March 12, 2025

By now, you’ve probably caught wind of the turbulence shaking up capital markets—on-again, off-again tariffs, whispers of trade wars, and even the specter of real wars.

So, what does all this mean for you and your investments? Let’s unpack it together,

What’s Happening in the Markets?

As the table below shows, markets in both Canada and the U.S. are down year-to-date, with most of the losses occurring in the last ten days, since the end of February.

Market Performance Overview:

Index/Strategy (Up to March 10)	Year-to-Date	Mth-to-Date
S&P 500	-4.30%	-5.66%
TSX Composite	-0.97%	-3.91%
iShares Core Canadian Universe Bond Index ETF (XBB)	1.70%	-0.58%
Enhanced Index 80/20	1.14%	-2.07%
Enhanced Index 65/35	0.89%	-1.71%
Canadian Momentum	-1.87%	-4.86%
Canadian High Dividend	3.29%	1.24%

The primary driver of this sell-off appears to be uncertainty stemming from U.S. President Donald Trump’s trade and tariff policies. His administration’s inconsistent approach — announcing tariffs one day and postponing them the next — has heightened fears of a prolonged trade war, unsettling investors globally. Markets dislike uncertainty, investors, especially institutional investors raise cash (by selling stocks and bonds) and markets decline to wait to see when the business environment improves.

Additionally, markets are forward-looking, pricing in expectations for months and years ahead. The more uncertainty in the future outlook, the more volatility we tend to see in the present as investors position their portfolios for further negative or positive developments.

It’s also worth noting that markets were at record highs entering 2025, with valuations stretched, particularly by the so-called “Magnificent Seven” tech stocks (Apple, Alphabet, Amazon, Meta, Microsoft, Nvidia, and Tesla). A pullback was not entirely unexpected given the elevated levels of these seven stocks.

While no one enjoys seeing declines, markets do not move up indefinitely. After two years of strong growth, some level of correction is natural when uncertainty arises.

Are We in a Recession or a Market Correction?

• Recession: By definition, a recession requires two consecutive quarters of negative GDP growth. As of Q4 2024, both Canada (+0.20%) and the U.S. (+2.30%) reported positive GDP growth, so neither economy is currently in recession.

Though projections from the Federal Reserve Bank of Atlanta’s GDPNow estimate for US Q1 2025 Real GDP growth sank to -2.4% suggesting that economic momentum is slowing. GDP is a lagging indicator, we cannot confirm a recession until months after it has begun, sometimes we are into solid recovery by the time the recession is known.

• Correction: A market correction is defined as a decline of at least 10% from recent highs. The S&P 500 is down approximately 8.5% since February 19, nearing correction territory. Meanwhile, the TSX has dropped 5.30% since January 30, indicating a milder decline in Canada.

What Are We Doing?

When markets face challenges, we take a proactive approach. Much of our work happens in advance, ensuring that portfolios are well-positioned for uncertainty.

For example, in late 2024, we reassessed our U.S. exposure within the Enhanced Index strategies. While U.S. equities had performed well in the past two years, we recognized that:

1. Valuations were high.
2. A significant concentration risk existed among the largest S&P 500 companies. As of November 2024, the ten largest stocks comprised 37% of the index, with much of the gains coming from that same small group of companies.

As a result, we maintained a fundamentally weighted index approach for U.S. equities, which has proven effective as shown below:

Index/Strategy	Year-to-Date (Mar 10)
S&P 500	-4.30%
Invesco FTSE RAFI U.S. Index ETF	-0.43%

Additionally, we will be rebalancing many of our client portfolios in the coming days. We view market pullbacks as opportunities to rebalance portfolios—selling positions that have held up well and reinvesting in undervalued areas.

While market downturns are never pleasant, they offer opportunities for disciplined investors to buy quality assets at lower prices.

What Should You Do?

1. Think long term: Market volatility can be unsettling, and seeing your portfolio decline can be difficult, but it’s important to focus on your long-term goals rather than short-term fluctuations. 

We have accounted for market fluctuations in your portfolio strategy, and as noted earlier, markets do not rise indefinitely—some level of correction is inevitable.

Markets do not go down indefinitely either. Using these fluctuations to rebalance, but staying invested, has been proven to be the best strategy historically.

1. Consider Investing: Counterintuitively, market pullbacks can be a good time to invest additional funds. If you have cash that you were considering putting into the market, now may be a good opportunity. While timing the absolute bottom is impossible, buying at a discount compared to recent months has obvious advantages.

Conclusion

If you have specific concerns about your portfolio or financial plan, please don’t hesitate to reach out to us. We’re here to provide personalized guidance and help you navigate these uncertain times with confidence.

Oh, and remember, we eat what we’re cooking…our personal portfolios are invested in the same strategies as yours. We are not “going to cash” and we do not recommend that you do that either.