This week with Sadiq

Reacting to Trump’s action-packed first week

January 27, 2025

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Market recap

  • Equity markets rose again this week, with little market-moving economic data having an impact. The S&P 500 rose 1.7%, led by communication services, while energy lagged.

  • The TSX rose 1.6% with gains across all sectors—technology and consumer discretionary led the pack.

  • While the S&P 500 has pushed its way back to record highs, the TSX is only about 1% shy of the mark.

Market Rally

Last week, stock markets rallied, testing record highs as investors digested the first few days of the new Trump administration. Is this surge real or just a flash in the pan? We think it’s sustainable, in large part because some of the concerns that had driven volatility1 are fading. At the beginning of the year, markets were nervous about the inflation picture and the U.S. Federal Reserve’s rate cut plans. Since then, however, we’ve seen some encouraging signs, and the presidential inauguration also went off without too many surprises—the presence of Tech CEOs seemed to reassure investors that the Magnificent Seven 7 (Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla) should be okay under the new administration. As I’ve mentioned previously, we expect some of Trump’s policies to be supportive of broader-based growth, including mid- and small-cap companies. It’s unlikely that it will be a linear trend upwards, however. Instead, we expect more of an ascending (and occasionally descending) step ladder pattern—up, then soft, then up again, then soft again. But in general, based on the data and comments we’re seeing, we do expect the overall trend to be positive.

Bottom Line: We believe the current market rally is sustainable, though it likely won’t be a straight line upward.

Tariffs

How seriously should Canadians be taking Donald Trump’s threat to impose a 25% tariff on Canadian goods on February 1? There are several factors to consider. For one, it’s worth noting that Trump didn’t mention tariffs in his actual speech—he did discuss plans for an “External Revenue Service,” but his remarks about a 25% tariff on February 1 came in the unscripted question period afterwards. It remains to be seen if the tariffs will be introduced as announced or if Trump’s Cabinet will convince him to dial them back somewhat. In our view, Trump’s real motivation is to get both Canada and Mexico to the negotiating table quickly. We continue to think that a 25% tariff on Canadian goods for a sustained period of time is unlikely. There could be a process where it starts at 25% on February 1 but is lowered—perhaps to the 10% range—in fairly short order if Trump claims a quick victory on perceived security issues at the Canadian border. Mexico will likely have a harder time since they have bigger issues on immigration and drugs. Canada is being lumped in with Mexico due to our mutual involvement in the United States-Mexico-Canada Agreement (USMCA), but we see more risk for Mexico. If Trump isn’t bluffing and significant tariffs on Canadian goods do stay in place for a sustained period of time, it would have massive consequences for Canada’s economy.

For more on the tariff situation, see the interview I did last week with Yahoo Finance.

Bottom Line: While a 25% tariff on Canadian goods is possible, we don’t expect it to stick. Instead, we think something in the 10% range is more likely in the long run.

China

The Chinese economy appears to be in a vulnerable position. There is virtually no doubt that it will be hit with new tariffs from the Trump administration, and a strong U.S. dollar—like we’re seeing right now—is bad news for Emerging Markets (EM). On the positive side, the bleeding appears to have slowed in the Chinese property market, and if tariffs come in lower than the proposed 60%, that could create some momentum. But overall, it’s hard to be too bullish on China at the moment. Several important questions still need to be answered: What kind of stimulus will the government provide? Will corporations stay in China despite pressure to return manufacturing to the United States? And when will consumer confidence rebound? Much of the negativity has already been priced into Chinese markets, so the bar to exceed expectations is low. If you’re a very patient investor, by which I mean being willing to stay invested for multiple years, then you’ll likely do well. However, our preference is to remain tactical and pivot when warranted. It’s a matter of opportunity cost: sitting in Chinese equity positions means missing out on better opportunities elsewhere. Meanwhile, dips in the Chinese market are likely to provide an opportunity to get back in at a discount.

Bottom Line: While China will likely do well in the long run, right now, we see more attractive opportunities elsewhere.

Positioning

For more insights on market risks and opportunities, explore our 2025 Investment Outlook Centre.

Insights

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Sources

1Volatility: Measures how much the price of a security, derivative, or index fluctuates.

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