Tariff Headlines & Navigating Economic Uncertainty.
Good day,
In this time of unsettling front page news headlines I feel it's best to address the current investment market environment. I'll discuss the stormy headlines of today; some data points that help us wade through the murky market waters; discuss the market correction that's been anticipated since November of 2024; and provide insight on how we're keeping our positive heading while navigating the next two quarters and beyond.
As we are all aware, tariffs are the talk of the town. A major political shift in the United States has everyone on the edge of their seat. The new administration has decided to battle their country's constant overspending, immigration issues, drug epidemic, upcoming debt restructuring, and bureaucratic bloat by attacking these issues head on and with intensity. While this approach has caused immense short term stress on those that most benefit from the current system I do believe that this tidal change was necessary and long overdue. It is known that high inflation is a direct result of government overspending. In order to rein in inflation, one must experience the short term pain of austerity (less spending). These spending cuts, as well as changes to tariff policies, and reallocation of government priorities is long overdue. While the choices hurt now, I believe this fiscal seachange will usher in a prolongued period of prosperity for North America which will be felt by the affluent and the working class alike. For too long has Main Street America suffered from an inflationary environment that has outpaced their earnings while Wall Street has enjoyed safe and satisfactory returns on their investments. So too can be said for our country, and I do trust that the oversized budgets of the Canadian government will soon cease so that Canada can enjoy the peacefulness that low and stable inflation provides a nations populace.
Canadian GDP is growing modestly at 2%, currently second in the G7 behind The United States at 2.7% and ahead of the UK at 1.6%. The job market is strong, as unemployment sits comfortably at 6.6%. New large scale infrastructure projects are on the horizon and resource prices that affect the strength of Canada's metal, mining, and materials sectors are growing at a very strong pace, up over 25% in the last year alone. It's due to these strong data points that The United States wishes to increase their tariff take. The current tariff infrastructure, namely the USMCA deal which outlines the current tariff structure between the United States, Mexico, and Canada will be renegotiated in the coming year. It is only understandable for each country to want the best deal for its own nation and it will indeed be a tough negotiation. If Canada were not in such a positive position it wouldn't be the focal point of tariffs which it has now become. Demand for Canadian exports are now at an all time high of over 75 Billion Dollars and as resource development projects continue, so too will the export surplus that Canada enjoys. It will be important to watch Canadian government budget spending, as this must come down from its historic heights so inflation can return to comfortably stable levels. Should Canada decide to overstimulate the economy with oversized budget measures, I expect inflation will remain high and burdensome on family household budgets.
All markets eb and flow. Every breath in must be followed by a breath out. This is the natural occurance of all investments, and most aspects of life. For the past four years markets have been overstimulated by oversized government budget spending. A deep breath in. As this government spending now contracts, so too will asset prices in the near term. A breath out. Most equity markets have now seen a 7% correction from their most recent highs which occurred in January. I expect this correction to continue as government spending is slowly replaced by corporate capital spending. Corporate capital expenditures are expected to increase significantly in the next two quarters. Spending growth is set to continue into the back half of 2025 and beyond. This shift, from government large spending to large corporate spending, will provide long term investors with an opportunity to buy investments at good valuations in the coming months.
To summarize, the news headline bark is much louder than the reality of the market's current bite. We remain vigilant in our constant priority which is protection of client assets. Our path going forward is preplanned and based on data rather than fear. During these turbulent times it's important to keep our course, navigate choppy waters, and sail toward calm seas. We accomplish this by taking a long term view, analyzing data, and not be swayed by fear mongering news. Every storm runs out of rain and so too shall this storm pass. Clients have received an email outlining our investment thesis and objectives during this time of opportunity.
Please forward this post to anyone you've had recent discussions about investments and the current news headlines. Referrals are how Griffin Financial grows, and they are always much appreciated. Should you wish to discuss your investments in detail I'm always available via email at bob@griffinfinancial.ca. I'll be happy to schedule a time to chat with you. We can review your investment statement together, and discuss details regarding your personal financial planning. Please enjoy your week everyone.
I'll sign off with this quote below which comes to mind every time public opinion is distracted by short term views,
"Being right too soon is socially unacceptable"
- Robert A Heinlein
