Cold As Ice

The world as we know it has undergone a profound shift over the last eight weeks. Never in modern history, have we seen such a dramatic change in trade, military, and diplomatic relations in such a short period of time and while the consequences will play out over the medium to long term, there are immediate reactions that we can see in the stock market.

Neighbours in Name Only

On March 4th, a 25% tariff on all non-energy imports and a 10% tariff on energy imports from Canada came into effect. Canada responded with retaliatory tariffs of its own; 25% on $30B worth of goods effective March 4th and 25% on $125B of goods after 21 days. After a volatile market session that very same day, Commerce Secretary Howard Lutnick hinted that there would be an immediate reprieve to the tariffs; goods covered under the USMCA trade deal would be spared tariffs by another month. For those keeping track, this is the second time in a month that we’ve had tariffs be imposed and then delayed.

What’s the point of the delay? For example, one month will never be enough time for car makers to reorient one of the most integrated supply chains in order to avoid tariffs. This is just chaos and confusion that will hurt economies, will cause job losses, and will permanently alter the close trading relationship between the two countries. By BMO’s estimates, based on the current announcements, Canada will lose 1.5% of GDP growth this year while the US will lose 0.4%. These are just numbers, however, as millions of jobs will be threatened, people’s access to goods will be disrupted and confidence in the economy will suffer. This will impact investment and spending plans which could have negative economic implications for many years ahead.

What is being asked of American companies, is that if they wish to avoid paying tariffs on goods being imported from overseas, is to produce everything in America. Is there anything controversial with promoting more domestic production? Absolutely not. That being said, it will never be the case that America can or will produce everything on its own. There are real world limitations such as labour, energy or raw materials that would make the shifting of production into America, simultaneous with tariffs and damaged trade relationships, only more costly and likely delayed. While the President has already blamed market volatility on ‘globalists’, the truth is that many investors are realizing the limitations and risk of this administration’s economic vision.

Standing on Their Own

The United States also halted deliveries of weapons to Ukraine on March 3rd and stopped sharing battlefield intelligence on March 5th. Europe, whose various leaders have been expressing their bewilderment and hurt for weeks now, is waking up to the reality that it can no longer rely on its ally for coordination and cooperation on matters like security and trade. The European Commission, under Ursula von der Leyen, unveiled an €800B plan to strengthen defense infrastructure. On the subject of defense and infrastructure, Germany’s chancellor-to-be announced two €500B funds; one for defense and the other infrastructure. He’s having to organize and mobilize a vote in Germany’s parliament within two weeks if he wishes to overcome constitutional constraints, yet markets are currently pricing in a successful effort.?

While American firms historically would have been well positioned to benefit from this uptick in spending on defense, European states are expected to funnel this new spending towards European firms. Once upon a time, European and American officials were discussing the political, economic and military risk of relying on China for the manufacturing of certain items; today Europe is seeing similar risk with America. I’ll be the first to state that Europe has a big task at hand; a combination of politics and bureaucracy has seen the region fall behind America and China on economic competitiveness while economic output and productivity has also failed to register healthy growth. That being said, if the current sentiment holds, it might be enough to bring forward meaningful change that would permanently alter the economic trajectory for the better.

Again, investors have begun to pick up on this; European indices are outperforming their North American counter parts in 2025. The year is still young and, as we’ve learned over the last eight weeks, things change quickly; those European military shares can easily drop 20% on the news of a Ukraine-US deal for example. Yet, if Europe has changed fundamentally, than we should live with this risk and strategically increase our weight in the region. This will be our work over the next few months; we will be patient buyers, we will be nimble traders and we will find the right opportunities for our clients.?

Sentiment Still Leading

The economic and geopolitical uncertainty brought upon by this drastic shift in US policy has soured investor sentiment and caused a sell-off across the market. Valuations are becoming appealing in some areas and not all stories are negative; Broadcom reported its quarterly results yesterday and was able to exceed expectations and guide above forecasts as well. Unfortunately, even after a 5% increase this morning, shares are down 18% this year because of this negative investor sentiment. While we are increasing our focus on Europe, we are not ignoring our current investments either; American markets may not be leading this year, but American firms are still leading in many industries.

It's Ok to Reach Out & Healthy Distraction

Several of our clients have taken the opportunity to call, text or email during this whirlwind week. We just wanted to say that it’s ok to do so; if you are concerned, we are here for you. While we are not about to suddenly sell everything, we are more than happy to recap what we’ve been doing in regard to your portfolios. Without further ado, time for the Healthy Distraction.

This past weekend had the Oscars ceremony, where an independent picture about a sex-worker marrying the son of a Russian oligarch, Anora, won best picture. I understand that these award ceremonies have lost some of their luster for two reasons; some see it as self indulgent and too infused with America’s culture wars while others have just changed their movie going habits and now prefer to stream at home.

I’m self avowed movie buff; it is my favorite form of media to consume and was the driving force behind me wanting to be an actor when I was young. My feelings towards the way we consume media today is that it feels transactional. Even when I’m binging a series, it’s like I’m more invested in completing the season than I am in taking in the experience. It’s why I feel constantly unfulfilled as a media consumer; I’m more focused on consuming than on what I’m consuming. Yet once upon a time, with less choice, I felt happier with the content I had at my disposition.

Maybe we’re not supposed to exclusively experience something from the convenience of our home and the comfort of our couch. Maybe an action movie is better experienced on a giant screen, with powerful speakers and in a room full of other movie-goers? Maybe a scary movie is better in a dark room, devoid of distractions like that upcoming Amazon delivery? I’m the first to admit that I can do better to support movie-going, and perhaps this is more of a confession that will encourage me to do more. But I hope that I can get though to some of you, along with myself. Support going to the movies or there may not be a movie theater to go to in the future.

Already, a part of my childhood has disappeared: Cinemas Guzzo has been placed under receivership and the chain might have to permanently close all its theaters. How many birthdays or first dates will have to take place elsewhere? How many memories will now no longer be created at all? If you cherish the moviegoing memories you have for yourself, go watch a movie in theatres so that the next generation can create and enjoy those magical moviegoing experiences for themselves!

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