Larry Berman CFA, CMT, CTA A Comment -- General Comments From an Expert A Commentary COMMENT Apr 21, 2025

We're through the worst of it. It may go lower, but the downward curve will level off. He's recommending that clients gradually accumulate over the next few months. Have we seen the bottom? Maybe, maybe not, but we're close. 

Trump's behaviour is not predictable, but it is predictable in a longer-term sense. He makes all kinds of noise, and then settles for something that's quite reasonable. We saw that with the USMCA.

He had a few investors take assets out of the market earlier, which turned out to be a good move for them. But in his experience, it's better to have time in the market and not try to time the market. Timing involves two decisions -- when to get out and when to get back in. It's a difficult call, and you can miss the bottom.

Definitely overhanging the market and causing a lot of uncertainty. Indicates that he may be flexible to negotiating with other countries. We need to see some progress and definitive news on his trade deals.

Business confidence and consumer confidence have plummeted because no one knows what's going to happen. When confidence is low, businesses wait to do anything. They're sitting on their hands, which usually leads to less growth and less hiring, becoming headwinds to the economy.

Concerns there are also causing the pullback today. The Fed is supposed to be an independent organization. We don't know if legally Trump can fire the Fed Reserve chair; there's debate about what is "cause". 

Fed Chair Powell knows that these tariffs are creating uncertainty. They also typically increase costs. Imports become more expensive, companies try to pass those increases along to the consumer, higher prices are the result, and demand may actually slow. Monetary policy is not actually that effective in a stagflation-type of environment of a slowing economy but higher prices. Powell wants to wait and see.

Eventually if prices do go up because of tariffs, then the economic data will show slowing and the central banks will have to cut. In Canada, we saw a pause last week as well, after cutting for 7 consecutive times, as the BOC also wants to wait and see. Canada's economy is on a weaker footing than that of the US; here, unemployment is much higher.

Consensus is that all central banks will continue to cut rates later on in the year.

Our unemployment rate has gone up quite a bit, now at 6.7%, and that's why the BOC has cut aggressively since June 2024. That's why our rates are much lower than in the US. In the US the economy has been quite resilient, with unemployment at 4.2%.

A diversified portfolio should have exposure to US banks, as the US is such an important economy. She tends to focus on large-cap banks. She expects consolidation in regional banks. Sector would benefit from potential deregulation and increased M&A. We'll have to wait and see how tariffs affect all the Trump pro-business hopes for the sector.

Most large caps reported last week, and results were quite good. But that was before all the tariff turmoil. Strong trading activity in Q1. Banks have pulled back on tariff uncertainty, slowing economy, greater loan loss provisions. See her Top Picks.

An analyst produced a chart showing all headwinds to the US economy are related to tariffs; he predicts a 90% change of recession, caused by tariffs. During Trump I, his tariffs were up 2-3% and the economic impact was -0.25% to -0.33%, but the current tariffs are way larger, so he predicts a -4% GDP impact. Also, earnings will be downgraded constantly for 6 months, leading to 4,200-4,800 fair value on the S&P. More downside will come. Further, it takes 18 months to sign a trade deal and 45 months to implement on an historical average. This will matter in the US midterms elections when Congress has had enough of this and the Republicans fear losing control. Small businesses make up 85% of capex and 75% of the labour force; sentiment skyrocketed after the election, but plunged last month when tariffs hit. Small business is the heart of the American economy. Trump has to start talking about lower taxes and regulation.