So, when do we get the good stuff? Back in November, equity markets celebrated the election results with President Trump and the Republican party sweeping Washington. At the time, this was cheered, as it was going to unlock growth throughout the U.S. and global markets. Taxes were expected to be cut and needless regulations slashed, all in an effort to spur growth.
However, a few months into this new presidency, the opposite has occurred. Markets are coming to understand this new reality, and no one is celebrating anymore.
As we entered the year, the risk/reward for equity markets was already challenging. After two years of strong performance, valuations had risen to the high end of historical ranges. For markets to move higher, it was all going to come down to earnings growth.
The year started off well, with risk assets moving higher. However, after increasingly negative headlines and policies coming from Washington increased investor anxiety, the tone has taken a negative turn.
The upcoming earnings season is going to be telling and will provide a hint at the market’s path forward. Economic measures are slowing, and inflation looks to be ticking higher. Fears of stagflation are mounting. This is adding to uncertainty, which we know markets tend to hate.
With this as the backdrop, consumer spending has begun to slow throughout North America, and corporations are scaling back or pausing capital expenditure programs until they get a better read on macroeconomic conditions. It’s unlikely that management teams will go out on a limb and announce positive guidance when they report, and that is beginning to be reflected in share prices.
With U.S. markets negative to start the year, and many of the winners from last year down double digits, the question that is increasingly being asked is, “Where is the Trump Put?” Given most of the uncertainty is self-inflicted and a direct result of policy, it’s something that can be reversed with a social media post.
Yet, to the surprise of many, this pivot doesn’t appear to be something we can expect in the near term. Tariffs continue to be increased, and historic trading relationships are increasingly being strained. As much the President loved to cite how well the stock market performed during his first term, he doesn’t seem as focused on it this time around.
Or is this all part of the plan? Given the tight timeframe before the mid-term elections, what if the plan was simply to get the bad news over with first? The U.S. fiscal situation is a mess, and they desperately need new sources of revenue before they contemplate tax cuts.
If that’s the case, maybe we are closer to “peak tariff.” Some readings of investor sentiment are already at levels normally reserved for the depths of a financial crisis. If you ever wanted a contrarian indicator, this may be it.
So far, the only asset class that is enjoying 2025 is precious metals. After having its use case questioned over the last decade, gold is proving its worth as a diversifier in portfolios and enjoying one of its best runs to all-time high prices. But where does it go from here?
At the end of the day, this is an insurance policy, and it’s important to cash that in when it occurs. No need at this time to eliminate gold, but trimming may be prudent, as a pivot from Washington towards growth could be very negative for gold prices if it’s used to fund purchases of “risk-on” assets.
There’s no debate: things are feeling negative. But when you get sentiment readings like we have now, it’s usually not the time to run away. The saying goes, “The stock market is the only store where customers run away when things go on sale.”
The market seems primed for more volatility in the coming months as Trump’s policies are put to the test. This will provide longer-term investors an opportunity to enter into positions at attractive levels, and this is the time to get that shopping list ready. The pivot is coming. April is usually one of the seasonally strongest months, and as much as it’s important to protect against the downside, catching the upside is just as key.
— Greg Taylor, CFA, is the Chief Investment Officer of Purpose Investments
All data sourced from Bloomberg unless otherwise noted.
"By the numbers" displays the total returns for the month of March 2025.
The content of this document is for informational purposes only and is not being provided in the context of an offering of any securities described herein, nor is it a recommendation or solicitation to buy, hold or sell any security. The information is not investment advice, nor is it tailored to the needs or circumstances of any investor. Information contained in this document is not, and under no circumstances is it to be construed as, an offering memorandum, prospectus, advertisement or public offering of securities. No securities commission or similar regulatory authority has reviewed this document, and any representation to the contrary is an offence. Information contained in this document is believed to be accurate and reliable; however, we cannot guarantee that it is complete or current at all times. The information provided is subject to change without notice.
Commissions, trailing commissions, management fees and expenses all may be associated with investment funds. Please read the prospectus before investing. If the securities are purchased or sold on a stock exchange, you may pay more or receive less than the current net asset value. Investment funds are not guaranteed, their values change frequently, and past performance may not be repeated. Certain statements in this document are forward-looking. Forward-looking statements (“FLS”) are statements that are predictive in nature, depend on or refer to future events or conditions, or that include words such as “may,” “will,” “should,” “could,” “expect,” “anticipate,” intend,” “plan,” “believe,” “estimate” or other similar expressions. Statements that look forward in time or include anything other than historical information are subject to risks and uncertainties, and actual results, actions or events could differ materially from those set forth in the FLS. FLS are not guarantees of future performance and are, by their nature, based on numerous assumptions. Although the FLS contained in this document are based upon what Purpose Investments and the portfolio manager believe to be reasonable assumptions, Purpose Investments and the portfolio manager cannot assure that actual results will be consistent with these FLS. The reader is cautioned to consider the FLS carefully and not to place undue reliance on the FLS. Unless required by applicable law, it is not undertaken, and specifically disclaimed, that there is any intention or obligation to update or revise FLS, whether as a result of new information, future events or otherwise.