As the old adage says, April showers bring May flowers, and we are seeing hints of spring both outside and in the financial markets. After a rather tumultuous month, the last week of April saw the US markets end with a seven day winning streak, posting their best performance since last October. The S&P 500 recovered from a decline of nearly 14% over the first five trading days of the month to close down just 0.8% for April. The Nasdaq Composite was down more than 14% but actually closed the month with a gain of 0.9%. Papa Dow bounced back from a 13% slide to start the month to finish with a loss of just 3.2%.
While our short term indicators had us in the Yellow and Red Zones during the recent pullback, we maintained last month that longer term, we were still in the Green. However, we saw our longer term indicators finally move towards Yellow early this month, and we spent the majority of the month being defensive. In order to limit the downside risk, about 60%-70% of the equity component of our portfolios were in defensive positions such as gold, short term bonds and cash. As a result, our portfolios were decently insulated and down significantly less than the major US indices year to date. However, just as we do not expect stocks to go upward indefinitely, we also do not expect them to drop forever. Our charts indicated a rare Zweig Breadth Thrust in late April, which has historically been a consistent predictor of positive momentum amongst stocks. This movement usually signals the end of a down market, and sees trading volume pick up and the number of participants in the upswing widen. See below for an excerpt from our BMO Technical Analyst, Russ Visch, on April 30th:
“The short-term trend for equities remains positive accompanied by steady improvement in daily breadth and momentum oscillators. Both the S&P 500 and Nasdaq Composite are very near to their 50-day moving averages now and given the state of our short-term timing model a challenge of their 200-day moving averages is becoming increasingly likely. (SPX: 5746, Nasdaq: 18,328) We don't want to be guilty of putting the cart before the horse here, but the next major target/resistance level above the 200-day moving average is their all-time highs. While that may seem a bit ambitious, the S&P/TSX Composite is already well above its moving averages and while there is minor resistance at the mid-March peak (25,455) we expect that index to challenge its all-time high (25,875) at some point soon.”
We believe too, that bottoming is likely over (barring any unforeseen circumstances), and accordingly, we began to deploy the funds from gold and cash back into the equity market. It is also earnings week for US big tech, and as of writing, the markets are reacting positively to the results thus far. If the market maintains the breakout, we expect to be fully invested in a rather shorter time frame.
Of course, we are watching closely and will have tight stops on all our positions should we see the unlikely event of a “head fake” and will have to unwind. Nonetheless, we remain cautiously optimistic that a recovery is progress.
While the markets are beginning to show signs of life, there are still areas of concern with the ongoing trade war. We have, still do, maintain our position that the impact of Donald Trump’s global tariffs should be shorter term in nature, but their effects are starting to permeate into economic growth. Both the US and the Canadian economies showed negative GDP growth over the first quarter of 2025, and this is the first economic contraction the US has seen since early 2022.
Priscilla Thiagamoorthy, our Senior Economist, reported that both US manufacturing and employment plunged for a third month in a row, while costs surged in April. Commentary on the impact across various industries is below:
While not ideal, Trump has maintained that short term economic pain is to be expected, and that the result of his policies on trade will lead the US economy to a “new golden age”. While his methods have been crude and the optics haven’t been great, there is still some economic merit to levelling the playing field of global trade for the US. If you’ve read his book, “The Art of the Deal”, you would have noticed that he is, if not anything, consistently on brand with his negotiation tactics. We are already hearing that various countries have reached out to the US to negotiate new trade deals, and if and when China comes to the bargaining table, that could be the catalyst to propel markets back to their early February highs, if not higher. The sooner that happens, the less economic damage these tariffs will do, and we believe Trump is well aware of that fact. We have already seen him walk back on global tariffs by giving almost every country a 90 day reprieve, as well as softening his stance on automotive tariffs earlier this week.
It is no secret that Trump wants interest rates to decrease in the US, and while he has tried to enforce his position by threatening to fire the Chair of the Federal Reserve, Powell has consistently maintained that the US monetary policy would not be influenced by the President’s wishes. Fortunately, cooler heads have prevailed and Trump has now backed off that position advising he has no plans to remove Powell.
However, the recent economic numbers suggest that the likelihood of multiple interest rate drops in the US is becoming more and more likely. These decreases should do wonders to stimulate the financial markets, especially in sectors where companies are heavily leveraged and for small-to-mid cap stocks.
While our focus has been on the US (as that is where we have deployed the majority of funds), it is important to recognize that north of the border, we now have clarity as to who will lead us over the next couple of years. Mark Carney is the official Prime Minister of Canada, and whether you believe in his background and platform or not, his first test will be to navigate and improve US-Canada relations.
The good news is that Trump seems to have taken a liking to Carney – endorsing him during his campaign and congratulating him on his victory. A critical in-person meeting has already been proposed, and we are looking forward to potentially some reprieve or even a new free trade agreement on the horizon.
From a financial markets perspective, the TSX was relatively ho-hum on Carney’s win. However, the TSX has been relatively flat all year while all major US indices have been down. Therefore, we may look to add more Canadian equities to our asset mix as we evaluate whether the returns across the two countries will become more equalized moving forward. That said, economically, Canada remains significantly weaker than the US at the current moment, so the Liberals have a lot of work to do. Some certainty over leadership will definitely help.
As of writing, we are currently sitting at the top of the Yellow Zone in our long term indicators. After this week, we would not be surprised to be back in the Green as the markets continue to rebound. As such, we have cautiously moved back into the market with tight stops, and continue to look forward to positive catalysts related to trade and interest rates that will help sustain the rally. Should you have any questions regarding your portfolios or planning, or if you would like to meet in person or by phone or video conference, we are always pleased and ready to do so.
Regards,
John, Victor and Megan.