Q1 2025 Market Commentary

As 2025’s first quarter ends, the market’s initial turbulence has caused mass selloffs due to uncertainty and volatility. As investors continue to fret about the next move Trump will make or the ongoing trade war, it’s critical to understand the consequences of these events and how to navigate them in a way that reduces risk and seizes opportunities.

With consistent growth and rising earnings trends, the US economy is still doing well. The S&P 500 generated total returns of over 20% in 2024 for the second consecutive year, which is a positive sign for investors outlook. With consumer spending remaining strong and the recent diversion into investments outside of North America such as Europe, we saw many of the major Indices lose momentum these past few months. With unemployment in the US at 4.1% and GDP growth at 2.7% in 2024, there remains hope from US consumers as they’re well-positioned to create positive economic activity in 2025.

With the TSX Composite’s Q1 2025 performance being down around half a percent year to date, the Canadian economy is likely going to face both internal and external challenges moving forward, such as trade tensions with the US which will be reflected in Canadian markets. With regards to the trade war, a surge in exports ahead of tariffs has partially offset a sharp decline in consumer confidence and a slowdown in business spending.

By placing high tariffs on important trading partners, President Trump has heightened trade tensions. Among the tariffs in place were 10% on imports from China, which were then raised to 20% on March 4, and 25% on imports from Canada and Mexico, with a 10% reduction on Canadian energy resources, which went into effect on February 4. These actions, which have prompted retaliatory tariffs from Canada, Mexico, and China have been justified based on national security concerns about drug trafficking and illegal immigration. For example, electricity exports to some US states were subject to a 25% surcharge from Canada which was suspended soon after due to the possibility of negotiations between Ford and Trump. By implementing these tariffs, this will negatively impact the American consumer by raising prices and reducing overall GDP. As countries continue to retaliate, the situation will only get worse as the shrinkage in GDP has the potential to heavily effect Canada as well. Trade flows have also been impacted which has led to a unity in Canada that has prompted a sense of disparity between Canadians and Americans.

In 2024, the Fed lowered interest rates three times, amounting to 100 basis points, bringing the target range down to 4.25–4.5%. This approach has worried investors as markets continue to downtrend with inflation being the largest concern. The 2% target in the US is still attainable but with ongoing conflicts, consumers remain uneasy. Domestically, the Bank of Canada lowered the policy rate to 2.75% last week. Once again, economic pressures from trade disputes and declining domestic demand are expected to drive further cuts, with the market (1) predicting cuts of up to 1 – 1.25% before year end. This dovish stance seeks to support an economy that is under strain and hopefully regain its balance while Canadians pray for stability.

More in Canada, Justin Trudeau has been replaced as prime minister by Mark Carney, a former governor of the Bank of Canada and the Bank of England. The major political change occurred when Carney was sworn in on the 14^th of March. With Trump enforcing tariffs and making controversial remarks regarding Canadian sovereignty, his leadership comes at a crucial time as Canada negotiates growing trade tensions with the US.

Although Carney has experience in central banking and should have the ability to handle these economic difficulties, there also needs to be a snap election which is coming at one of the worst times as Canada tries to deal with Trump and his unpredictable threats. The US economy is still dominated by President Trump’s policies, which include both opportunities and risks due to tariffs and regulatory changes. The concepts of deregulation and possible tax cuts are two of the administrations biggest policies, which could in the long-term provide growth, but for now the uncertainty of his actions is putting a lot of stress on the Presidents plans.

The US economy remains resilient despite many pushbacks such as DOGE and the many executive orders from Trump that threatens numerous jobs in America. Supply chain disruptions will also have a varying effect as rising wages and inflation will continue to be a grave issue. On the other hand, among the main problems facing the Canadian economy are the consequences of US tariffs, slower growth, and declining consumer confidence. Consequently, due to fewer foreign exchange inflows as investors look for higher-yielding currencies abroad, lower Canadian bond yields and a declining Canadian dollar are probably here to stay.

The significance of diversification is highlighted by the ongoing trade war and geopolitical tensions. Sectors that are less exposed to global trade, like alternative strategies, are all things we at Duane Francis Wealth Creation consider when looking at ways to preserve wealth and ensure our clients future financial goals are shielded from the ongoing tensions around the world.

Inflation, tariffs, and geopolitical unpredictability continue to be the main threats. We are continually monitoring central bank actions as interest rate decisions will have a large impact on market conditions. The North American economy will be closely monitored as growth opportunities and risks in 2025 will be the focus going forward. The US economy will continue to be resilient but with tensions and political turbulence, Canadian markets are forecasted to lag throughout 2025.

To succeed in this environment, we continue to prioritize risk management, diversification, and flexibility in response to shifting regulations. The future growth potential in the markets persists despite short-term difficulties, highlighting the significance of a patient, long-term approach to investing. The necessity of investment strategies outside of the public markets is further highlighted by the ongoing challenges faced in today’s markets. To assist you in reaching your long-term financial objectives, we at Duane Francis Wealth Creation will always be dedicated to ensuring your futures are protected.

Written by: Connor Boehme

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Posted in The Francis Forum

Q1 2025 Market Commentary

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