March 2025 Portfolio Management Team Update

Elvis Picardo

March 27, 2025

March 2025 Portfolio Management Team Update
By Elvis Picardo, CFA®, CIM, Senior Portfolio Manager, iA Private Wealth
March 25, 2025

SUMMARY
Market Review: North American indices fell in February on mounting concerns about the impact of a global trade war. The selloff intensified into March, triggering a 10% correction in the S&P500 that wiped out $5 trillion in market capitalization by mid-month.

Outlook: After displaying significant resilience in the face of mounting risks, equity markets crumbled in the first half of March as the S&P 500 fell for four straight weeks, its longest losing streak since August 2024. Financial markets continue to be roiled by the prospects of broad tariffs imposed by the U.S. on most major economies. However, the “relief rallies” that break out on any hint that these tariffs might be delayed or diluted suggest that market participants are still somewhat optimistic that the worst-case scenario – a global recession precipitated by an all-out trade war – may be averted.

The huge risks posed by the tariffs were reflected in the OECD’s outlook report released earlier this month. The OECD predicts that the growth pace of the global economy will slow to 3.1% this year and 3.0% in 2026 as trade flows are restrained by tariffs and uncertainty weighs on business investment and consumer spending.

April is shaping up to be a pivotal month in some respects. The snap election in Canada called by Prime Minister Mark Carney for April 28 is certainly the most consequential one in decades. April 2 is President Trump’s “Liberation Day,” when he will reveal a new set of reciprocal tariffs that offset levies imposed on U.S. goods by multiple nations.

 Portfolio Strategy: As noted in last month’s update, the Portfolio Management Team (PMT) has taken specific steps in recent months to mitigate downside risk. These measures are paying off, as client portfolios have held up well in these volatile markets. While asset allocation remains neutral at the present time, the PMT will adjust asset allocation as necessitated by market conditions and the economic outlook.

Market Review
North American indices fell in February on mounting concerns about the impact of a global trade war. The selloff intensified into March, triggering a 10% correction in the S&P500 that wiped out $5 trillion in market capitalization by mid-month.

The TSX shrugged off the potential damage that could be inflicted on the Canadian economy through U.S. tariffs, with a marginal 0.55% decline in February. Gains by defensive sectors such as utilities and communication services cushioned declines in cyclical groups including financials and energy. In the U.S., the S&P 500 fell 1.4% last month, while the Dow Jones industrial Average lost 1.6% and the Nasdaq Composite retreated 4%.

In international markets, European indices added to their strong January gains. Asian indices were mixed, with major markets like Japan and India down 6% while China’s Shanghai Composite gained 2% and Hong Kong’s Hang Seng index soared 13%. Overall, the MSCI AC World Index fell 0.9% last month, paring January’s 3.2% gain.

(Sources: FactSet, Bloomberg)

Economic Outlook
After displaying significant resilience in the face of mounting risks, equity markets crumbled in the first half of March as the S&P 500 fell for four straight weeks, its longest losing streak since August 2024. Financial markets continue to be roiled by the prospects of broad tariffs imposed by the U.S. on most major economies. However, the “relief rallies” that break out on any hint that these tariffs might be delayed or diluted suggest that market participants are still somewhat optimistic that the worst-case scenario – a global recession precipitated by an all-out trade war – may be averted.

The huge risks posed by the tariffs were reflected in the Organization for Economic Cooperation and Development’s (OECD) outlook report released earlier this month. The OECD predicts that the growth pace of the global economy will slow to 3.1% this year and 3.0% in 2026 as trade flows are restrained by tariffs and uncertainty weighs on business investment and consumer spending.

The OECD forecasts that the hardest-hit nations would be the ones that are front and centre in the trade war, with Canada growing at less than half of the group’s December forecast for 2025 (0.7% vs. 2.0% – Figure 1) and Mexico tipping into recession. The U.S. would not be unscathed, with growth slowing to a meagre 1.6% in 2026. Increased costs would also keep inflation at levels above central banks’ targets in many countries, keeping monetary policy tighter for longer than expected.

Recent economic data has certainly been on the weaker side of late, with some Wall Street banks suggesting that the risk of a U.S. recession is rising. A Bloomberg report earlier this month noted that a model from JPMorgan Chase showed that the market-implied probability of an economic downturn had climbed to 31%, from 17% at end-November, while a similar model from Goldman Sachs suggested recession risk had edged up to 23%, from 14% in January.

This uncertainty is also sapping consumer sentiment in the U.S.. The Conference Board reported on March 25 that U.S. confidence fell this month to the lowest level in four years due to concerns about higher prices and the economic outlook amid the Trump administration’s escalating tariffs.

While U.S. consumers might be worried, Federal Reserve (“Fed”) chairman Powell downplayed growing risks on March 19, when the Fed announced that its benchmark federal funds rate would remain unchanged in the target range of 4.25% – 4.50%. Powell suggested that the inflationary impact of tariffs would be “transitory,” the same term used by the Fed to characterize inflation after its post-pandemic spike in 2022. As that bout of inflation proved to be anything but transitory, some market experts believe that a similar misstep by the Fed could damage its credibility.

On March 12, the Bank of Canada (“BoC”) cut its policy interest rate by 25 basis points to 2.75%, in line with expectations (Figure 2). BoC Governor Macklem said that with the Canadian economy facing a new crisis from U.S. tariffs, the BoC would proceed carefully with further rate cuts, as it would need to assess upward pressures on inflation from higher costs and downward pressure from lower demand. 

Figure 1: OECD forecasts tariff uncertainty will take toll on global growth

Figure 2: Bank of Canada cuts key interest rate

April is shaping up to be a pivotal month in some respects. The snap election in Canada called by Prime Minister Mark Carney for April 28 is certainly the most consequential one in decades. The victorious party will have the unenviable task of dealing with twin challenges – not just a bitter trade war, but unjustified questions about the nation’s sovereignty – from its mystifyingly belligerent neighbour. Current polls reflect a close contest between the Liberals and Conservatives, but regardless of who wins, we believe a stable government will go a long way towards reducing the political risk assigned to Canada because of the leadership vacuum earlier this year.

There is another key date well before April 28. April 2 is President Trump’s “Liberation Day,” when he will reveal a new set of reciprocal tariffs that offset levies imposed on U.S. goods by multiple nations. The European Union, India, and other countries are already engaged in talks with the U.S. to address grievances over trade imbalances, in a last-ditch effort to avoid tariffs.

Portfolio Strategy
With less than a week to go before this tumultuous quarter draws to a close, the TSX is outperforming the S&P 500 by more than four percentage points so far in Q1 (+2.33% vs. -1.94%, as of March 24; source: FactSet). Despite ongoing headline risks, the TSX may be benefiting from significantly lower valuations than U.S. indices, as global investors rotate out of U.S. equities (Figure 3) and into regions (such as the Eurozone) and asset classes that are relatively inexpensive.

As noted in last month’s update, the Portfolio Management Team (PMT) has taken specific steps in recent months to mitigate downside risk. These measures are paying off, as client portfolios have held up well in these volatile markets.

Our asset allocation remains neutral at the present time, as we continue to evaluate the risk-return tradeoff in a volatile and fast-changing environment. The PMT believes that market volatility will continue to remain elevated over the rest of the year and remains vigilant for opportunities and risks generated by such volatility.  The PMT believes that although client portfolios are effectively positioned at present, it will adjust asset allocation as necessitated by market conditions and the economic outlook.

Figure 3: Massive rotation from U.S. equities to other regions/asset classes

Please contact any member of the PMT if you have any questions or concerns regarding your accounts.

This information has been prepared by Elvis Picardo, who is a Portfolio Manager for iA Private Wealth Inc. and does not necessarily reflect the opinion of iA Private Wealth. The information contained in this newsletter comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any of the securities mentioned. The information contained herein may not apply to all types of investors. The Portfolio Manager can open accounts only in the provinces in which they are registered. iA Private Wealth Inc. is a member of the Canadian Investor Protection Fund and the Canadian Investment Regulatory Organization. iA Private Wealth is a trademark and business name under which iA Private Wealth Inc. operates.