Market Factors: Where Canadian investors have been hiding from tariffs

Is everyone feeling liberated yet? Liberated from the post-war global trading system, financial market stability, economic convention and basic common sense, perhaps. This is investment reporter Tim Shufelt and today we’re scouring for pockets of the market offering some shelter from the mayhem. Then we’ll consider the “radical uncertainty” that is the hallmark of Donald Trump’s brand of leadership.

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SHEER CHAOS

Financial markets rocked by tariffs

It’s been a week since the poorly named “Liberation Day” kicked off a face-melter of a market selloff. In the four trading days that followed, the S&P 500 lost 12 per cent over the very real prospect of a doom spiral dragging the global economy into a tariff-induced recession. Then Trump folded in the face of intense financial market pressure and paused most of his bonkers “reciprocal” tariffs hours after they went into effect, setting off a monster stock rally in afternoon trading. With trillions being erased and made back in the blink of an eye, lots of investors are yearning for stability in a world that has very little of it. So let’s consider safe havens. What has been holding up in the madness?

Nothing

Virtually no market or asset class has been spared. Since Donald Trump’s dystopian tariff gameshow in the Rose Garden last week, every single stock in the S&P/TSX Composite Index declined. Up to Tuesday’s close, all 218 stocks in Canada’s benchmark index were down, ranging from -0.2 per cent for Kinaxis Inc. to -35 per cent for Baytex Energy Corp.

Looking globally, every major stock index in the world was nursing losses. Turkish stocks seemed to fare the best with a 3 per cent decline, after the country was hit with just the baseline 10-per-cent tariff on its exports to the U.S. Meanwhile, the 15-per-cent drop in the Ho Chi Minh Stock Index reflected the severity of the 46 per cent tariff Trump (briefly) slapped on Vietnam.

The carnage went well beyond stocks. Traditional safe havens offered no respite, with the U.S. dollar sliding against a basket of global currencies. Even U.S. Treasuries got smoked as investors seemed to retreat from everything America.

Naturally, commodities have also been among the casualties, given how correlated they are to the global economy and trade. Industrial metals, energy, and agricultural commodities have been steeped in negativity. West Texas Intermediate, which was trading as high as US$80 a barrel in January, dropped to its lowest level in four years at around US$57 a barrel, before bouncing back to US$63 on Wednesday afternoon.

And if penguins were somehow investible, then they would probably be selling off, too.

So, we’re left to look for the cleanest dirty shirts.

Widows and orphans

Utilities stocks tend to keep their composure at times like this. “As regulated monopolies whose rates are set by public utilities commissions, these stocks are generally less volatile than the broader market,” John Heinzl writes in The Globe.

Plus, their generous dividends become more attractive as interest rates fall. So it makes sense that utilities have been some of the best performers on the TSX in the last week. Hydro One Ltd., Emera Inc., Fortis Inc. and ATCO Ltd. have experienced losses of less than 5 per cent up to Tuesday’s close, compared to the double-digit losses in the broader Canadian market.

Grocers

Consumer staples is another sector well-suited for times of economic uncertainty, since households have less flexibility in cutting back on these purchases when times are tight. Plus, inflation may be picking up again and we’ve all seen how well these chains can do in an inflationary environment. That’s pricing power for you. Loblaw Companies Ltd., Metro Inc., George Weston Ltd. and Empire Company Ltd. have all declined in the past week, but by less than half the pace of the S&P/TSX Composite Index.

Gold

Gold stocks have been the runaway sector of the year with 18 of the top 20 performers within the S&P/TSX Composite Index so far. No secret what the driver is here, with gold futures soaring above US$3,000 per ounce for the first time. Canadian miners also get a boost when the loonie is weak, since they sell what they produce in U.S. dollars, while paying costs in Canadian dollars. A number of gold miners have also weathered the past week well, with Lundin Gold Inc., Wesdome Gold Mines Ltd., Dundee Precious Metals Inc. and Agnico Eagle Mines Ltd. outperforming the market handily.

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VOLATILITY

Welcome to a world of radical uncertainty

When the S&P 500 index can rise by 9 per cent in a matter of minutes, as it has done twice this week so far, you know we’re outside the bounds of what investors have come to expect from the world’s largest stock market.

Some have used the word “uninvestable” to describe the stock market in this moment. Consider the wild swings over the past week in shares of Nike Inc., which is the world’s largest supplier of athletic shoes and clothing. When Trump announced tariffs of 46 per cent on imports from Vietnam, where about half of all Nike shoes are made, the company’s stock fell by nearly 15 per cent in one day. Then on Wednesday, as those same tariffs were paused for 90 days, Nike shot up by 11 per cent.

“That kind of volatility is a defining symptom of radical uncertainty, a state of affairs where no one has any conviction about what anything might be worth, or even about what they don’t know,” Felix Salmon writes for Axios.

Radical uncertainty makes it so risk can’t even really be modelled since the range of outcomes is unknown. This is life in Trumpworld and it has specific implications for investors, Salmon says:

• Overall valuations are lower, as investors demand a risk premium for risks they can’t even name, let alone model.
• Volatility becomes a permanent feature of the market, rather than a temporary aberration.
• Cash allocations rise, as investors wait for that volatility to throw up investing opportunities.

The essentials

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Globe Investor highlights

What do you do with your investments when stock and bond markets are in disarray? N-o-t-h-i-n-g, advises Rob Carrick.

If your adviser is telling you to delay retirement because of market volatility, then maybe you need a new adviser? Meera Raman explains that periods of turbulence are a great moment to stress test your retirement plan. And it’s important that advisers design retirement plans to withstand market swings, which are unpleasant but not uncommon.

Reuters offered a round-up of market pros reacting to the tariff reprieve. “It’s beginning to look like this thing has been all about China,” said Tom Bruce of Tanglewood Wealth Management.

What’s up next

U.S. CPI inflation data for March is due out on Thursday morning. It’s probably still too early to expect tariffs to show up in the form of higher final consumer prices. But combined with data on producer prices expected Friday, we should get a hint of whether inflation is starting to build. A more definitive signal is likely to come from the University of Michigan survey of consumer sentiment expected on Friday. U.S. confidence indicators have plummeted the last few months and there’s no reason to expect this instalment of the survey will be any different. It will also show where respondents expect inflation is headed. Those expectations have taken a sharp upward turn of late, which can be a prelude to higher prices showing up in the hard data.

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