Daily market snapshot

• Equities close mostly lower, with tariffs weighing on sentiment – Equity markets closed lower on Monday, as markets continue to digest the latest U.S. tariff announcement. On April 5, a 10% duty was levied on all U.S. imports except those from Canada and Mexico, which are subject to tariffs on non-USMCA compliant goods along with targeted goods such as autos, steel and aluminum. Higher levies on countries the U.S. has large trade deficits with will take effect on April 9. Over the weekend, White House officials stated that several countries have reached out to begin negotiations; however, policymakers reiterated that the additional tariffs will not be scaled back before the April 9 start date. Stocks briefly turned positive midmorning following a report that the U.S. was considering delaying tariffs by 90 days. However, reports later surfaced that these claims weren't factual, and North American equity markets responded by finishing lower, with the exception of the tech-heavy Nasdaq, which edged out a modest gain. Overseas, Asian markets were sharply lower, with Japan's Nikkei declining roughly 8% and the Hang Seng Index (Hong Kong) down by over 13%.* After opening the day lower, bond yields reversed course, finishing higher, with the 10-year U.S. Treasury yield closing around the 4.2% mark while the 10-year GoC yield rose to 3.04%.*
   
• Markets remain volatile, but diversification has provided support – The proposed tariffs pose a downside risk to U.S. economic growth, as corporations could see profit margins decline due to higher input costs, while households could be pressured by lower inflation-adjusted incomes. In response, U.S. stocks have declined sharply, with the S&P 500 18% off its mid-February all-time high after today's close. However, investors with well-diversified portfolios have fared better. Despite coming under pressure over the past several trading days, overseas stocks have outperformed U.S. stocks, while Canadian and U.S. investment-grade bonds are higher year-to-date.* We believe diversification will remain a key ingredient for investing success over the remainder of 2025. Incorporating allocations to a variety of different asset classes can help smooth periods of volatility and help investors benefit from periods of rotating leadership. 
  
  As we outlined in our recent Weekly Market Wrap, while recession risks have clearly risen, an economic downturn is not a foregone conclusion. The U.S. economy is entering this period from a position of strength, with real GDP expanding at an above-trend pace over the past two years* and household balance sheets remain healthy. Additionally, last Friday's U.S. jobs report showed that nonfarm payrolls grew by a healthy 228,000, well above expectations for a gain of 130,000.* In Canada, the economy entered 2025 with strong momentum as well, with real GDP expanding at a healthy 2.6% in the fourth quarter.* We believe investors are best served during this time by sticking with an investment strategy aligned to their financial goals as opposed to reacting to headlines.
   

• While never comfortable, volatility is a normal part of investing – As long-term investors, it's important to remember that volatility, while never comfortable, is a normal part of investing. Since 1970, the S&P 500 has declined by 20% or more from an all-time high on eight occasions.** However, in the one, six and 12 months following the day the S&P 500 first declined by 20% from an all-time high, returns were positive on average.
   

  • 1-month: The average return in the S&P 500 one month following a 20% decline from an all-time high was 4.1%.**
  • 6-month: The average return in the S&P 500 six months following a 20% decline from an all-time high was 0.7%.**
  • 12-month: The average return in the S&P 500 12 months following a 20% decline from an all-time high was 10.5%.**
     

  While there is no guarantee history will repeat itself, stocks have tended to rebound after sharp drawdowns. With the U.S. and Canadian economies entering this period from a position of strength and the potential for trade negotiations over the coming weeks to provide relief to markets, we believe investors are best served by maintaining a well-diversified portfolio aligned to their goals, as opposed to making investment decisions driven by emotion.
   

  Brock Weimer, CFA
  Investment Strategy

  ^{Source: *FactSet **FactSet, Edward Jones. S&P 500 Price Index.} 

• Equities close sharply lower as China retaliates with 34% tariffs – Equity markets extended their recent trend lower as China announced 34% tariffs on U.S. goods, starting April 10. The levies are in response to President Trump's hike of U.S. tariffs on products from China to 54%. Nasdaq and U.S. small-cap stocks are now in bear market territory. In international markets, Asia declined, led by Japan's Nikkei, which fell 2.75%, as the country will face higher-than-expected 24% duties on its exports to the U.S. Europe was lower as well, led by banks to the downside, as investors price in slower growth and lower interest rates*. The U.S. dollar advanced against major international currencies but remains down about 5% year-to-date. In commodity markets, WTI oil fell to its lowest price in four years on demand concerns and OPEC+'s production hikes*.
   
• Canada employment misses estimates, U.S. higher than expected in March – Canada employment fell by 33,000 in March, below forecasts pointing to a 22,000 rise, driving the unemployment rate slightly higher to 6.7%. U.S. total nonfarm payrolls grew by 228,000 in March, well above estimates calling for 130,000*. Figures for January and February were revised lower by 48,000, partially offsetting last month's gains. Health care and retail trade were the largest contributing sectors, adding a combined 78,000 jobs. Despite the strong job gains, the unemployment rate rose to 4.2%, as expected. Hourly earnings were up 3.8% annualized, missing forecasts calling for a 4.0% rise*. The upshot is that the labour market remained healthy going into the current trade tensions, providing growing employment and wage gains on average that are comfortably above inflation.
   
• Bond yields drop further - Bond yields were down, with the 10-year Government of Canada yield at 2.86% and the 10-year U.S. Treasury yield at 4.01%. Bond markets are pricing in expectations for four cuts to the fed funds rate this year**, well above the Fed's own "dot plot" forecast, which reflects two cuts***. Markets appear to be reflecting the view that the Fed will need to cut rates in order to support the labour market as the economy slows due to escalation in trade tensions. However, the still-low unemployment rate and job openings exceeding unemployment suggest that the Fed's maximum employment mandate is effectively met. With Personal Consumption Expenditure (PCE) inflation at 2.5%, above the 2% target, we expect the Fed to remain on hold a while longer to gain more clarity on the impact of tariffs on inflation and growth.
   

• Portfolio diversification remains critical – The potential risks to economic growth and corporate profits suggest that after falling into correction (10% decline from highs), the recovery in stocks will take a while to materialize. Patience and investment discipline will be key for investors to navigate the trade headlines, which no doubt will continue to dominate the market narrative. 
   

  Despite the headwinds, the fundamental drivers of market performance remain more supportive than harmful: 1) unemployment is low; 2) the Fed remains in a rate-cutting cycle; 3) corporate profits are still likely to rise this year, though potentially less than the 10% expected before tariffs; and 4) the policy agenda may soon shift to pro-growth measures, such as tax cuts and deregulation.  
   

  The good news for investors with balanced and diversified portfolios is that those portfolios have weathered the pullback better than those with concentrated positions in U.S. large-cap stocks. International stocks are up for the year, U.S. mid-cap stocks have outperformed, and bond prices have rallied, helping smooth out the equity-market volatility. At a sector level, industrials, technology and consumer discretionary could be more exposed to tariffs based on their heavier reliance on imports, while financials, utilities and real estate are more insulated from a trade war. 
   

  While the immediate drawdown in stock markets may be jarring, we recommend that investors stay with their long-term investment strategy, emphasizing diversification and high-quality investments. Avoid making emotionally charged investment decisions, and remember that time in the market has proven to be a better strategy over time than trying to time yourself in and out of the market. (Our Don't Fear the Bear report is a great reminder of this.)
   

Brian Therien, CFA
Investment Strategy

^{Source: *FactSet **CME FedWatch *** Federal Reserve}

• Markets are under pressure following sweeping tariffs – U.S. president Trump unveiled yesterday a sweeping new set of tariffs imposing a minimum 10% tariff on all imports coming to the U.S. that will go into effect on April 5. In addition, the new administration will impose higher reciprocal tariffs on the countries with which the U.S. has the largest trade deficits. For example, China will face a 34% rate (on top of the existing 20%), Japan a 24% levy, Vietnam a 46% rate, and European goods will be subject to a 20% duty. The individual higher tariffs will go into effect April 9. Canada and Mexico were exempt from the new reciprocal tariffs for the goods that are compliant with the USMCA (U.S.-Mexico-Canada) agreement, but duties on several goods, including aluminum, steel and autos, will remain in place. 
   

  The new actions are estimated to raise the effective U.S. rate on all imports from 2.3% last year to around 25%, the highest in at least 100 years. The new announced tariffs rates are higher than most expected and thus are triggering a broad sell-off in global equity markets. The S&P 500 fell 4.8%, the largest daily drop since 2020, and the TSX fell 3.8%, with energy and technology posting the largest declines. Government bonds saw a flight to safety. From Canada's perspective the announcement was better than feared, with the effective U.S. tariffs likely to be 8%. This suggests that the economy will likely avoid a recession, but not a growth slowdown.
   

• A trade war poses downside risks to growth that may outweigh impacts on inflation - The U.S. is less dependent on trade compared with many of its largest trading partners. However, trade uncertainty has already led to a drop in consumer confidence, and the new tariffs, which act as a tax on the consumer, will likely weigh on spending and business investment. With demand weakening, the rise in inflation will likely be smaller than the potential decrease in economic activity. Estimates based on a 2018 Federal Reserve model suggest a potential 2.4% hit to U.S. growth and a 1.4% rise in prices*. This growth-negative and inflation-positive effect is fueling investor concerns around stagflation and could possibly lead to downward revisions to corporate profits. However, that assumes that the additional revenue raised will not be recycled in the economy to support growth, and we know that pro-growth policies are also part of the administration's agenda. 
   

  In addition, we believe the Federal Reserve is more likely to step in to support softening economic growth and a potentially weaker labour market. Given the higher-than-expected magnitude of the tariff announcement, we could see the Fed cut rates potentially more than the two times outlined in its March meeting this year. While the potential for higher inflation from the proposed tariffs may give the Federal Reserve pause, we believe policymakers are likely to view tariffs as a one-off increase in prices, as opposed to an ongoing source of inflation that would de-anchor inflation expectations, though they will closely monitor the latter. Additionally, tariffs would most directly impact goods inflation, which carries a smaller weight in the consumer price index (CPI) basket compared with services inflation. 
   

• Uncertainty will linger, but negotiations may provide an off ramp – Yesterday's announcement provides some clarity on the administration’s trade framework, but it does not answer all of investors’ questions. In response to the reciprocal tariffs, some countries may choose to retaliate, while others may try to negotiate, and this process may play out over time. The announcement mentioned that the new tariffs will remain in effect until the threat posed by the trade deficit is satisfied, resolved or mitigated, which potentially opens the door to country-specific negotiations that can provide some relief. Perhaps the higher-than-feared levies represent a high point and may be negotiated down, softening the blow to global growth. If the end result is a reduction in tariffs and trade barriers that other countries impose on the U.S., it will be a long-term positive for trade. But in the near term, high uncertainty will keep market volatility elevated. 
   

• Portfolio diversification remains critical – The potential risks to economic growth and corporate profits suggest that after falling into correction (10% decline from highs), the recovery in stocks will take a while to materialize. Patience and investment discipline will be key for investors to navigate the trade headlines, which no doubt will continue to dominate the market narrative.
   

  Despite the headwinds, the fundamental drivers of market performance remain more supportive than harmful: 1) unemployment is low; 2) the Fed is remains in a rate-cutting cycle; 3) corporate profits are still likely to rise this year, though potentially less than the 10% expected before tariffs; and 4) the policy agenda may soon shift to pro-growth measures, such as tax cuts and deregulation.
   

  The good news for investors with balanced and diversified portfolios is that those portfolios have weathered the pullback better than those with concentrated positions in U.S. large-cap stocks. Overseas stocks are up for the year, value stocks and the TSX have outperformed, and bond prices have rallied, helping smooth out the equity-market volatility. At a sector level, industrials, technology and consumer discretionary could be more exposed to tariffs based on their heavier reliance on imports, while financials, utilities and real estate are more insulated from a trade war. 
   

  While the immediate drawdown in stock markets may be jarring, we recommend that investors stay with their long-term investment strategy, emphasizing diversification and quality investments. Avoid making emotionally charged investment decisions, and remember that time in the market has proven to be a better strategy over time than trying to time yourself in and out of the market.

Angelo Kourkafas, CFA
Investment Strategy

^{Source: *Bloomberg}

• Trump administration announces new tariffs: New U.S. tariffs were announced after markets closed this afternoon. The U.S. will levy reciprocal tariffs based on the combination of tariffs, trade barriers and currency interventions implemented by each country, effective April 9, with a 10% baseline, which is effective April 5. The new reciprocal tariffs do not apply to steel, aluminum, autos and auto parts, which are subject to other tariff orders. As examples, goods from China will face tariffs of 34%, and products from European Union countries will be levied at 24%. For Canada and Mexico, goods compliant with the U.S-Mexico-Canada Agreement (USMCA), will continue to be exempt from tariffs. These reciprocal tariffs will remain in effect until the administration determines that the threat posed by the trade deficit and nonreciprocal treatment is mitigated. Each country will have the opportunity to negotiate to lower their tariffs and other trade barriers in order to reduce U.S. tariffs. Stocks are down in after-hours trading on the news, with S&P 500 futures pointing to a lower open. Bond yields are down as well, with the 10-year Treasury yield falling about 5 basis points (0.05%) to 4.13%. In international markets, Europe was down, while Asia was mixed, as tariffs weighed on investor sentiment*. The U.S. dollar declined against major international currencies. In commodity markets, WTI oil traded higher, as a recent surge in Canadian crude imports to get ahead of new potential tariffs is likely not sustainable*.
   
• Employment report shows faster job growth – The ADP U.S. employment survey showed that private-sector employment (excluding government workers) grew by 155,000 in March, ahead estimates for 122,000*. Sectors with the largest gains were professional and business services (+57,000), financial activities (+57,000) and manufacturing (+21,000). February's national figure was revised upward by 7,000 as well. Annual pay rose 4.6% year-over-year.** The March employment report, known as nonfarm payrolls, to be released on Friday of this week should provide additional insight, as this report includes government workers. We believe these readings reflect a resilient labor market that should continue to provide growing employment and wage gains above inflation, which is supportive of consumer spending and the economy. 
   
• Manufacturing activity above expectations – New orders for U.S. manufactured goods grew for the second consecutive month in February, rising 0.6%, above forecasts pointing to a 0.5% increase.* Shipments grew for the fourth month in a row. Orders for durable goods were 0.97%*** higher, just ahead of estimates for a 0.9% increase. Combined with other recent data, we believe these readings point to a gradual recovery in the manufacturing sector, which should help provide broader support for the economy and the labor market.
   

Brian Therien, CFA
Investment Strategy

^{Source: *FactSet **ADP ***U.S. Census Bureau}

• Stocks finish mostly higher ahead of tariff announcement – North American equity markets finished mostly higher on Tuesday, with investors awaiting tomorrow's U.S. tariff announcement. The S&P 500 & TSX posted modest gains for the day while the Dow was little changed.* At a sector level, market leadership favoured growth-oriented sectors of the S&P 500, with communication services and consumer discretionary outperforming while health care lagged, driven by weakness in shares of Johnson & Johnson. Overseas, European markets finished mostly higher following eurozone inflation data that showed the consumer price index (CPI) rose by 2.2% year-over-year in March, down from 2.3% in the prior month.* On the economic front, U.S. JOLTS job openings for February were modestly below expectations, while the ISM Manufacturing PMI fell to from 50.3 to 49 in March. Bond yields traded lower, with the 10-year U.S. Treasury yield closing the day just below the 4.2% mark while the 10-year GoC yield fell to 2.93%.* 
   
• All eyes on April 2 tariff announcement – Tariff uncertainty has weighed on markets since mid-February, with the S&P 500 down by roughly 8% from its all-time high.* An uncertain policy backdrop makes it difficult for corporations to plan for future hiring and capital spending, and this has caused anxiety in markets. Additionally, tariffs have the potential to raise prices and could lead to slower economic growth, which has contributed to the risk-off move over the past month as well. Tomorrow could provide more clarity into the administration's plans, with President Donald Trump expected to announce the U.S. reciprocal tariff plans. In our view, April 2 will help provide clarity into the administration's approach; however, we expect uncertainty to linger over the coming months as countries respond to the U.S. levies. For investors, volatility in markets can be uncomfortable; however, diversification has showed its merit amid the uncertainty. Despite U.S. large-cap stocks finishing lower by over 4% in the first quarter, overseas developed large-cap stocks gained 7% while emerging-market stocks rose by 3%.** Additionally, Canadian large-cap stocks gained roughly 1.5%.* Maintaining a well-diversified portfolio aligned to your goals can help investors weather periods of market volatility and benefit from rotating leadership. 
   
• U.S. labour-market and manufacturing data in focus – U.S. labour-market and manufacturing data was in focus today with the release of JOLTS job openings for February and the ISM Manufacturing PMI for March. U.S. job openings fell to 7.6 million in February and were modestly below expectations. Job openings are a helpful gauge of the demand for labour, which has been strong over the past several years. In fact, despite today's modestly lower-than-expected reading, the number of job openings slightly exceeded the number of people unemployed in February, representing healthy labour-market conditions.* On the manufacturing side, the ISM Manufacturing PMI ticked lower from 50.3 to 49 in March, snapping a streak of two consecutive months of expansion. The ISM manufacturing PMI is a diffusion index where a reading above 50 represents expansion and a reading below 50 represents a contraction in manufacturing activity. Of note, the new orders component of the index fell to 45.2, the lowest reading since May 2023 and reflecting softening demand in the manufacturing sector despite certain industries reporting an uptick in orders as customers attempt to front-run tariffs. In our view, a sustained recovery in the manufacturing sector of the U.S. economy could be supportive of economic growth throughout 2025. Clarity on U.S. tariff policy and the potential for Fed rate cuts over the course of 2025 could provide support for the sector.
   

Brock Weimer, CFA
Investment Strategy

^{Source: *FactSet} 

^{**FactSet, Total return in CAD.
Overseas developed large-cap stocks represented by MSCI EAFE. 
Emerging-market stocks represented by MSCI EM.
U.S. large-cap stocks represented by S&P 500.
Canadian large-cap stocks represented by S&P/TSX Composite.}