I hope you took the time to read the most recent update on the tariff fight written by Alfred Lee, our Deputy Chief Investment Officer. If you missed it, you should go read it here
The following are our added comments and are meant to act as a companion to Alfred’s more technical post.
You are, undoubtedly, hearing and reading and watching countless pieces of information about tariffs being imposed on Canada (and Mexico too) and it has got you feeling a bunch of different things. For me I’m feeling a mix of anger, confusion, pride and worry. The Wall Street Journal summed up how most everyone outside of President Trump’s circle thinks with this scathing Op-Ed last week.
The question on your mind right now is probably some version of; “Should we reduce exposure to stocks and raise some cash?”
The answer depends upon whether you believe in crystal balls or not. I, like everyone else, am not very good at predicting the immediate future. I, like everyone else, have no idea what fresh new thing will come out of the mouth of President Trump in relation to trade between the US and Canada or any other country. I’m not certain he knows what comes next sometimes.
What I can tell you is that this shall pass. Markets are volatile in short periods because they are driven by the emotions of people. Markets are much more stable and predictable over long periods because the long arc of humanity bends towards improvement and progress. As normal humans, our emotions get in the way sometimes.
I’ve thought about the long history of stock markets and especially the last 15 years where the US stock market has outperformed international stock markets since April of 2009. It’s not always like this though. Some decades the US beat Europe or Asia and other decades the reverse happens.
There are plenty of good reasons why the US Market has dominated over the past 15 years and it seems wild to suggest that these reasons won’t continue to lead to better returns going forward. It seemed just as outlandish in the early 1990s to suggest that maybe Japanese stocks weren’t going to boom forever. What worked was to be diversified. To own stocks in other parts of the world that didn’t seem like they would ever beat the colossus that was Japan.
Is Trump’s rhetoric and trade policy the impetus for the market leadership to change? I don’t know but it seems plausible. As a proud Canadian I hope it is the cold shower to our political and business leaders have needed for far too long. For Canadians to get more serious about fixing our problems and to work to broaden our economy. Germany has taken it very seriously as they recently ended their Schuldenbremse policy; or debt brake, to support their economy but also their efforts to support Ukraine in its fight against Russian aggression.
Nobel laureate, Harry Markowitz once said “Diversification is the only free lunch in investing” and that is absolutely true. We will continue to build and manage your portfolios with this as the bedrock of everything. We will continue to build and manage your portfolios towards the goals that are matter to you. I don’t know what will happen to markets through this period of trade turmoil but I do know the path through will be with a diverse portfolio and a whole lot of patience.
