This commentary was written prior to the release of the tariff news of the U.S. Yet, as the numbers equated to a ‘left tail risk’ event, we’ll start with this addendum to our monthly note below this paragraph. Given the irrational formula for these announced tariffs of America’s trade deficit with a country divided by its total imports from that country then, get this, divided by two, it’s clear that President Trump merely assesses tariffs as a blunt instrument enabling him to force other countries to do whatever he wants them to do. Who knows what the future will bring, be it Trump walking them back or reciprocal tariffs by targeted countries on areas that could include the service revenue of the M7. Yet, two things are clear.
Similar to the grade 12 student beating up on the seventh grader, at the time of writing this note on March 2nd and despite the reality that many of his facts are wrong, President Trump appears intent on picking on Canada and sowing uncertainty. Aside from “the Donald being the Donald”, this note will table one possible reason for these actions but first let’s wrap up the month in markets and the performance of our funds.
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.