq indices. We will likely restore these hedges once the current optimism has run its course, as uncertainty and unpredictability are not going anyway anytime soon.
Bottom line: Tactically, we closed several positions that hedged our exposure to the U.S. stock market in order to dip our toes back into global equities.