What a crazy last couple of weeks in the markets! First, it was DeepSeek, then it was tariffs. Yet despite DeepSeek’s blind-siding of AI-related stocks and a worse-than-expected (at least for a few hours) scenario tabled on tariffs, at the time of writing, U.S. markets are flat year-to-date while the decline in the TSX isn’t even 1%. In last month’s year ahead commentary we suggested 2025 would be a year of higher volatility and we’ve sure started the year with some big bangs. After discussing January’s performance in the funds, this commentary will focus on the two topics clients have been asking about: tariffs and DeepSeek.
From this chair, last year’s top story was what has been coined “U.S. exceptionalism.” Catalyzed by the impact of an unprecedented amount of fiscal stimulus and ongoing ample liquidity, U.S. growth topped consensus estimates for the third straight year. Handily so for 2024, causing global investors to pile into U.S. stocks, in turn fueling a second consecutive year of >20% price gains for the S&P 500 (SPX) and a bull market in the U.S. dollar (USD). The ‘Magnificent 7’ (M7) accounted for 53% of last year’s price appreciation for the SPX (46% of total return) while the value of the equal-weighted SPX increased +13%. Price gains for Canada’s TSX totalled 17.8% (21.5% total return). This commentary will recap some highlights of last year, discuss our macro-outlook, the positioning of our funds, and the double-digit net gains of our funds.
Without doubt, the U.S. Presidential election was the catalyst for strong equity prices last month. Predictive polls were wrong once again as the race was called in President-Elect Trump’s favour early the morning after the election (Nov. 6th), and the expected too-close-to-call results became a clear Trump victory. The initial market reaction to the results featured a broad market advance lead by high beta factors and cyclical sectors, ones expected to benefit from the presumed stronger economic growth catalyzed by a Trump Presidency. The list of winners included Financials and small cap stocks while the losing side of the ledger included solar power companies, issuers dependent upon imports from China, including dollar stores, along with some housing and real estate issues.
Thanks to the relative overweight in Resource stocks in the Canadian market, the S&P TSX index was able to buck the first losing month in U.S. markets of the past six months. While the monthly decline was attributable to a rough last day of the month, arguably the negative month was not unexpected given that 32% of the worst 25 trading days in index history have occurred during the month of October. Gold continued to shine while bonds were smacked, as yields on 10-year U.S. government bonds climbed more than 50 basis points. As for our funds, the Class F Lead Series of our Multi Strategy LP advanced +1.60% net of fees, boosting its year-to-date net gain to +12.27% while the Class F Lead Series of our Long Short LP squeaked out a +0.10% net gain such that its year-to-date net stood at +12.29%. But then the U.S. election happened. Hence, post some comments on key drivers for our funds and markets during the month, we’ll offer up a few thoughts about the outlook for markets on this day after President Trump’s historic non-consecutive second term victory.